Old Age Security and the Canada Pension Plan—Retirement Planning in Canada in Brief
When it comes to retirement talks in Canada, a lot usually gets said about two plans—Old Age Security (OAS) and the Canada Pension Plan (CPP). Social media often buzzes with rumors that retirement age may be raised to 67 or that hefty cuts may come upon pensioners. What is true is that the age for OAS remains firmly at 65 until 2025, with applications to the CPP accepted between 60 and 70, depending on when one wishes to start receiving it. The amount really depends upon the age of the pensioner—the monthly amount being less if taken earlier and much enhanced if taken later.
As a side note, both plans are periodically adjusted for inflation to sustain the value of the benefits.
What is OAS and When Does Payment Start?
Old Age Security (OAS) is paid by the government, commencing typically at the age of 65. It is not based upon your job contributions but rather on the number of years you have lived in Canada. You may also defer payments until age 70.
The benefit of deferring this program is that your monthly amount is increased by 0.6 percent for every month of deferral. Hence, the deferral for the entire five years from age 65 to age 70 will approximately increase your monthly amount by 36 percent.
A Simple Example
Assuming your low OAS estimate at age 65 was $700 per month, then by waiting until age 70 payments commence, the 36 percent increase would approximate $952 per month. That is about $252 more each month, a significant increase when carried forward for your lifetime.
What is CPP and When to Start?
Canada Pension Plan (CPP) funds are earned under law from the client account and deducted from monthly paychecks of every working citizen in Canada. You can take the money for which you are entitled any time from the age of 60 up to 70.
The higher the payment received monthly, the longer it is delayed. The rate of further increase is about 0.7 percent per month until age 70, capping off at about 42 percent.
If you decide to start before 65, say at age 60, your benefits will be permanently reduced.
A Simple Example
Let’s assume your monthly CPP amount is $1,000 at 65. If it starts at 70, the 42 percent increase will be $1,420 a month.
But if it starts at 60, that discount can be significant and much lower than at 65, and it can greatly affect the overall value you have received over the years.
Rumor Vs. Truth: The ’65 Retirement Age Revoked’ Confusion
Many keep asking, Can someone still retire at 65?
Short answer: Yes. The present OAS eligibility age stands at 65, and no official announcement has been made to shift it until 2025. Similarly, the flexibility with CPP is that one may commence it between the ages of 60 and 70, based on one’s choice. The rumors that have circulated of “age raised to 67” or “sudden pension cuts” are nothing but rumors. When looking for authentic information, always refer to the CRA and official government resources, never to social media posts.
Inflation Protection: OAS–CPP Indexed
Nothing scares a retiree more than having to survive on an income that is lagging behind inflation. Thankfully, both OAS and CPP are inflation-indexed benefits, i.e., they are adjusted based on inflation from time to time.
This adjustment aims to preserve the real purchasing power of your benefits. Furthermore, there is also a Guaranteed Income Supplement (GIS) provided for low-income seniors, so they can manage their basic needs better.
When to Defer and When Not: The Practical Approach
When to Defer:
OAS–CPP deferral will certainly mean better monthly benefits in the long run if you’re healthy, your family has a background of longevity, and your other income sources allow you to wait till 70.
When Not to Defer:
If at 60 or 65 you have an urgent need for cash flow, your health does not allow you to wait longer, or your job is providing less income, this is when you should consider starting early.
In terms of tax implications:
OAS and CPP are taxable as income. If supplementary income amounts to a considerable value, deferring pensions may constitute better tax planning.
On the other hand, if you are on low income, early cashing may be a good move. Depending on your situation, a tax advisor could assist.
It Is Possible to Get Benefits While Working
Many keep working after 65 years of age, either in part-time jobs or consulting roles.
When working, you may still collect OAS and CPP.
If you are below 65 years of age and working under CPP, contributions will still be made, and this can marginally increase your future benefits.
This option gives you a chance to earn income and maintain your lifestyle at the same time.
Application and Timeline: Step by Step
- Step 1: Consider your age and whether you wish to start receiving income at 65 or defer your pension until 70.
- Step 2: Create or update your My Service Canada Account for convenience in making an application.
- Step 3: Have your documents pertaining to ID, residence, and work history ready.
- Step 4: Make sure to apply for OAS/CPP a few months in advance so that you may receive your payment on schedule.
- Step 5: Find out your taxes along with your estimated income and see what age, net (taxes included), helps you most.
Two Hypothetical Examples
Reena, age 66:
She has a really good savings base and is working part-time. She is going to defer both OAS and CPP until 70. The monthly amounts will be higher after 36% and 42% increases, which will benefit her later in life.
Manjeet, age 60:
Manjeet just left his job and needs immediate income. He is starting on his CPP at 60 and OAS at 65.
This way, he is getting some money now, although the amount per month is relatively lower. For him, this balance works really well.
Most FAQ with Easy Answers
Question: Is the retirement age still at 65?
Answer: Yes, OAS starts at age 65, and it can be deferred until 70 to receive a higher amount. CPP can be started any time between 60 and 70.
Question: How beneficial is it to delay?
Answer: OAS increases 0.6% each month, up to a potential 36% by 70. CPP increases 0.7% each month, up to a maximum of 42% by age 70.
Question: Is the official OAS age being raised to 67?
Answer: No, there will be no such change announced officially till 2025. Thus, it should be regarded as a rumor.
Question: Can you receive them while working?
Answer: Yes, benefits can be had while working. Contributions under CPP can still be made up to age 65, which slightly increases future benefits.
Question: Are OAS and CPP taxable?
Answer: Yes, both are considered taxable income. Consider your total income when planning for your tax year.
Conclusion
In fact, there is no real concept of “retiring at 65”. It’s essentially about timing—your health, income, tax situation, and family needs should all be weighed in deciding when to start OAS/CPP. If the decision is to defer, the amount will be increased monthly during that period, while early withdrawal gives immediate cash—both have merits. Most importantly, however, is to seek information from the CRA and official government sources, for they provide accurate and up-to-date updates. This way, you can stay away from rumors and wisely plan for a secure and comfortable retirement