Survivorship benefits for CPP and OAS

Survivorship benefits for CPP and OAS

Long-time readers of this blog will know I remain many years away from full-on retirement – so I have tons of time to consider when to take our Canada Pension Plan (CPP) benefit and our Old Age Security (OAS) benefit.

For those that might be closer to retirement age and/or you want to know when to take CPP or OAS, make sure you read these posts below!

These are the best options when to take CPP.

When to take your Canada Pension Plan benefit

Should you defer CPP to age 65 or even age 70? Here’s when to consider that.

Should you defer your Canada Pension Plan to age 65 or 70?

One factor rarely covered on many blogs or financial forums is the subject of survivorship benefits for either program. It can be a major factor when determining when to take CPP or OAS for some.

What are the pros and cons of taking CPP or OAS early or late, when you factor in survivorship benefits?

Like other financial subjects, I have my own ideas based on our financial plan but I wanted to talk to an expert. I reached out again to Doug Runchey, a pension specialist who has more than 30 years of experience working with both CPP and OAS programs.

In our latest discussion, we tackle the survivorship subject and what general rules of thumb apply.

Doug, welcome back.  Good to chat again and I hope you’ve been well…

Thanks for having me back again Mark.

I always appreciate the outreach for a take on this important subject. I agree, this isn’t talked about enough: how survivorship factors into government benefits decision-making.

For those folks not familiar with the benefits of CPP, can you remind them about the factors they should consider – when to take CPP?

The most important thing is to know exactly what your real choices are, because the numbers on your SOC or online at the MSCA website are not always very accurate. Once you have accurate numbers, you should consider factors like life expectancy, taxation, impact on other benefits (e.g., GIS), estimated expenses and other income streams.

When to take your CPP should be integrated with your overall financial retirement plan.

As we discussed in a previous post, there are some reasons to take CPP or OAS as early as possible:

  1. you need (and want) the money to live on now (probably the biggest reason)!
  2. you have good reason to believe that you have a shorter-than-average life expectancy; take the money now and spend as you please.
  3. you already have a good reliable defined benefit pension with full indexing and the CPP and OAS are “gravy”;
  4. you want to delay taking your portfolio withdrawals since you may wish to maximize the amount of money in your estate; and/or
  5. you are a “bird in hand” investor so you take Canada Pension Plan money now while you can.

Great reminders. So, what about the survivorship benefits of CPP? How are these calculated? Should that play into the decision, when to take CPP?

They should Mark.

CPP survivor’s pensions are based on two different formulas, depending on the age of the surviving spouse.

For now, let’s just consider the formula for survivors over age 65 and that is 60% of the deceased contributor’s “calculated CPP retirement pension”. By “calculated”, I mean prior to applying the age-adjustment factor if they started receiving their retirement pension before/after age 65. This 60% is reduced however, if the surviving spouse is also in receipt of their own CPP retirement pension, under what are known as the “combined benefit” calculation rules.

These combined benefit calculation rules should definitely be a factor in deciding when to take your CPP if the survivor’s pension is in play prior to making that decision, but probably not otherwise.

Shall we look at an example, from a couple that prefers the “bird in hand” income?

To demonstrate these combined benefit calculation rules, let’s use an example where the husband’s calculated CPP was $1,000 and the wife’s calculated CPP was $700.

If they both took their CPP early at age 60, they would each receive 64% of their calculated CPP, which would be $640 for the husband and $448 for the wife.

If the husband passed away at age 70, the wife would normally be eligible for 60% of his calculated CPP, which is $600. Under the combined benefit rules though, that amount is reduced by 40% to $360.

As a result, the survivor’s retirement pension is increased by a “special adjustment” in the amount of $86.40 (36% of the $240 reduction to the survivor’s pension). The net combined benefit that the wife would receive is then $894.40 (her original retirement pension of $448, the reduced survivor’s pension of $360 and the “special adjustment” increase to her retirement pension of $86.40).

Are there any survivorship benefits to OAS? If so, what are the considerations?

The OAS program doesn’t offer any true survivor’s benefits that would begin when a spouse dies.

The only thing that could even remotely be considered a survivor’s benefit under the OAS program is the Allowance for a Survivor. This is a benefit that is available to anyone who is between the age of 60 and 65, has “low income” (under $25,080) and hasn’t remarried or lived common-law since the death of their spouse or common-law partner.

Now that we know CPP has better survivorship benefits than OAS, does this make it a stronger case to delay CPP vs. OAS?

Deferring CPP does not increase the CPP survivor’s pension amount, as you saw above, because that is based on the “calculated CPP” and not the actual CPP. I don’t make the rules Mark, I just explain them and provide the calculations!

For example, someone with a calculated CPP of $1,000 could take their CPP at age 60 in the amount of $640 or take it at age 70 in the amount of $1,420, but their over-age-65 spouse would receive a survivor’s pension of $600 (60% 0f the calculated CPP of $1,000) regardless when the deceased spouse took their CPP.

In closing, if you had to highlight one or two takeaways about CPP and/or OAS when it comes to survivorship benefits, what are those key messages for readers?

