If you’re dreaming about retiring at 67, you might need to rethink your plans. Recent changes to Canada’s Old Age Security (OAS) and Canada Pension Plan (CPP) are redefining when Canadians can expect to retire and how much they’ll receive. These changes will impact a lot of people, especially those nearing retirement. In this blog post, we’ll break down what the changes mean, who they affect, and how to plan for retirement in light of the new rules.
What Are the OAS & CPP Changes and Why Do They Matter?
The Old Age Security (OAS) and Canada Pension Plan (CPP) are two of the most important programs for Canadians looking to secure income during retirement. However, as of recent reforms, these programs are undergoing changes that affect both when you can start receiving benefits and how much you’ll get.
Key Changes:
- OAS Eligibility: The age at which you can start receiving OAS is gradually increasing, starting from 65 to 67.
- CPP Payments: The amount you receive from CPP depends on when you choose to start your payments, with changes to how and when these benefits are distributed.
These changes matter because they’ll impact your retirement planning. If you were planning to retire at 67, you may now need to wait until you’re 70 to get the full benefits, or adjust your savings to make up the difference.
When Do the OAS & CPP Changes Take Effect?
The changes to OAS and CPP are being phased in gradually over the next few years. Here’s when you can expect to see these adjustments:
OAS Changes:
- Starting 2023, the OAS eligibility age will begin rising from 65 to 67. This means that anyone born after April 1, 1958 will have to wait until 67 to begin receiving OAS, instead of the traditional 65.
CPP Changes:
- CPP payments will be impacted by your choice of when to start receiving them. You can start your CPP as early as age 60 but with reduced payments, or wait until age 70 for larger monthly payments. The key difference now is that the adjustments to the system are increasing as of 2024, so planning ahead is more crucial than ever.
How Do These Changes Affect Your Retirement Plans?
Understanding how these changes affect your financial future is essential. Here’s what you need to know:
OAS: Delayed Payments, Bigger Payouts
- If you’re eligible for OAS and your birthday falls before April 1, 1958, you’ll still be able to receive it at 65. However, for those born after that date, you will need to wait until 67 to receive the full amount.
- If you want to receive OAS payments earlier (at age 65), there’s a penalty. For every month before age 67 that you start receiving OAS, your monthly payment will be 0.6% less.
CPP: Flexible Start Dates, Variable Payments
- Start Early: You can begin taking your CPP at age 60, but your payments will be reduced by 0.6% per month before the age of 65.
- Wait Longer: If you wait until age 70 to start taking your CPP, your monthly payments will increase by 0.7% per month after age 65. This can result in a significantly higher payout in the long term.
These adjustments to both OAS and CPP may mean that Canadians will need to reconsider their retirement strategies particularly how much to save, when to start collecting, and how to plan for the possibility of delayed benefits.
Common Mistakes With OAS & CPP Changes and How to Avoid Them
When major changes like this happen, it’s easy to make mistakes. Here’s what to watch out for:
Mistake 1: Assuming OAS Starts at 65
- Many Canadians are under the assumption that they can start receiving OAS at age 65. However, if you were born after April 1, 1958, you’ll need to wait until 67. Don’t miss this crucial shift in your retirement planning.
Mistake 2: Not Considering the Impact of Early CPP Withdrawal
- Taking your CPP at age 60 may seem tempting, but it comes with a significant reduction in your monthly payments. Carefully calculate whether it’s worth taking early withdrawals, or if waiting until 65 or 70 would give you a better long-term payout.
Mistake 3: Not Preparing for Longer Work Years
- The increase in OAS eligibility to age 67 means many people will be working longer before they can fully rely on government benefits. If you’ve been planning to retire at 65, you’ll need to rethink your financial strategies.
Best Tips to Make the Most of the OAS & CPP Changes
While these changes may seem like a setback for some, there are several ways you can still plan effectively:
- Save More Now: If you were counting on retiring at 65 but now need to wait until 67, try to increase your savings to cover the extra two years of work. This can include putting more into your RRSP or TFSA to supplement your income.
- Consider Delaying CPP: If possible, wait until age 70 to begin receiving CPP. This will give you higher monthly payments and potentially a more comfortable retirement income in the long run.
- Work Longer, But Smart: If you need to work until 67 to qualify for OAS, consider flexible or part-time work options. That way, you can continue earning while also enjoying more leisure time.
- Plan for Healthcare Costs: As you work longer, be prepared for higher healthcare costs, especially if you’re planning to retire after age 65. Canada’s healthcare system is great, but some services may still require out-of-pocket spending.
The Latest Updates on OAS & CPP Reform
These changes are part of an ongoing reform effort aimed at making Canada’s retirement system more sustainable. By gradually increasing the age at which benefits are available and adjusting how CPP payments are calculated, the government aims to ensure that the system remains viable for future generations.
These reforms are also being made in response to the aging population in Canada. As more people live longer, the government is working to ensure that it can continue supporting seniors without overwhelming the public finances.
Conclusion
The changes to OAS and CPP mark the end of the traditional retirement age of 67 for many Canadians. While this shift may feel like a setback, it’s important to view it as a chance to reassess your retirement plans, save more, and adjust your strategy for the years ahead. Whether you’re planning to retire at 65, 67, or even 70, the key is to start planning now. Make sure you understand the new rules and take steps to secure the retirement you deserve.
Frequently Asked Questions
When will the new OAS and CPP changes take effect?
The new OAS eligibility age will rise gradually to 67 for those born after April 1, 1958, while CPP payment adjustments will begin in 2024.
What age will I be able to start receiving OAS?
If you were born before April 1, 1958, you can still start receiving OAS at age 65. If you’re born after that, you’ll need to wait until 67.
How can I increase my CPP payments?
You can increase your CPP payments by delaying your start date. If you wait until age 70 to start collecting, you’ll receive larger monthly payments compared to starting at age 65.
Can I retire at 65 and still receive full benefits?
If you’re born after April 1, 1958, you will need to wait until 67 to receive full OAS benefits. However, you can still start receiving CPP as early as 60 with a reduced amount.
What should I do if I need to work longer for OAS?
If you need to work until 67 to qualify for full OAS, start planning now by increasing savings, considering additional retirement income options, and exploring flexible work opportunities.
