Your Money: Gov’t benefits major source of income for retirees

By Medicine Hat News on December 16, 2017.

As you go through your working life, you will generally have one primary source of income: Your job or your business. In retirement, you will have several potential sources of income. The basic source for many Canadians is often government benefits.

That includes Old Age Security (OAS) and the Canada or Quebec Pension Plan (CPP/QPP). Canadians who continue to work after age 60, and are collecting CPP, may increase their retirement income with a lifetime benefit called the Post-Retirement Benefit (PRB).

This column will focus solely on Old Age Security benefits. Old Age Security (OAS) benefits are available to most Canadians when they turn 65. Notably, they are fully indexed based on the Consumer Price Index. To receive maximum OAS, you must have typically lived in Canada for 40 years after turning age 18. You are partially eligible for OAS if you have lived here for 10 years after age 18. If Canada has a social security agreement with the country where you also lived, your residency period there may count toward your eligibility.

It should be noted that with OAS benefits there is no survivor benefit, no income-splitting opportunity, no option to receive it before age 65 and a clawback of the OAS benefit under the Income Tax Act (Canada). Once your income reaches a certain threshold ($73,756 in 2016), the amount of the clawback is equal 15 per cent of the amount by which your net income exceeds the threshold up to your total OAS amount.

In 2013, Service Canada implemented a process to automatically enrol seniors who are eligible to receive the OAS pension. If you can be automatically enrolled, Service Canada will send you a notification letter the month after you turn 64. If you receive a letter informing you that you were selected for automatic enrolment, you will not have to apply for your OAS pension provided that the information in your letter is accurate. For more information, please go to: servicecanada.gc.ca

When should you start receiving OAS? You can choose to defer receipt of OAS benefits for up to 60 months (five years) after age 65. It will increase 0.6 per cent for every month you defer. If you defer until age 70, your monthly benefit will increase to 136 per cent of the payment you were eligible for at 65.

Deferring may be a good strategy if your retirement income is high or you have significant assets you wish to sell. If the gains realized would trigger an OAS clawback, you may wish to sell the assets prior to turning 70. It may be worth putting off receipt of OAS, depending on the potential proceeds from the sale of your assets.

Other benefits that are associated with OAS include the Guaranteed Income Supplement (GIS) and the Allowance. GIS provides a monthly non-taxable benefit to OAS recipients who have a low retirement income. You must be receiving OAS and have an income lower than the maximum annual GIS threshold. For example, if you are a single, widowed or divorced pensioner, the threshold is $17,544.

The Allowance, once known as the Spousal Allowance, is meant for a low-income Canadian, aged 60-64, whose spouse gets OAS and is eligible for GIS. It will put the couple level with each other.

Speak with your financial advisor about when you should begin receiving OAS to fit in with your overall financial plan and meet your retirement needs.

For a further discussion around your investment and estate planning issues, contact Neil Mardian, M.Sc. (Mgmt) CFP at 403-504-3026 or neil.mardian@td.com