The most important takeaway is for those people who are receiving a CPP survivor’s pension prior to receiving their own CPP retirement pension.

The combined benefit calculation rules should play a major factor in deciding when to take their own CPP, and don’t believe anyone who tells you that the rules are as simple as that you will receive all of both benefits, subject to the maximum of a single retirement pension, because you NEVER receive all of both benefits, and the survivor’s pension is ALWAYS reduced when it is combined with a retirement pension.

Great points Doug and thanks very much.

How are we going to manage CPP and OAS?

When it comes to our financial plan, it has me/us taking our CPP no earlier than age 65 and taking OAS at age 65.

I/we will do this for this key reason: the CPP deferral increases by 0.6% per month between ages 60 and 65 and increases even more by 0.7% per month between ages 65 and 70.

I figure deferring CPP to at least age 65 is a simple, guaranteed way to get inflation protection built-in to my senior years with no risk to my personal portfolio.

The longer I can delay CPP, the better and I might even defer that benefit until age 70.

Your mileage may vary.

I recently shared this detailed 3,000+ word post about My Financial Independence Plan. You’ll see I’m not trying to rely on CPP or OAS very much at all. 

Last but not least, don’t forget to check out my dedicated Retirement page with a growing selection of many retirement essays and stories from successful early retirees. Folks that have essentially been there, done that!

Thanks for reading yet another comprehensive post on this subject I look forward to kicking more ideas around with Doug in future blogposts.

Doug Runchey is a pension specialist who has more than 30 years of experience working with both CPP and OAS programs.  Doug contributes to many Canadian financial forums and writes pension-related articles for many financial blogs.  He runs DR Pensions Consulting (no affiliation) and is committed to helping people understand the government pension puzzle.

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Subscribe and join the newsletter! Follow me on Twitter @myownadvisor.

81 Responses to "Survivorship benefits for CPP and OAS"

  1. I have a love/hate relationship with these CPP articles with Doug. I read them several times somehow looking for an epiphany (not the religious kind) that will lead me to the holy grail on a decision on when to take CPP. I’ve got the numbers from Doug (thanks for those) so I have the hard data. I just don’t know what I *want* to do. I’ve probably wembled on this topic more than all other financial decisions combined. I can’t count the number of times I’ve said “on the other hand” to myself. When I was younger I convinced myself I’d get the numbers when I turned 59 and make the decision based on data and science. Now coming up on 60.5 still with no firm decision made.

    Not that this is the only issue I grapple/procrastinate with. I have a RRIF and LIF starting payments in January and still have no firm decision on what to do with those funds either.

    Anyways, just a shout out to Doug. One of the best things I did was to get him to do a CPP benefits report for me.

    Reply
    1. I will definitely delay both CPP and OAS if I can live without them before 70. It would work kindly of like insurance against three possible things: living very long (this is in my genes actually), inflation is high (looks like the government is printing lots of money), my own investment has a poor return (look at what happened this year).

      Reply
      1. Definitely a delay in CPP and OAS helps fight longevity risk.
        By delaying CPP and OAS, you are also deferring the investment risk to the government and away from you in your senior years. That can be both good and bad as we well know since rules can and could change in our future. That said, I like the inflation-fighting protection both programs have designed in. This is good.

        Reply
    2. Good to hear from you Lloyd. Your comment made me smile.

      Despite running my own numbers, seeing the advantages of delaying both, I suspect when the time really comes we’ll take both at age 65 (CPP and OAS).

      I like the deferral for many reasons but at the end of the day, these are also emotional decisions just as much as math. We don’t know what the future holds.

      Doug is an excellent subject matter expert. Happy to have his contributions to my site.

      If you have no firm decision what to do with the funds/money, I would say defer. Depending upon longevity and no desire to manage your money in your 70s or 80s, an income stream to fight inflation might be very welcomed unless of course you can and will continue to grow your money tax-efficiently by taking any “bird in hand” payments soon.

      Just some thoughts of course!

      Reply
      1. “If you have no firm decision what to do with the funds/money, I would say defer.”

        Ya, I’ve said that very thing to myself (several times). Then I tell myself I could take the CPP early and throw it into one of the endowment funds and see the benefit to the recipients whilst I’m still alive. I can’t count the number of times I’ve changed the spreadsheets going each way. In the end, with my penchant towards procrastination, it may very well turn out that I defer. It would be easier if I was forced to make a decision.

        Reply
        1. Ya, I mean, it’s not an easy decision. I mean, you are getting OAS I assume in a few years so there is your decent income at age 65 should you wish.

          Now the question can be do you want CPP now (age 60)? and what will you do with it? If you know the answer – great. Go for it. If not and don’t need it, you can always apply at age 61, 62, etc. once you decide and true to procrastination form – you’ll get more income 🙂

          Reply
          1. “and what will you do with it?”

