It Pays to Know: What should I do about ...when to start taking my Old Age Security (OAS)

27 July, 2018

My father couldn’t read or write. He was taken out of school at grade 3 after his two older brothers left to fight in the Second World War.  He was a remarkable man in that he became the secretary of the local chapter of his Steelworker’s Union, pr

My father couldn’t read or write. He was taken out of school at grade 3 after his two older brothers left to fight in the Second World War.  

He was a remarkable man in that he became the secretary of the local chapter of his Steelworker’s Union, pretty impressive for a man who couldn’t read or write and very few people knew that fact. If you’re wondering how he managed the job despite his lack of education let me provide you with a clue: My mother had been trained at the Belleville Business College to become a stenographer and she knew how to write short hand which is a fascinating old-fashioned form of writing that uses lots of dashes and dots, a bit like the written version of Morse Code. My father invited her to sit in on the meetings to record the proceedings and take notes. Whenever any document was passed around my father would ask for some time to review the material (ie his wife would then be able to read it to him!) and then they could discuss. Ingenious I would say, and very courageous. 

I’m sharing this with you to explain why I am so passionate about making information accessible, interesting, relevant and enjoyable. 

Whenever I encounter situations in my work - which is basically every day- where people are asking me questions about different types of financial planning concepts and products, or how certain investment strategies function, I view that as an opportunity to find some way to simplify and more effectively communicate or present the information because my ultimate goal is to empower people toward making informed decisions. 

After all, if you don’t have all the information and shut down your thinking and learning in the face of the technical jargon and acronyms that run rampant in our business, how can you possibly make an information decision?  There’s a reason people say knowledge is power!

Thus, I believe that those of us who work in the financial services sector have a responsibility to find ways to convey this information in a way that is a welcoming open door, rather than an exclusive gateway for those working in the industry.

Let’s begin with a recent comment made by a friend of mine who just turned 68 and when I asked if she is collecting her Old Age Security pension (OAS) she replied; “No, you told me not to!”

Yikes I thought, that was four years ago! At that time my friend’s earned income exceeded the OAS clawback threshold. (I’ll explain what that means shortly).

Now she is working three days a week and I don’t have a clear idea as to what her current income is. 

Based on some different factors, my advice to her could be quite different now, given the changes she has made. For example, reducing the number of days per week she works which in turn will impact her financial situation. 

Here are the questions I will be asking her when we meet next week in order to reassess her situation

  1. What is your Current Income? My goal will be to assess whether or not her income exceeds the OAS Clawback starting point of $75,910 – in other words any OAS that she would receive would be reduced by a certain percentage, if she is earning over that threshold amount – this is one of the many factors that we need to consider.

 

For your information, at an income of $122,843 all of the OAS is clawed back – meaning if you are making that amount you are not eligible to receiving the OAS. After we establish the answer to this question we move to #2.

 

  1. Is the Enhanced Benefit Amount worth waiting for and therefore what is the perceived value of postponing starting to take your OAS? 

 

Most people don’t realize that as you postpone starting to collect your OAS, even though you are eligible to start collecting it at age 65, the amount you can receive goes up. 

 

My friend just turned 68, so if she started her OAS right now she would be eligible to receive an annual amount of $8,561. If she waits to start receiving for a year the amount goes up to $9,067 when she turns 69, wait another year and the amount at the age of 70 is $9,574.  The enhanced benefit amount stops at age 70 so we’ll need to discuss when she intends to fully retire and if the enhanced benefit amount is worth waiting for. Especially in light of there being no Survivor Benefit should she die prematurely which takes me to #3. Estate Planning Considerations

 

  1. My friend has a Spouse so we’ll need to explore all the information relevant to - how much emphasis we should place on the Survivor Benefit Considerations.

 

Unlike the Canada Pension Plan (CPP), where there is a benefit amount that a surviving spouse can receive, there is no Survivor benefit for the OAS unless the Surviving Spouse is between the ages of 60-64 and they have what is considered to be “low income” = earning less than $24,360 a year and this survivor benefit is non-taxable.

When my friend and I have this discussion we will weigh out the pros and cons of all the above factors in order to come up with a decision and course of action that works best for her.  It’s only through our conversation and my listening to what her thoughts are regarding this information that I will be able to provide her with my advice as it pertains to her overall retirement income planning.

Planning for retirement, or any other aspect of your life doesn’t need to be difficult or complicated, but by asking some fairly simply questions and having some basic information about your own unique scenario you will have the knowledge and power to make informed decisions which positively benefit you and your financial wellbeing.