Old Age Security – a Few Considerations

Often when clients are approaching retirement, we get the question, “Should I defer Old Age Security (OAS) or automatically take it at 65?” The quick answer is, it depends on a number of factors, which we will deal with below. This question can also be applied to the Canada Pension Plan as well as a defined benefit pension plan. For the purposes of simplicity, we will be applying this analysis only to OAS. Let’s take a quick look at the Plan’s history and the conditions necessary in order to qualify for this government benefit.

The first version of Old Age Security was launched in 1927 and was originally called the Old Age Pensions Act. It was designed to provide financial relief to low- or no-income Canadians aged 70 and older. Historically, while the government applied modifications to the Plan several times over the years, it remained generally unpopular amongst Canadians due to its narrow qualification requirements and tight restrictions, which rendered the program difficult to access. Today, however, things are much different. Below are the current requirements for qualification.

Reside in Canada for 40 years, between the ages of 18 and 65 and:

If you are living in Canada, you must:
■  be 65 years old or older
■  be a Canadian citizen or a legal resident at the time the government approves your OAS pension application
■  have resided in Canada for at least 10 years since the age of 18

If you are living outside Canada, you must:
■  be 65 years old or older
■  have been a Canadian citizen or a legal resident of Canada on the day before you left Canada
■  have resided in Canada for at least 20 years since the age of 18

When it comes time to draw on your benefit, there are some considerations that are important. Health – A shorter life expectancy may alter your decision to defer.

Finances – You may need to defer receipt of the benefit in order to achieve a necessary income level. Each month you defer your benefit you receive a 0.6% per month bonus to the lifetime benefit.

Retirement Plans – Have you completed a holistic financial plan to understand the various implications of deferring your benefit?

Work Status – How long will you work? Your income level can have an impact on your OAS Benefit due to the income-based claw back aspect (claw back starts at $81,761 for 2022) and increased taxation.

The Numbers – At age 65, the current full entitlement is $666.83. If you defer your benefit for the full 5 years, you would receive $906.89. The calculation is as follows: 0.6% bonus per month for 5 years equals a 36% increase. When we apply this bonus to our benefit: $666.83 x 1.36 = $906.89/mo. Also note there is an increase to the Old Age Security (OAS) pension by 10% for seniors 75 years of age and over as of July 2022 which brings the max to $733.51.

These are just a few of the considerations to take into account when analyzing your OAS benefit; they should be discussed with your Financial Advisor as well. ■