            If I were to take CPP when I turn 61 in May, I’d most likely add to the non-reg with more XIU. I put what was left of the rental house sale into that and am using the distributions for endowment building. This is likely the route I will go with the RRIF/LIF payments that start at the end of January so it would just add more. This technically preserves the capital in the event of my early demise when the wife would need to hire help to replace what I do now. Conceivably though she’d sell the farm and those proceeds would go a long way to covering any possible additional expenses. She’d also still get half my DB pension and all of the RRIF/LIF/TFSA and the laddered GIC RRSP.

            The TFSA contributions are being funded from current income so that is already covered.

            Or I can wait and do nothing about the CPP this year and look at it again next year. As you say, it only gets larger so no harm there.

            I was going to say I’m pulling my hair out here but after this weeks pandemic selfie haircut, that ain’t really happening either (if you know what I mean). 😉

            Reply
            1. Ya, that’s the thing eh? You’re turning taxable income (CPP) into more taxable income (non-reg.) unless you are going the capital gains only route via a swap-based product like Horizons has. So, I could see if your TFSA cannot be maxed and you’re using CPP income to turn that into tax-free (TFSA) income but that’s not happening. So, the older you get, at least with a delay, the more income you get if you procrastinate 🙂

              I dunno, pros and cons to everything.

              My hair is less by the day so I can relate!

              Reply
                1. That’s understandable. Then it really comes down to personal preference and having a plan for the money if you a) don’t need the money and b) don’t mind paying taxes.

                  Reply
      2. I’m smiling at all these comments. The flexibility and ability to choose is the amazing part.

        I get it on the tough choice Lloyd. I’ve waffled around some myself. Pretty sure on at least age 65.

        Yes Mark I am of similar mind on the age 65 thing. I’d like to do 70 on CPP for myself but not sure if when 65 arrives I will hold off.

        May, I’ve been thinking about 70 too. However, using our own assets in exchange for risk of poor or no survivor CPP/OAS benefits bothers me some.

        Its obvious from above I don’t know the answer yet!

        Reply
        1. I think one factor I have yet to look into is longevity. If I had a better grasp on that it might sway me. I should do like I do my vehicle, take it to a trusted mechanic and ask him if it will make another winter. A complete physical could provide some insight that might be helpful. Again though, my procrastination steps in and I do nothing.

          Looking at Doug’s 1 – 5:
          1) No
          2) Don’t know
          3) Yup
          4) Yup
          5) No

          So basically a tie until #2 is resolved. Did I mention I have a love/hate relationship with these CPParticles?

          Reply
          1. Lol, love/hate relationship. That’s because its urging you out of your procrastination mode!

            Yes, longevity is certainly a consideration. Good idea to check into it. However unless you have a known personal health issue or family history of problems or shorter life my guess is odds are you will live into your early 80’s+ for a male; and the fact you’re already over 60 increases your longevity from that average. I have a basic annual check up, blood work etc, eat well, exercise a lot etc. Insurance questionnaires indicate possible age 91 here.
            I’m age 61.5, wife just 62.

            For me:

            1. No
            2. No
            3. No
            4. Maybe, doubtful
            5. No

            Reply
            1. “and the fact you’re already over 60”

              whoa, whoa, whoa….I am not *over* 60! 😉

              I live with a heavy smoker, on meds for mild hyper-tension, do not eat as well as I should, lungs are a bit wheezy already (likely due to second hand smoke and farm stuff exposure over many years), 36 years of shift work, do not exercise as well as I should either. Father lived to 88, mother passed away at 60 due heart attack. I’d not bet on longevity myself. Having written all that out, I probably should have already applied for CPP!

              Reply
              1. Haha, it was your coming up on 60.5 (that’s nearly point five over 60!)

                Gotcha. All the more reason to see your body mechanic!

                My parents are living, both 84, mom excellent health but no memory, dad heart issues- AF (his dad died age 40 from H A). Mostly real good longevity way back on both sides for me. Who knows though. I push myself extremely hard. Strongest I’ve been maybe in my life.

                Its an easy decision not to take it early like he referred to. 65 is a no brainer for me. Delaying further….dunno. Will revisit it in another 3 years and see.

                Reply
                1. I’m like a toddler, only full numbers really count. I even refused to have a 60th this year and went with a second anniversary of my 30th celebration.

                  I have convinced myself that no matter my decision on exactly when, I will only apply following a birthday. So if I “forget”, I have to wait until the following year. In my delusional mind that some how makes sense but I have yet to verbally articulate that to anyone.

                  I’m kinda proud I got off my butt and set up a RRIF and LIF to start in 2021 (almost broke my arm patting myself on the back for that). Shutting down the farm offered an opportunity to get some funds de-registered at a reasonable tax rate starting in 2021. I shut down the DRIPs in those two accounts in the spring and as long as this market doesn’t get too high, or I get any dividend cuts, the yield will cover minimum withdrawals till I’m about 69ish. Haven’t decided where to put these payments yet. Might buy more XIU or just park it in savings (did I mention I’m a bad procrastinator?)

                  Reply
          2. My answers are NO to all five questions, no wonder I don’t hesitate on this.

            But longevity could really be a concern. Both parents of my DH died young. I have genes on my mom’s side with a much longer than average life but some problems with my daddy’s side. Well, maybe I will change my mind depending on our health.

