Deciding when to start receiving your Canada Pension Plan (CPP) and Old Age Security (OAS) benefits is one of the most significant financial choices you'll make for your retirement. The answer isn't the same for everyone, and the right choice could mean tens of thousands of dollars more over your lifetime. This guide will walk you through the key factors to consider.
The Basics: Understanding Your Options
While the standard age to start both CPP and OAS is 65, you have flexibility. You can take CPP as early as age 60, or delay both benefits as late as age 70. The trade-off is simple: the earlier you take it, the smaller the monthly payment; the longer you wait, the larger the payment.
3 Key Factors to Consider
Factor 1: Your Health and Life Expectancy
This is the most personal factor, and it's based on a simple breakeven analysis. By delaying CPP or OAS, you receive a higher monthly payment. The question is: will you live long enough to make up for the payments you skipped? Delaying CPP from 65 to 70 means you get a 42% higher monthly payment for the rest of your life. The general breakeven age is around 80-82. If you expect to live past that age, delaying is often the better financial choice. If you have health concerns, taking it sooner may be more appropriate.
Factor 2: Your Need for Income
This factor is about your personal cash flow. If you need the money to cover living expenses as soon as you retire, taking CPP early at age 60 might be a necessity. However, if you have other sources of income to live on—such as a workplace pension, investment income, or the RRSP 'melt' strategy—you have more flexibility. Delaying your government benefits allows them to grow into a much larger, inflation-protected pension for life. If you can afford to bridge the gap with other savings, you are essentially 'buying' a higher, more secure income stream for your 80s and 90s.
Factor 3: The OAS Clawback
The Old Age Security (OAS) clawback is a special tax that can reduce or even eliminate your OAS payments if your annual income is too high in retirement. The danger often arises when large, mandatory RRIF withdrawals are combined with your CPP and OAS payments, unintentionally pushing your income over the government's annual threshold. Instead of simply taking your benefits earlier to avoid this, a more powerful strategy is to manage the source of your other income: your RRIF. This is where the RRSP 'melt' strategy becomes your best defense. By strategically withdrawing from your RRSP in your low-income years, you reduce the future size of your RRIF, meaning smaller mandatory withdrawals after age 71.
Proactively managing your RRSP/RRIF income gives you more control. It can allow you to delay your CPP and OAS to get the maximum possible payments, without as much risk of having those benefits clawed back later in life.
Conclusion
There is no single right answer for when to take CPP and OAS. The best decision depends on a careful consideration of your health, your immediate financial needs, and your overall tax strategy. By understanding these key factors, you can make an informed choice that best supports your unique retirement goals.