When’s a Good Time to Start Collecting Your CPP/QPP and OAS Benefits?

Posted on by Tax Partners
Tax in Canada
31
Dec

Introduction

Deciding when to start collecting Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) and Old Age Security (OAS) benefits is a significant part of retirement planning. While these benefits can provide a stable source of income in your retirement years, the timing of when you begin to collect them can greatly impact your financial future. This article explores the factors to consider when deciding whether to start early, wait until the standard age, or delay even further.

Understanding CPP/QPP and OAS

What Are CPP/QPP?

CPP and QPP are government-administered pension plans funded by contributions from workers and employers.

  • You can start collecting CPP/QPP as early as age 60, but this comes with a reduced monthly benefit.
  • Waiting until age 65 provides a standard benefit amount, while delaying up to age 70 (or 72 for QPP starting in 2024) increases your monthly payments.

What Is OAS?

Unlike CPP/QPP, OAS is funded through general tax revenues and does not require contributions.

  • Payments begin at age 65 but can be delayed until age 70 for increased monthly benefits.
  • Eligibility is based on residency in Canada, with a maximum benefit available after living in the country for 40 years past the age of 18.

How Much Can You Receive?

  1. CPP/QPP:
    • Standard Benefit at Age 65: Up to $1,364.60/month (as of October 2024).
    • Early Benefit at Age 60: Reduced by 36% (7.2% annually).
    • Delayed Benefit at Age 70: Increased by 42% (8.4% annually).
  1. OAS:
    • Standard Benefit at Age 65: Up to $727.67/month for ages 65–74, and $800.44/month for those aged 75+.
    • Delayed Benefit at Age 70: Increased by 36% (7.2% annually).

Factors to Consider When Deciding

1. Health and Longevity

  • Healthy Individuals: Delaying benefits can lead to significantly higher lifetime payouts if you expect to live a long life.
  • Health Concerns: If health issues limit your life expectancy, starting benefits earlier may be more advantageous.

2. Financial Needs

  • If you have other income sources, such as RRSPs, TFSAs, or employer pensions, delaying CPP/QPP and OAS allows your government benefits to grow.
  • If immediate income is needed, collecting benefits early can provide financial relief.

3. Employment and Retirement Plans

  • Continuing to Work: Delaying benefits can provide a higher return while allowing you to contribute more to savings accounts.
  • Semi-Retirement: Combining part-time work with delayed CPP/QPP and OAS can extend the longevity of your retirement savings.

4. OAS Clawback

  • High-income retirees (earning over $90,997 in 2024) may face the OAS clawback, reducing their benefits. Proper planning with an advisor can help mitigate this issue.

Advantages of Delaying Benefits

1. Higher Monthly Payments

  • Delaying CPP/QPP increases benefits by 8.4% annually up to age 70 (or 72 for QPP), and OAS by 7.2% annually up to age 70.

2. Inflation Protection

  • Benefits are indexed to inflation, providing consistent purchasing power throughout retirement.

3. Shorter Drawdown Period

  • Delaying benefits reduces the time you need to rely on your personal savings, ensuring a more sustainable retirement income.

When Might Early Collection Be Better?

  1. Immediate Financial Need: If you lack other income sources or have significant expenses, early collection may be necessary.
  2. Health Concerns: Shorter life expectancy may justify taking benefits earlier to maximize usage.
  3. Desire to Enjoy Retirement Early: Some prefer to access funds earlier to travel or pursue hobbies while in good health.

How to Apply for CPP/QPP and OAS

  • Applications can be completed online or using paper forms.
  • Ensure all sections are correctly filled out to avoid delays.
  • Processing time is approximately 120 days.

Conclusion

Choosing when to collect CPP/QPP and OAS benefits is a personal decision that depends on your health, financial situation, and retirement goals. Delaying benefits can result in higher monthly payments, but early collection may be suitable for those with immediate financial needs or health concerns. Working with a financial advisor can help you evaluate your options and create a retirement plan tailored to your circumstances.

This article is written for educational purposes.

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

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