            Reply
            1. “Well, maybe I will change my mind”

              Welcome to my world May. 🙂

              Seriously though, I suppose having the option to take CPP at various times is not a bad thing to have.

              Reply
              1. Saw that this morning. It’s basically the same stuff almost everyone writes about. Delaying gets you larger CPP payments.

                If it was solely about the dollars it should be an easy black versus white issue. It seldom is though. Throw in a disabled partner, loss of benefits in the event of a death of a partner, reduction in pension due to said death, disabled adult children, and dozens of other considerations that I suspect the vast majority of people do not consider whilst evaluating the CPP issue.

                Sure it sounds great in theory, retire, use up RRSP funds till 70 before taking enhanced CPP/OAS. Now throw a wrench into the gears and see how it works.

                Reply
                1. I agree each of us will have their own considerations to deal with, and that many people may not consider all of them before deciding. Because it’s not always entirely simple. Also why I know I have more thinking to do before deciding several years from now.

                  Reply
                2. Great points Lloyd. It’s not always simple and there are many emotional factors involved. I can also appreciate life happens and it’s impossible to plan for that.

                  Reply
        2. Indeed. The flexibility is everything I am striving for…

          Ya, I could see me doing the 65-thing for both but it is my hope I can hold off until 70 for CPP anyhow. We’ll see of course!

          Reply
          1. The years are flying by and decision time seems to be coming faster than I thought!

            I didn’t mention above but certainly market returns and investment income levels will influence our choice too.

            Reply
  2. On thing to consider if you delay your OAS to 70 years of age is that the year you turn 71 you have to convert your RRSP to a RRIF and start to make withdrawals the next year. If your income is over $79054 (in 2020) your OAS will start to be clawed back, and it will be entirely clawed back at an income of $128,127. So if you are in this situation, it may be beneficial to start your OAS at 65 when your income may be lower and you will be able to keep your entire (or more of) your OAS until your RRIF payments kick in at 72 years old. In this situation it would also be beneficial to delay your CPP to 70 years of age since this would further reduce your income from 65 to 71 years old and allow you to retain more of your OAS income.

    Reply
    1. Hi Roger – I agree that’s one way of avoiding/reducing the impact of the OAS clawback, but let’s consider how this same goal can be accomplished by deferring OAS. That gives you the opportunity to withdraw whatever amounts of your RRSPs from age 65 to 70 (or even to age 71) without those withdrawals being impacted by the OAS clawback (since you wouldn’t be receiving any OAS). Then when you receive OAS with the 36% deferral increase this also increases your maximum income threshold to approx $145,806 instead of $128,127 from then forward.

      Reply
      1. That’s exactly our plan. We want to retire before 60, so we will have at least 10 years to withdraw RRSP and hopefully manage not to have OAS clawback.

        Reply
      2. Thanks Doug. Your expertise is greatly appreciated on this site.

        The more and more I read about deferring CPP and OAS, the better it sounds certainly if you can live off other assets/personal assets before age 70.

        Triggering any sort of OAS clawback, although rules on that can always change, seems very counter-productive.

        Reply
    2. Thanks Roger. From your example, I would add that any OAS clawback seems counter-productive so the more you can preserve that income, and minimize any OAS clawback or avoid it altogether, the better.

      That said, when I read about anyone having an OAS clawback issue that means their issue is a tax problem in retirement, not an income problem. I’m only happy to have a tax problem in retirement. Bring it on 🙂

      Reply
      1. The distinction between CPP income and OAS income is that with CPP you keep after tax income. With OAS you keep after claw back income which approaches zero as your income increases to the fully clawedback level.

        I still have employment income at age 66 so I continue to contribute to my RRSP or my wife’s spousal RRSP both of which have become quite large. I have concluded that like Don G’s post below we could not draw down our large RRSP’s to a low level before age 72 without putting us in a higher tax bracket. Therefore my wife (and maybe I) will collect whatever OAS we can from age 65 to 71 and have a “tax problem” when our large RRIF payments begin at age 72. Yes it is not a bad problem to have and we plan on donating more and more to charity as we age.

        Reply
        1. Thanks Roger and yes, aware of the clawback mechanism with OAS.

          I’ve read from a few successful investors and savers (like you perhaps, Don G.) that winding down the RRSPs is going to be a challenge by age 71-ish so you’ll need to consider taking CPP and OAS early since it will be blended income and you wish to avoid clawback simply by deferring the benefits. I can see that.

          I guess I see big benefits in trying to simplify the portfolio (some personal assets gone in early 70s = RRSPs = RRIFs gone) and then transferring some of that investment risk to the government. But that’s a risk too 🙂

          Kudos on your donations. Well done of course!

          Reply
  3. With 25 years of retirement under my belt, a lot of this is too late for me. But I have children with retirement in their sights, and they need guidelines. Like me, they have small RRSPs and modest defined benefit pension plans. But I urge them to contribute to their RRSP still, for twp pay-offs:

    1. Immediate tax return for whatever, but especially TFSA contribution.

    2. A bridge of very roughly $100,000 on retirement to provide a cash flow while CPP and perhaps OAS continue to build. The flow is taxable but tax would be very low, if any in this period. They could take an annuity approach, calculating an annual withdrawal that should drain the RRSP to zero in, say, 4 to 7 years. Of course, dividend growth continues to play on the residual each year. And cannew has shown us what to invest in. Am I missing something?

