Why Might You Start Old Age Security at Age 70
Digging deeper into the employment law issues for employees looking to retire or already retired.
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Although your receipt of Old Age Security pension payments can be started at age 65, you may wish to defer its start date to as late as your 70th birthday, if you believe that this deferral is to your personal financial advantage. And even if you initially make the decision to defer the start of OAS pension payments, you have the ability to subsequently start OAS pension payments prior to your 70th birthday and even request retroactive payments for a maximum of 11 months, or back to the month following your 65th birthday, whichever period is shortest.
So, what are some of the potential reasons for someone deferring the start of OAS pension payments past their 65th birthday?
1. Increased Monthly OAS Payments. If you delay the initial start date for receiving OAS pension payments, the amount of your monthly OAS pension payments may increase by about 0.6% for every month you delay for a maximum of 60 months. As such, if you delay the initial start date for receiving OAS pension payments until age 70, your monthly OAS pension payment will increase by approximately 36% for the rest of your life.
Given this increased monthly OAS pension payments, for each month that you delay its commencement, if you outlive the break-even date (which tends to be around age 80 or shortly afterwards), you will net increasingly more over the period that you receive OAS pension payments. By various estimates, this deferral in starting one’s receipt of monthly OAS pension payment until age 70 could see one receive up to $75,000 in additional OAS by age 95 and up to $110,000 in additional OAS by age 100.
2. Drawing an Average Income Past Age 65. Even if your income is not sufficient to create a significant claw back against your OAS pension payments (one might say less than $100,000 annually), if you see yourself living past 80 years of age, you may prefer to live off of your salary alone until age 70 and than benefit from the increased monthly OAS pension payments for the remainder of your life (when you are most likely not drawing any further income), together with the higher cumulative amount that you should collect if you live past age 80.
It should also be noted, that as OAS pension payments are taxable (together with your existing income), it may be preferable to defer commencement such that you are taxed only on your existing income, while gaining the higher OAS pension payments later when you are less likely to be working and in a lower tax bracket.
3. Drawing a Substantial Income Past Age 65. Meanwhile, if you are drawing a substantial income, the Canadian federal government imposes a claw back that is known as Old Age Security pension recovery tax. The claw back from one’s annual OAS pension payments is 15 cents on every dollar over the annual net income threshold. For the 2024 income year, the minimum income recovery threshold is $90,977, with the maximum income recovery threshold being $148,451 (for a recipient age 65 to 74) and $154,196 (for a recipient age 75 and over).
Therefore, by way of example, using the minimum income recovery threshold for 2024 is $90,977 and if your income in 2024 was $120,000, then your repayment would be 15% of the difference between $120,000 and $90,977:
$120,000 - $90,977 = $29,023
$29,023 x 0.15 = $4,353.45
You would have to repay $4,353.45 for the July 2025 to June 2026 period. Therefore, if you were receiving the maximum monthly OAS pension payment of $713.34 for an individual age 65 to 74 (if it hadn’t been further increased by the quarterly reassessments), which comes out to $8,560.08 for the year, you would only net $4,206.63 after the claw back.
As such, if you are continuing to receive substantial income at age 65 and beyond, the resultant OAS pension payments, after the claw back, in this initial eligibility period, may not be justified against what might be attainable from deferring one’s OAS pension payment start date.
4. Increased Partial Pension or Achieving Full Pension Status. If you have not resided in Canada for the requisite 40 years as of age 65, each additional year of deferral until age 70, would increase your OAS pension payments by 1/40th. As such, if you only have 25 years of Canadian residence as of age 65, which would entitle you to a partial OAS pension at 25/40th of the full OAS pension rate, by deferring your start date, your partial OAS pension would be at 30/40th of the full OAS pension rate (together with the approximate 36% monthly increase from the 5 year start deferral).
As you can see, there are legitimate financial reasons for deferring the start date for beginning your receipt of OAS pension payments. However, there are additional variables that must be considered and can be specific to one’s individual circumstances, as well as how the federal government administers the Old Age Security program going forward. And, as with most government administered programs, there is considerable complexity that can arise with those individual circumstances that are not clear cut for government workers to determine and administer. As such, it is important that you delve into greater detail about the Old Age Security pension program and what is best for yourself, including looking at the considerable amount of information and legislation provided by the federal government, together with speaking with knowledgeable professionals.
If you are looking into Old Age Security, our law firm provides legal services of potentially significant value, including estate planning, wills and trusts, together with all too frequently overlooked employer payment obligations due to Canadian employees at the end of their employment. To learn more, contact our law firm today to schedule a confidential consultation at Chris@NeufeldLegal.com or 403-400-4092.