Should You Defer Your OAS?

 

The 2012 Federal Budget introduced provisions that allow you to defer your Old Age Security (OAS) benefits for up to five years.  Starting this month, July 2013, you need not take your OAS immediately upon reaching age 65, but can defer it up to age 70.  For each month you defer you will receive a 0.6% premium that will be added to your monthly pension, this works out to be a 36% increase if you defer for the full five years.

So when it the ideal age to begin?  The key is to determine the crossover point whereby depending upon the start age, what age you would have to be to receive the exact same benefit in nominal dollars.  So, assume you start taking your OAS at 65, rather than waiting to age 70 (where you would get 136%) at what age would you have to live past to receive the exact same amount of money?

For simplicity sake the table shows in calendar years, for a full comparison there would have to be 61 possible start months.

                                             Alternate Start Age

Start Age	66	67	68	69	70
65	80	81	82	83	84
66	-	82	83	84	85
67	-	-	84	85	86
68	-	-	-	86	87
69	-	-	-	-	88

 Comparing age 65 to age 70, you would have to reach age 84 to receive the same total benefits.  Predictably, as the start age moves up a year, the indifference age moves forward by one year.

This is a simple calculation.  A true measure of economic trade-off would require you to include some or all of the following factors:

·        An inflation factor to estimate time value of money, alternatively, an assumed rate of return on the amounts received

·        Household circumstances including your spouse’s RRSP/RRIF savings and other income sources, their OAS entitlement, current age and life expectancy

·        Your marginal tax rate, including the effect additional income will have on provincial and federal tax credits, and potential clawback of OAS itself

No matter when you decide to start receiving your benefits, remember you have to apply six months before your intended start date to allow for processing.  As always, if you have any questions, or need help figuring it out, give me a call.

Have a great weekend,

Tracey

 

Source:  original article written by Doug Carroll, VP Tax & Estate Planning, Invesco Canada.  Originally published in Advisor’s Edge Report. Advisor.ca 06-26-13