Understanding Your Federal Retirement Benefits
Turning 65 in Canada marks the typical start of a new chapter, heavily supported by federal government programs designed to provide a secure financial base. While the benefits form a cornerstone of most retirement plans, it's crucial to understand their specifics, as they are not all automatic.
Old Age Security (OAS) Pension
The Old Age Security (OAS) pension is a taxable monthly benefit available to most Canadians aged 65 and older. Eligibility is based on residency in Canada, not employment history or contributions. You must be 65 or older, a Canadian citizen or legal resident, and have lived in Canada for at least 10 years after age 18 to qualify while living in Canada. Service Canada may automatically enroll you; otherwise, you must apply. You can delay payments up to five years for a higher monthly amount, increasing by 0.6% per month to a maximum of 36%.
Canada Pension Plan (CPP) Retirement Pension
The Canada Pension Plan (CPP) retirement pension provides a taxable monthly benefit replacing a portion of your employment income upon retirement. It's funded by contributions made throughout your working life. You must be at least 60 years old and have made at least one valid CPP contribution. You must apply to Service Canada to receive payments. Starting early (age 60) results in a permanent reduction, while delaying until age 70 provides a permanently increased monthly payment.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement (GIS) is a non-taxable monthly payment for low-income Old Age Security pensioners. You must be receiving OAS and have an annual income below a specific threshold. You typically apply for GIS with OAS, but can apply separately later. There is no advantage to delaying OAS past 65 if you are eligible for GIS, as GIS cannot begin until OAS payments start.
Navigating Tax Implications as a Senior
Your taxes change significantly at 65. Key considerations include the federal non-refundable Age Amount tax credit, the OAS recovery tax (clawback) if your income exceeds a threshold, and the option to split eligible pension income with a spouse for potential tax savings.
Making the Best Choice for You: OAS vs CPP Start Dates
Choosing when to start your public pensions is a personal decision. The table below compares the implications of different start ages.
| Feature | Taking OAS at 65 | Delaying OAS to 70 | Taking CPP at 60 | Taking CPP at 65 | Delaying CPP to 70 |
|---|---|---|---|---|---|
| Monthly Payment | Standard amount | Increased by 36% | Reduced by 36% | Standard amount | Increased by 42% |
| Guaranteed Income Supplement (GIS) | Potentially eligible | Not eligible until OAS begins | Eligibility not impacted directly | Eligibility not impacted directly | Eligibility not impacted directly |
| Key Consideration | Earlier cash flow, but lower payments | Higher lifetime income potential | Needs immediate income, willing to accept permanent reduction | Standard approach, balance of income and longevity | Maximize lifetime income, need alternative funds in early retirement |
Exploring Provincial and Territorial Benefits
Provinces and territories offer additional benefits for seniors, including healthcare support, prescription drug coverage, and transit discounts. Research specific programs in your area, such as Ontario's Seniors' Public Transit Tax Credit.
On Working After 65 and Other Considerations
You are not required to stop working at 65 to receive OAS and CPP. If you continue working while receiving CPP, you can earn a Post-Retirement Benefit by contributing further. Filing your annual tax return is crucial for continued benefits, as the CRA uses this for GIS eligibility and the OAS clawback. Your OAS can be affected by periods of non-residency; you need at least 10 years of residency after age 18 to qualify while living in Canada.
Conclusion
Turning 65 in Canada provides access to significant government benefits like OAS and CPP. Understanding these options, tax implications, and provincial programs is key to making informed decisions for financial security in retirement. Proactive planning, including deciding when to start your pensions, is essential for a successful retirement. For more guidance, visit the Service Canada website on Deciding when to start your public pensions.
