To bolster your income during your retirement, you may want to defer your Old Age Security benefits. Deferring these benefits for as long as possible can increase the monthly payments you receive.
Value of Deferral
As of 2017, you become eligible for OAS benefits at age 65, but for every month you defer the benefits, your payment increases by 0.6 percent. For instance, if your OAS monthly benefit is $570, and you defer payment for three months, you receive a 1.8 percent increase. This results in $10.26 extra per month.
You can defer your payment for up to five years (until you turn 70), and you can enjoy an increase of up to 36 percent. That’s the 0.6 percent increase times 12 months for five years. To continue with the above example, if you defer your $570 payment for five years, you get an increase of $205, making your monthly OAS benefit $775. Over the course of a year, that results in $2,460 extra in your pocket. Throughout your retirement, it can really add up.
How to Defer OAS
To defer your payments, simply don’t apply for them when you turn 65. Instead, wait until you are closer to your 70th birthday, and then submit the Application for the Old Age Security Pension to Service Canada. Indicate when you want your benefits to start on that form.
If you’re already receiving your OAS pension, you can cancel it within six months of the day it starts. Then, you have six months to repay the benefits you received, and once everything is repaid, you can defer collecting benefits until you are ready.
Side Effects of Deferral
If you defer your OAS benefits, you are not eligible for the Guaranteed Income Supplement during that time, and your spouse cannot collect the allowance benefit either. As a reminder, the GIS is a nontaxable benefit on top of your OAS, designed for low-income people. The allowance is for low-income spouses between the ages of 60 and 64, whose partners are receiving the GIS.
Affording the Deferral
There are a variety of ways to afford the deferral. If you have the interest and ability, you can opt to defer retirement until you are 70, and you can live off your earnings. Alternatively, if you have other retirement savings, you can tap into those amounts during the deferral.
Note that as of 2017, if your income exceeds $73,756, you have to return some or all of your OAS to the government. To calculate income for this threshold, the CRA includes your net income before adjustments, minus payments you received from the Canada Child Benefit program or your Registered Disability Savings Plan, plus any repayments you made for CCB or RDSP.
Ultimately, you may want to work out your finances so you withdraw more from your savings at age 65 to 70 and reduce your withdrawals after age 70 so you can hang onto more of your OAS.
In addition to considering deferring your own OAS payments, you may want to talk with your clients about the benefits of deferral. As their accountant, any help you can offer for retirement planning is bound to be appreciated.