    Reply
      1. Thanks Steve. That’s what I’m learning as well from many Canadians, especially if they “don’t need the money” it’s best to defer CPP and OAS if you can, and use up personal assets where possible. Worse case, people still have RRSP/RRIF to draw down in their 70s and they are getting good inflation-protection benefits from likely CPP and OAS as well. Without debt, that’s a great winning formula.

        Of course, the government can always change benefits rules with legislation but CPP and OAS in some form should be “safe” for the coming couple of generations including GenX – our cohort.

        Reply
    1. I think even having a small RRSP balance to go along with a modest DB pension is going to provide your children with options Douglas. Financial flexibility is smart.

      I personally won’t rule out an annuity for me eventually but our plan has us strategically drawing down our RRSPs/RRIFs in our 50s-70s, leaving CPP + OAS + TFSAs “until the end”. I don’t like annuities because of the fixed structure of them. I want our RRSP withdrawals to be a bit more dynamic to account for various spending changes if and when we need them.

      Like cannew in the coming decades, it is my hope to continue to own a blend of dividend paying stocks but I will also have some low-cost ETFs for simplification and diversification.

      Reply
  4. Hi Mark, good article on CPP and OAS. We both turned 65 this year and have been retired 10 years. We both took our OAS this year. My wife took her CPP at 60 and I just started to take CPP at 65. The main reason for the difference was that we front end loaded our work pensions with additional revenue later to be reduced by amounts equal to CPP and OAS payments when we became eligible. My wife’s teacher’s pension had the CPP deduction applied at age 60. My smaller pension was not so much of an issue.

    We wanted to have enough money early, to travel the world while we still young enough to do it and enjoy it. We managed to visit our seventh continent, Antarctica, in 2019.

    It also might be good to remind your readers to ensure their TFSA’s have their spouses listed as Successor Holders and not Beneficiaries. I know that when we signed up for ours there was no discussion about this important difference, so we just made each other beneficiaries. We’ve changed that now to Successor Holders so that when one of us passes, the other one can increase their TFSA to include the funds from both our TFSAs, with no tax penalty.

    Reply
    1. Thanks Randy.

      Interesting to read, re: your wife took “her CPP at 60 and I just started to take CPP at 65.”

      Seems to be another great case where personal finance is personal. Do you get professional advice for that decision or come to that conclusion on your own? Certainly a teacher’s pension is outstanding.

      I hear ya on the travel – I hope we can travel again in 2021. “We managed to visit our seventh continent, Antarctica, in 2019.” WOW. Great stuff.

      Also, great point on beneficiaries and I wrote a comprehensive post on that subject as well. We have our TFSAs set up as success holders.
      https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/

      How else are you managing your accounts for tax efficiency? Seems like you have already made some good progress.
      Mark

      Reply
  5. Very interesting interview and perspective. As always, lots of individual cases and factors.

    Here’s our story. I’m 67.5 and have been retired since 60 without any company pension. My wife is 63.5 and was stay at home so only minimal CPP. I took CPP at 60 and OAS at 65. My wife took her minimal CPP at age 60 and will take her OAS at 65.

    I converted my entire RRSP to a RRIF at age 64 using my wife’s age for withdrawals. (for income splitting)

    My wife also has a spousal RRSP (that is actually bigger than my RRIF).

    We tried really hard to draw our RRSPs down but our portfolio has just been too good to us and gone up faster than we could draw them down. (of course, I’m not complaining about this and consider it a very nice problem)

    So, first off, we’re both bird in the hand type people. This is especially true for OAS as who knows what our wonderful gov’t is going to have to do to make up for their over-spending. OAS may end up being reduced and/or OAS clawback rates may end up being greater.

    The actual biggest reason for taking CPP and OAS as soon as possible means that we will have 15 years of no/minimal OAS clawback. (from my age 60 to 75 when my wife has to convert her RRSP to a RRIF). Once my wife converts to her RRIF, we will have some significant clawbacks. If we had waited longer for CPP/OAS, it would just mean bigger payments and thus bigger clawbacks.

    Anyway, that’s are story. I suspect a few others may be in this boat.

    As an aside, if the TFSA had been around earlier, we would have stopped contributing to our RRSPs earlier.

    Ciao
    Don

    Reply
    1. In cases where you really don’t need the money, I think it’s best to defer.

      That said, I can appreciate if the CPP is small then it’s a “bird in hand” argument and potentially makes emotional sense to take the money.

      “This is especially true for OAS as who knows what our wonderful gov’t is going to have to do to make up for their over-spending.”

      This is a legitimate concern by so many. Maybe there will be a move to merge OAS and some elements of GIS together eventually. Do we really need both or can these programs be merged for effectively? I bet there are opportunities….

