The Best Time to Start Your Old-Age Security Pension
If you are approaching age 65 and are still working and do not need any extra income, you may be wondering if it is a good idea to apply for your Old Age Security (OAS) payments or defer receiving your OAS payments to a later age and possibly to age 70.
In 2019, a full OAS pension is approximately $7,200 and will be indexed on a quarterly basis. Your OAS pension will be clawed back by 15% if your income exceeds a threshold. This threshold, which is indexed annually, is $77,580 in 2019. If your income exceeds $125,937 in 2019, you will lose your entire OAS benefits.
If you are still working and plan to retire later than 65, the timing of your OAS application is something you should pay attention to.
For every month that you defer receiving your OAS benefits there will be a 0.6 per cent premium increase to the base figure. This increase can extend as far as 60 months to age 70, resulting in a maximum premium of 36 per cent over and above the base rate.
It is important to note that the OAS year runs from July 1st to June 30th of the following year. The reason is that your OAS entitlement will depend on the income you reported in the previous year and given the April 30th deadline for filing personal taxes, this would give the government a sufficient window of time to ensure they can review your income in the previous calendar year and base your OAS entitlement on that.
This time frame means that your 2018 income affects your OAS entitlement from July 2019 – June 2020. Your 2019 income will affect your OAS entitlement from July 2020 to June 2021 and your 2020 income will affect your OAS entitlement from July 2021 to June 2022.
Service Canada recommends applying for your OAS benefits six months ahead of your intended start month.
Therefore, if you are turning 65 in 2019 but are planning to work until January 2022 and will have an income of over $77,580 in those years, if you apply in 2019 to have your OAS start in early 2020, potentially you will not receive any OAS pension until after June 2023, which is almost four years from now and is equivalent to almost $23,400 in foregone OAS payments and after June 2023 you will receive your base OAS payments. In this case you would be better off postponing receiving your OAS benefits for 39 months and starting to receive your OAS payments in July 2022, at which time you would be entitled to a 23.4% premium. In today’s dollars that would be over $1,684 more OAS benefits every year for the rest of your life.
While in the example above, the right decision was to postpone receiving the OAS benefits, there is not always a right or wrong answer. The decision regarding when to start your OAS benefits is in many cases a personal decision and one that has to do with your expectations with regards to your life expectancy and whether you need and want to have your benefits sooner or expect to live a long life and would rather apply later and receive more benefits for the rest of your life.
Tina Tehranchian, MA, CFP®, CLU®, CHFC®, is a FP CanadaTM Fellow and a senior wealth advisor and branch manager at Assante Capital Management Ltd. in Richmond Hill Ontario. She can be reached at (905) 707-5220 or through her website at www.tinatehranchian.com. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.