Will You Start Receiving Your Old Age Security Benefits At Age 67… Or 72?
On March 29, 2012, the Government of Canada announced important changes to the Old Age Security (OAS) program. These measures are in response to the consistent growth in the cost of the program. If you were born after March 31, 1958, the proposed changes may limit your OAS benefits.
The first measure announced concerns eligibility to OAS benefits. For individuals born on or after February 1, 1962, the age of eligibility for the OAS is increased to age 67. However, individuals born before April 1, 1958 will still start receiving their OAS at age 65. If you were born between these two dates, the table below indicates at what age you are entitled to the OAS.
Age of eligibility for the Old Age Security program
In addition, given that the Guaranteed Income Supplement (GIS) is only paid to OAS recipients with low incomes, GIS payments will also be postponed.
Investors whose age of eligibility has been increased from 65 to 67 must plan on replacing the OAS benefits they expected to receive during this period. The net OAS benefits lost varies depending on the retiree’s total income. For example, a retiree with total income of $60,000 will lose about $7,700 over two years. However, retirees with high income levels will not be affected by this new measure because they were never entitled to these benefits.
Benefits may be deferred and enhanced
The second change announced by the government is a new option available as of July 1, 2013, which will make it possible to defer OAS payments for up to 60 months. As a result, for each month of deferral, the benefit will be enhanced by 0.6%, up to a maximum of 36%. An individual, aged 65 and eligible for OAS in September 2013, would therefore have the option of deferring his payments until September 2018. At age 70, his benefits would be increased by 36%. Individuals who turn 67 in February 2029 can voluntarily defer their benefits until they reach age 72 in 2034.
Is this option financially advantageous for everyone? The answer depends largely on how long the recipients will actually receive their OAS benefits. The age at death is a key factor that remains unpredictable. Deferral would be marginally financially advantageous if an individual lives to age 85. However, the financial advantage would be greater if an individual lives to age 95. Lastly, if an individual dies at age 75, he would have benefited more had he started to receive his payments at age 67.
A worker will especially benefit from deferral if his employment income at age 67 is too high and would trigger a clawback of the OAS. He should then defer his OAS when he retires but not for more than five years.
The new measures for the OAS program could have a significant impact on your retirement income. To get a clearer perspective, do not hesitate to talk to your advisor. He can advise you and help you choose the appropriate solutions for your situation.