      I’ve long since argued that no senior making any money over $70,000 per year needs any “income security”.
      https://www.myownadvisor.ca/time-overhaul-old-age-security-oas-101/

      It seems from a tax efficiency prospective you are doing the best thing possible. re: to minimize OAS clawbacks. Every situation is different which is why personal finance is personal. 🙂

      Is there anything else you wished you did Don G – for better tax efficiency now that you know what you know? Curious!
      Mark

      Reply
      1. Lol, I have the same unfortunate problem as Don. This last year has been spectacular for my investments to the point where if we weren’t planning on taking early retirement next year drawing down our assets early in RRSP and LIF’s avoiding clawbacks in the future would be near impossible(May still be :). To the point of RRSP contributions I will now use my remaining room to contribute to a spousal plan to take advantage of income splitting after age 65. I too now question having used an RRSP for a savings vehicle and wish I had first maxed my wife’s and my own TFSA and caught the RRSP’s up later. I’ve managed to max my TFSA and grow it 25k over the allowable contribution max. I ruefully wonder what I could have attained if I had been proactive in investing in it right from the get go versus sporadically using it then maxing it in the later part of it’s availability. I’ve now adopted an opinion in which I tell my wife’s children to put priority on contributing to their TFSA before their RRSP just for the sheer flexibility later in life it provides. Also it it not to be left as cash rather invest it in something within their comfort level.
        Unlike some blogs I have read which recommend not putting higher risk investments inside the TFSA as you do not regain the contribution room you may lose on your losses I have always done the opposite. I saw this money as my fully invested emergency fund where I would simply cash my stocks if necessity arose or money I could more afford to speculate with. Having had some huge winners in my non-registered accounts incurring capital gains, I think it would have been more prudent to have purchased them within my TFSA and held more of my dividend players in the non-registered. Thoughts?
        In the last three business days I’ve moved 30% of my portfolio to cash. Would it make sense to also convert my TFSA into 100% cash remove it mid December this year and lock in the added re-contribution room from the gains to be able to put it back in the subsequent years after I’m able to pick up some more value added investments on some likely upcoming market dips?
        Wonder if anyone has thought about the potential/possibility of renting out unused TFSA space??? Hope no-one from Revenue Canada reads the blog. Lol

        Reply
        1. Jeff, I’m biased, but I think it’s super smart. re: max out TFSA as much as you can and then if that is maxed out, regardless of your income, then max out RRSP after that. Tell those kids now and 30-years from now they will be wealthy even with modest returns as long as they focus on equities.

          I consider the TFSA as an investment account so I’m 100% equities there but I can appreciate others folks may want to be more conservative. More of an emergency fund type of thing. Personally, I prefer my emergency fund in a savings account that can be easily accessed without many rules to think about i.e., TFSA.

          I feel the best of both worlds is having “huge winners” in TFSA and non-reg. TFSA is tax-free for those winners and non-reg. is also tax efficient with capital gains at 50% now.

          FWIW, I have those 100% equities in TFSA and non-reg. and to your question, dividend payers in non-reg.
          You can find a bit of what I own where, and why, here:
          https://www.myownadvisor.ca/dividends/

          No doubt someone at CRA reads the blog so I do everything by the book 🙂
          Cheers.

          Reply
  6. Minor correction to the comment “we will have 15 years of no/minimal OAS clawback. (from my age 60 to 75 when my wife has to convert her RRSP to a RRIF).” – make it 10 years. The other 5 are just getting full benefit of the CPP.

    Reply
  7. Great article. The “larger piece of a smaller pie” applies to me as I have retired at 55 and don’t plan to collect CCP until 65. When I checked the CRA site for my record of contributions there were years where there were obvious mistakes (no maximum contributions, zero contributions). How hard is it to get the government to correct the numbers that they will eventually use to calculate the CPP?

    Reply
    1. Ya, I can’t speak to that Stuart but likely very frustrating for you if the math is not correct. Have you tired to contact them to rectify? I know I try and check my numbers every few years just to be safe for the reasons you cited.

      Thanks for the kind words about the site and article.
      Mark

      Reply
    2. My mother passed away last year and as a result of applying for the CPP death benefit, the CRA reviewed her CPP payments and found out that she had been underpaid for decades because the child rearing exclusion years were not calculated correctly. Her estate was sent a cheque about $25000. I would suggest that the CRA calculations for CPP payments be reviewed carefully but unfortunately I understand the calculation is quite complicated. It does not leave one with a warm feeling to rely on them to calculate it properly!

      Reply
  8. Here’s a bit further explanation for us.

    Mark’s comment: In cases where you really don’t need the money, I think it’s best to defer.

    My comment: We didn’t need the money but I think it was still better for us in the total tax picture to take it right away as postponing my CPP would mean bigger clawbacks once my wife turns 72 as it would be more total income. Also, my CPP isn’t small – it’s $806/mo. I’ve also invested this extra cash along the way and made good returns on it. The “opportunity cost” of not having the early CPP is rarely discussed A person can easily make 5-6% on it and then it compounds.

