Why You May Want to Start OAS Benefits ASAP
I'm a big fan of pension income in retirement. A retiree with more guaranteed lifetime income is better protected against longevity and stock market risk. It also has the advantage of being simple to manage—money comes into your bank account each month and you decide how to spend it.
Old Age Security (OAS), together with the Canada Pension Plan (CPP), provides Canadians with a foundation of stable retirement income. Beginning in 2013, Canadians have had the option to get more OAS income by delaying the start of their benefits.
While OAS deferral is a great option for many Canadians, it isn't right for everyone. Let's take a look at when OAS starts, how much you could receive, and the situations where it makes sense to start payments as soon as possible (ASAP).
Does OAS Start at 65 or 67?
Old Age Security (OAS) benefits can be started as early as age 65.
The 2012 Federal budget introduced a plan to change the minimum age to 67, but the age increase was cancelled in 2016.
Since the change was cancelled before the minimum age increase was set to begin in 2023, no one was ever affected by the higher age requirement.
How Much is OAS in 2024?
As of April 2024, the maximum monthly OAS payment for those who start at 65 is $713.34.
Inflation is measured every three months and OAS payments go up if inflation increases. Inflation adjustments happen each January, April, July and October.
You can get even more money from OAS if you delay the start of benefits past age 65.
Each year you delay OAS will increase your payments by 7.2%. The boost tops out at a 36% increase if you wait until 70. Waiting until 70 would increase the monthly payments to $970.14.
Note: This assumes living in Canada for 40+ years before age 65 to get the full benefit. Living in Canada for fewer years changes these numbers.
When to Consider Starting OAS at Age 65
1. Shortened Life Expectancy
If you have average or better health, waiting to start OAS can make good financial sense. But if you have serious health issues, you may not live long enough to reap the reward of deferral.
Life expectancy is often an emotionally charged subject. Examples of friends or relatives dying young can make us want to start payments right away in case we die early too. This can make it hard to make a sensible decision for our long-term financial security.
While family history plays an important part in estimating life expectancy, lifestyle factors are just as important. Physical activity, diet, weight, smoking status, and alcohol use should be considered.
To help understand how your lifestyle affects your lifespan, try out this research-based life expectancy calculator.
If you have serious health complications, talk with your doctor about how your life expectancy may be affected.
2. You Can’t Afford to Wait
Those who defer their OAS benefits will usually fill the income gap between 65 and 70 by drawing on investments. Unfortunately, many Canadians simply can't afford to defer their OAS.
A recent survey by the Healthcare of Ontario Pension Plan (HOOPP) found that 44% of Canadian pre-retirees have less than $5,000 in savings. If you don't have savings and working past age 65 isn't an option, you may simply need to start OAS early to make ends meet.
If you don't have much savings, setting a goal to put aside enough money to delay your government benefits by even one year can help increase your retirement security. Since the deferral bonus is larger for CPP, you'll probably want to start maximizing that benefit first.
3. You Have Enough Lifetime Income
As great as pension income is, the benefit of deferral may be less valuable to you if you already have a large work pension.
While pensions are excellent at providing income security, investments allow for more cash flow flexibility. So if you retire before 65, you may want to start OAS right away and save your investments for later.
4. Retiring with Low Income
If you expect to have low income in retirement, you may be eligible for the Guaranteed Income Supplement (GIS). This tax-free benefit starts at age 65 and pays up to $1,065.47 per month.
But you can't receive the GIS unless you start your OAS pension.
The GIS is a complicated benefit. The amount paid is based on income (excluding OAS) and there are exemptions for small amounts of employment income.
If your income will be low in retirement, you need to put some time into understanding this program. To help, John Stapleton created a booklet on retiring with low income and maximizing the GIS.
Also, try this OAS Benefits Estimator to get an idea of how much GIS you could receive.
The OAS Clawback Rate for 2024
OAS benefits must be repaid if your income is too high. So even if one or more of the above factors apply to you, you may still want to hold off on starting payments.
The clawback threshold for 2024 is net income above $90,997.
For every dollar of income above that amount, you have to repay 15 cents of OAS.
If your income is close to the threshold then you'll need to be careful about when you start your OAS. Don't let automatic OAS enrolment at age 65 catch you off guard!
If you start OAS at age 65, the entire amount will have to be repaid once your 2024 income is greater than approximately $148,065. The exact income amount will depend on the size of inflation increases in the remainder of 2024.
Deferring OAS has the benefit of increasing how much income you can earn while still keeping some of your OAS. Because you have more total OAS, it takes longer to claw it all back.
If you wait to start OAS at age 70, the higher monthly payment of $970.14 will only fully be clawed back once your net income is greater than $168,608.
The OAS Decision Can Be Complex
While there are some situations where it is clearly best to start OAS right away, this decision can be complex. For most retirees, OAS is one of several income streams. For a couple who are born in or retire in different years, these income streams may also start at different times.
Many Canadians need help to optimize their retirement income and minimize taxes. If you’re feeling overwhelmed by all the work needed to create a retirement plan, you can book a free introductory meeting with me to get started.
