CPP and OAS.
To Apply, or Not To Apply. That is the Question.
(with apologies to Hamlet)
We are receiving more and more questions about when you should apply for your Old Age Security (OAS) and Canada Pension Plan (CPP) payments.
In general, the OAS decision seems more straight-forward because the OAS is clawed-back if your net income (which includes OAS) exceeds $75,910 in 2018. The claw-back is fully clawed-back if your taxable income is over $122,000. Therefore, if you expect your taxable income to be around $120,000, there is no point applying for OAS until your income is expected to fall below $120,000.
The decision with respect to CPP is far more complex, particularly as the CPP payment you will receive depends on the contributions that you have made while working. Recently, this decision became more complicated as the individuals between the ages of 65 and 70, who are still working, are expected to continue to contribute to CPP unless they elect to stop contributing to CPP between 65 and 70.
Cost vs Benefit
If you decide to continue to contribute to CPP after turning 65, your pension amount will increase by 0.7% for each month that you delay receiving it after age 65, up to age 70 (representing a 42% increase over the amount you would have received had you taken it at age 65). However, you have to offset the increased benefits by the cost of the additional CPP contributions during this period, especially if you are self-employed where you pay both the employer and employee CPP contribution.
Factors to Consider
In deciding whether or not to apply for CPP benefits, you should consider the following factors:
- whether or not you still earn an income and want to contribute to the CPP;
- how long you have contributed;
- how much you have contributed and the amount of CPP retirement pension you can expect to receive;
- your other retirement income;
- your retirement plans; and most importantly
- your health.
We have done recent calculations and have concluded that it is generally not advantageous for self-employed people to continue to pay CPP after they reach 65 because they will have to pay both the employer and employee CPP contributions, and the CPP payments will not be significantly increased.
If you are employed, the decision is not as clear-cut – you can call Service Canada at 1-800-277-9914 to get an estimate of your CPP payments and depending on your circumstances, it is a call worth making.