    Mark’s comment: I’ve long since argued that no senior making any money over $70,000 per year needs any “income security”.

    My comment: If by income security, you mean OAS, then I totally disagree with penalizing people that have saved all their life. OAS is paid out of the general CRA revenue pool so I always view it as getting some of my many years of taxes back. As I’ve said, I never had a huge salary. My wife & I & family just had a really inexpensive lifestyle (lots of outdoor stuff) and never pissed any money away

    Mark’s comment: Is there anything else you wished you did Don G – for better tax efficiency now that you know what you know?

    My comment: Not really. Maybe stopping contributing to our RRSPs one or two years earlier might have helped but that’s pretty minor. The only other one is contrary to Jeff’s TFSA comment. We did put all our speculative stocks into our TFSAs and lost much of it with oil & gas producers Surge Energy, Long Run Exploration, and Baytex. Then to top it off, we couldn’t claim the capital losses.

    It did teach us a huge lesson to never again invest in any directly related commodity stocks – ie: O&G producers, mining, gold, consumer, etc, etc. Every dollar of our portfolio is limited to TSX listed banks, utilities, telcos, midstream, and REITs.

    As an aside, with our new philosophy/strategy on the limited sectors, we have both finally returned to the positive side on the TFSAs (albeit a pretty small return with a combined total of $161.3k vs our combined $139k of contributions over the 12 years)

    Ciao
    Don

    Reply
    1. Some great takes and counter-points Don. I enjoyed reading those.

      CPP at > $800 per month is pretty good. That’s extra cash to invest for sure, or travel, or do other stuff with. 5-6% investing after CPP is paid should be modestly easy to do given long-time horizons!

      Yes, OAS for those over $70,000 per year should not be given. I struggle with the program I guess Don. I feel true “income security” should really only apply for the less fortunate. I do understand how OAS comes from general revenues. Maybe I’m looking for a better wealth distribution model?

      You strike me as someone very good at money management.

      I’ve been burned by some O&G as well so I’m not investing more in this sector than I have! Other than my pipelines, just Suncor here.

      “Every dollar of our portfolio is limited to TSX listed banks, utilities, telcos, midstream, and REITs.”

      Like many DIY investors in Canada 🙂

      Thanks for the detailed comments.
      Mark

      Reply
  9. Hey Mark, I started my CPP at 63 and OAS at 65. My wife and I knew our expenses and wanted to add $10,000 to $15,000 for yearly travel. Using the 4% rule (more or less) with savings, it was easy to calculate that taking pensions at that time would do the trick. Yea, we could have more in our pockets by waiting, but there is no way to get back the fabulous years of travel and memories we have accumulated.

    Reply
    1. That’s a fair and informed assessment Paul. Life is for the living and it’s all about your personal plan and tailored to your needs and wants. Life is short and best to make good use of it. 🙂

      Reply
  10. I haven’t thought about CPP or OAS benefits since I am too far away age wise to think about it. But I have to say, since I don’t really expect to live too long my gut reaction is to say take whatever I can get at the earliest time possible. Meaning if I am eligible to receive anything at 60 to 63 then I’ll apply and take whatever I can get which probably won’t be much anyways. Since I will most likely not have a pension of any kind. I’ll probably do just that.

    Reply
    1. Interesting take and nothing wrong with any bird in hand decision per se – as long as it is an informed one! Lot of folks do take CPP as soon as they can, because in some instances, they put that money to work inside TFSA or tax-efficient investing as well. That’s an approach as well.

      Reply
  11. Hey Mark

    I was just reading a post on Michael James blog as to why he’s going to take CPP at 70. His table is very simple and doesn’t even show a cumulative total. It got me thinking about my comment on the “opportunity cost” for me if I had waited until 65. I made up a spreadsheet to test some various returns using my actual CPP at 61 (first full year) vs full CPP at 65. I was shocked to see that even a 2% return on the CPP payments means I would still be way ahead even at age 90. (see table below – I used a CPI increase of 1.7% per year to reflect the CPP payments – that’s the actual average I’ve had so far)

    Ciao
    Don

    Avg incr 1.017 Avg Retrn 1.02
    Age CPP Early Cumu 5% CPP @65 Cumu
    61 8,751 8,926
    62 8,909 18,191
    63 9,069 27,805
    64 9,141 37,685
    65 9,278 47,902 13,116 13,116
    66 9,492 58,542 13,338 26,454
    67 9,672 69,579 13,565 40,019
    68 9,836 81,003 13,796 53,815
    69 10,004 92,827 14,030 67,845
    70 10,174 105,061 14,269 82,114
    71 10,347 117,716 14,511 96,626
    72 10,523 130,803 14,758 111,384
    73 10,701 144,335 15,009 126,393
    74 10,883 158,322 15,264 141,657
    75 11,068 172,778 15,524 157,181
    76 11,257 187,716 15,788 172,969
    77 11,448 203,147 16,056 189,025
    78 11,643 219,085 16,329 205,353
    79 11,840 235,544 16,607 221,960
    80 12,042 252,538 16,889 238,849
    81 12,246 270,080 17,176 256,025
    82 12,455 288,185 17,468 273,493
    83 12,666 306,868 17,765 291,258
    84 12,882 326,145 18,067 309,324
    85 13,101 346,031 18,374 327,699
    86 13,323 366,541 18,686 346,385
    87 13,550 387,693 19,004 365,389
    88 13,780 409,502 19,327 384,716
    89 14,014 431,987 19,656 404,372
    90 14,253 455,165 19,990 424,362

    Reply
    1. Yes, interesting stuff. Have you had Doug run any numbers for you? Might be worth it since he’s the the pro! Since you’re a reader of this site ask him for a discount 🙂 I have no affiliation with Doug on that but you can’t get what you don’t ask for! Right Doug?

