Case Study – When to Start Receiving OAS Benefits
Jul 11, 2024
Government benefits are often an area that gets confusing for Canadians as they plan for retirement. Since these benefits can provide a significant source of retirement income for a household, they should not be overlooked when it comes to our financial planning.
There are many aspects of government benefits that we could investigate, but for today’s article, let’s delve into a case study comparing the implications of triggering Old Age Security (OAS) at age 65 versus delaying it until age 70.
Triggering OAS at age 65
When you turn 65, you become eligible to start receiving OAS benefits. The maximum monthly payment amount for OAS in 2024 is $713.34 if your annual net worth income is less than $134,626.
By triggering OAS at 65, you receive immediate income support. However, keep in mind that this amount remains fixed throughout your retirement years.
Delaying OAS until age 70
You have the option to delay receiving OAS for up to 60 months (five years) after turning 65. The longer you wait, the larger your monthly pension payment will be.
By delaying OAS until age 70, you can increase your benefits significantly. For each month of deferral, your benefit grows. In fact, delaying OAS by one year increases your benefits by approximately 7.2% for life.
The maximum OAS benefit at age 70 is 136% of what you would receive at age 65. So, if the maximum OAS benefit at 65 is $7,289.52 per year, at 70, it could be significantly higher.
Considerations
Health and longevity: Consider your health and life expectancy. If you expect to live longer, delaying could provide more financial security in the later years.
Other retirement income: Assess your overall retirement income, including Canada Pension Plan (CPP), private pensions, and investments. Delaying OAS might allow you to optimize your overall retirement strategy.
Risk of loss: After age 70, there’s no advantage in further delaying OAS. In fact, you risk losing benefits if you wait beyond this point.
Let’s consider the hypothetical case of two individuals, Alex and Jordan:
• The monthly OAS benefit received is $713.34.
• Alex enjoys immediate financial support, which helps cover living expenses.
• However, the benefit remains fixed throughout retirement.
2. Jordan (Delays OAS until 70)
• Jordan benefits from a higher monthly payment for life.
Comparison
• Total forgone payments: 60 months x $713.34 =$42,802.40.
However, Jordan’s higher monthly benefit compensates for the delay over time.
Outcome
• If Alex’s health deteriorates or life expectancy is shorter, triggering OAS at 65 may be more advantageous.
Remember, individual circumstances vary, and this example simplifies complex factors.
In summary, the decision between triggering OAS at 65 or delaying until 70 depends on your individual factors. Balancing immediate needs, longevity, and other income sources will guide your choice. There’s no one-size-fits-all answer – it’s about finding what aligns best with your financial goals and lifestyle. Consult your Financial Advisor to make an informed decision based on your unique situation. ■
