If you’re planning for retirement in Canada, you’ve probably heard about the recent changes to the Old Age Security (OAS) and Canada Pension Plan (CPP) rules. These updates could have a big impact on how and when you collect these essential benefits. The good news? We’ve broken it all down for you so you can understand what’s changing, why it matters, and what you need to do to make the most of it. Let’s dive in!
What Are the New OAS & CPP Rules and Why Do They Matter?
At the heart of the changes are adjustments to the age at which you can start collecting your OAS and CPP benefits. This means your retirement plans might need some fine-tuning, especially if you were expecting to start collecting them at an earlier age.
- Old Age Security (OAS)
Traditionally, you could start receiving OAS at age 65. But now, the government is allowing you to start receiving it as early as age 60 or as late as age 70. However, delaying your OAS will increase the monthly payment you receive. - Canada Pension Plan (CPP)
Similar to OAS, CPP benefits are being adjusted. You can start collecting CPP at age 60, but if you wait until age 65 (or even age 70), you’ll receive a higher monthly amount. The longer you wait, the better the payout.
These changes are particularly important because OAS and CPP make up a large part of many Canadians’ retirement income. Understanding how these changes affect your retirement age and benefits can make a significant difference in your financial future.
When Do the Changes to OAS & CPP Start?
The good news is that these changes aren’t happening overnight. The OAS rule changes are already in place, but the adjustments to CPP will be phased in over the coming years.
- OAS
The ability to defer your OAS payments until age 70 has been in place for some time, but recent changes now offer more flexibility. If you were born on or after April 1, 1958, you have the option to delay your OAS and collect more later. - CPP
The changes in CPP contributions and eligibility are being gradually phased in. If you’re under 45, you may be impacted most by the increased contribution rates, which will lead to higher benefits later on. The key date for CPP adjustments is 2024, when the maximum CPP benefits will be phased in.
How Do the New OAS & CPP Rules Work? Explained Simply
The mechanics behind OAS and CPP might seem a bit confusing at first, so let’s break it down.
OAS (Old Age Security)
- Start at 60
You can choose to take OAS at age 60, but your monthly amount will be reduced by 0.6% for every month before you turn 65. - Delay Until 70
If you delay taking OAS until age 70, you’ll get a 0.6% increase for every month you wait after 65. This means you can boost your monthly benefit by up to 36% if you wait until 70.
CPP (Canada Pension Plan)
- Start at 60
If you start receiving CPP at age 60, you’ll receive a reduced monthly payment, which could be as much as 33% less than what you’d get at 65. - Wait Until 70
If you delay until age 70, your CPP payments will be increased by 42% compared to what you would receive at 65.
In short, the more you delay both OAS and CPP, the higher your monthly payments will be but you’ll have to wait longer to start receiving them.
Common Mistakes with OAS & CPP and How to Avoid Them
When it comes to OAS and CPP, it’s easy to make some common mistakes that could cost you money in the long run. Here are a few to watch out for:
- Claiming Too Early
While it might seem tempting to start receiving OAS or CPP as soon as possible, you could be leaving money on the table. If you can afford to wait, delaying your benefits can result in a much higher payout over time. - Not Considering Your Health and Life Expectancy
If you have health concerns or a family history of shorter lifespans, starting your benefits earlier might make sense. However, if you expect to live longer, deferring benefits can provide more money over time. - Ignoring Inflation
Both OAS and CPP benefits are adjusted for inflation, but this doesn’t always mean they keep pace with your actual living costs. Make sure to consider inflation in your retirement planning.
Best Tips to Make the Most of OAS & CPP Changes
Here’s how you can take full advantage of the new rules for OAS and CPP:
- Assess Your Financial Needs
Do you need the money right away? If not, delaying your benefits can give you a higher monthly amount in the future. - Think About Your Retirement Timeline
If you plan to retire early, starting benefits at 60 might be a smart option. But if you’re planning to work longer, delaying your benefits can maximize your income. - Consider a Financial Planner
A financial planner can help you crunch the numbers and figure out the best time to start your benefits based on your personal situation.
The Latest Updates on OAS & CPP Changes
The Canadian government continues to make changes to these programs to ensure they remain sustainable. Recent updates include:
- Higher CPP Contributions
Starting in 2024, you’ll contribute more to the CPP, but you’ll also get a higher payout when you retire. This is good news for younger workers who will benefit from larger CPP payments in the future. - Gradual Increases
The phased increase in CPP payouts will continue until 2025, so if you’re near retirement, it’s important to keep track of the changes. - OAS Payment Increases
The government is adjusting OAS payments to keep pace with inflation, so you should expect your OAS benefits to increase over time.
Conclusion
Navigating the new OAS and CPP rules doesn’t have to be complicated. The key takeaway is that waiting longer to start your benefits whether OAS or CPP can increase your monthly payments significantly. However, whether you delay or start early depends on your unique circumstances. Make sure to evaluate your financial situation and retirement goals to decide what’s best for you.
Frequently Asked Questions
When can I start receiving OAS benefits?
You can start receiving OAS at age 65, but you have the option to begin as early as age 60 (with reduced payments) or delay until age 70 (with increased payments).
What happens if I delay taking my CPP?
If you delay your CPP until age 70, your monthly payments will increase by up to 42% compared to starting at age 65.
How will the changes affect my retirement planning?
The changes could affect your retirement income, so it’s important to assess whether deferring your OAS and CPP will result in a better payout later or if you need the money earlier.
Can I still work while collecting OAS or CPP?
Yes, you can work while collecting OAS or CPP, but keep in mind that earning a high income could affect the taxes you pay on these benefits.
Why should I wait until 70 to start collecting my OAS and CPP?
Waiting until age 70 can result in a higher monthly benefit due to the “delayed retirement credits” system, giving you more income during retirement.
