Previously the Old Age Security (OAS) benefits were automatically paid to eligible recipients when they reached 65 years of age. In 2013 the government gave recipients the option of deferring these payments for up to 5 years. This results in an increase in the monthly benefit eventually received. If a Canadian defers these payments for the full 5 years then at age 70 they will receive a monthly benefit with an increase of 36%.
However making the decision to postpone OAS payments is not always so easy. It differs from individual to individual depending on their unique requirements.
Here are some things to keep in mind if you’re thinking about when you should start receiving OAS benefits.
Sources of Income
What sources of income will you have when you turn 65? If you continue to work after 65, it’s very possible that your income could support your lifestyle. In that case you might choose to defer OAS benefits.
Similarly, you could also postpone these payments if you start receiving benefits from an employer-sponsored pension plan.
Canada Pension Plan Benefits
Anyone who is eligible for Canada Pension Plan (CPP) benefits can receive these payments as early as 60 years of age. Just like the Old Age Security benefits, these payments can also be deferred till 70 years of age. This again results in an increased benefit when the payments are eventually received.
As with other sources of income, individuals who are eligible for both OAS and CPP benefits should consider the tax implications of postponing or accelerating these payments when they are structuring their retirement income.
Private Retirement Savings via RRSP
The Registered Retirement Savings Plan (RRSP) allows employees to save for retirement especially if they don’t have an employer-sponsored pension plan. Although individuals can withdraw amounts from this plan at any time, RRSP’s need to be collapsed by age 71.
If you have considerable savings in RRSP’s and you’re deciding when to receive Old Age Security benefits, then keep in mind that you will have an additional source of taxable income for each year after you turn 71.
Deferring Old Age Security payments definitely provides you with some flexibility when structuring retirement income. However this flexibility goes hand in hand with increased complexity in structuring that income. All sources of income along with their timings need to be considered and none of these can be considered in isolation from the other.