      Thanks again for your contributions.
      Mark

      Reply
      1. Hey Mark

        Before I decided back in 2013, I just did a simple spreadsheet to check the break-even of 60 vs 65 and it was 75.9 for me. It;s a little later than it would be now as I got in when the penalties for taking it earlier were slightly smaller.

        At the time, I didn’t account for any investment returns which I now realize cam be a very big factor especially if the OAS is put into the TFSA.

        Thanks on the Doug comment but since I’ve been collecting for over 7 years it would only be for interest’s sake and I’m fine with what I’ve done.

        Take her easy
        Don

        Reply
        1. Oh I think you’re more than fine based on what you’ve done! I’m finding some readers it’s really an emotional decision far more than math. There is no right or wrong, it just needs to be an informed decision 🙂 I hope to collect CPP at no earlier than 65, and likely collecting at age 70. I will likely take OAS at age 65. I will use any OAS income to fund the TFSA every year (if it’s still around)!

          That’s what my personal financial independence plan tells me but of course, lots could change.

          Reply
  12. Ooops, small typo in table – the Cumu 5% title should actually be Cumu 2%. I initially was using 5% as that is more realistic but changed it to 2% to show that was still better.

    As an aside, the 5% at age 90 had an age 60 cumulative of $740.6k vs age 65 cumulative of only $424.4k. (almost double – the beauty of compounding returns)

    Ciao
    Don

    Reply
  13. Must be time to watch some football. Bad assumption on my part in that I factored a return in for the age 60 CPP case for all years but not the age 65 CPP. case.

    I re-did the table and used a 5% return for both and now the age 65 CPP catches up at age 83. I think 5% is conservative as that is our actual average yield so doesn’t account for any capital gains so I re-did with a 7% average return and the balance age is 92.

    Anyway, a very interesting exercise and it certainly reinforced to me that if the CPP money isn’t needed and is going to be invested, then it is best to take it early. Also, I didn’t account for taxes or OAS clawback which in our case would make the age 60 case even better.

    Ciao
    Don

    Reply
    1. That sounds about right Don. I’ve calculated and seen some break-even points now and then.

      I figure if you’re age 60 – then the break even point to collect the same amount of money when you turn age 65 is about age 74-75.
      I figure if you’re age 65 – then the break even point to collect the same amount of money when you turn age 70 is about age 82-83.

      That is using modest rates of return about 5% or so.

      Ultimately, if you want and need the money it makes sense to take CPP early.
      If you don’t, and you think you should live past ages 74-75, then it makes sense to take CPP at or after age 65.

      Certainly if CPP does better, higher returns, then the break-even point is extended out. I’m not counting on that 🙂

      Always an interesting discussion on this topic for everyone. CPP and OAS are sensitive subjects for many!!

      Reply
      1. Doug worked out the break even point based on what age I take it. Obviously does not consider investment factor of payments but it’s a great product.

        On the basis of the above calculations, I prepared the attached “breakeven” chart. As
        you can see from this chart, you will be ahead financially (considering the CPP only) if
        you take your CPP:
         At age 60 and if you don’t live past age 70
         At age 61 and if you live past age 70 but not past age 72
         At age 62 and if you live past age 72 but not past age 74
         At age 63 and if you live past age 74 but not past age 78
         At age 64 and if you live past age 78 but not past age 82
         At age 65 and if you live until at least age 83

        Reply
        1. Hey Lloyd

          How she go?

          I didn’t see a chart in your post but the numbers you present are quite interesting. My calc on 60 vs 65 without any investment returns had a breakeven at age 75.9 which is way different than your 70 number. As mentioned, the penalties for early CPP at that time were less than they are now.

          No big deal for me as I’ve been collecting (and investing) CPP for over 7 years so it’s a done deal. All others should do their own calcs and put in their appropriate factors. I personally think that in situations where the money isn’t needed, then some sort of investment return factor should be considered. As I mentioned, the average yield that my wife & I get on our entire portfolio is 5.09%.

          Take care
          Don

          Ciao
          Don

          Reply
          1. I didn’t put the chart on as, A) I don’t know how, and well, I don’t know how. I do note I should have put quotes on that cut and paste.

            I figured the verbal description from Doug is pretty well the same thing as the chart says anyways as far as break even timing except without the actual dollar amounts. The analysis that Doug does, (or at least what I asked him to do) doesn’t take into account any investing variables that would be applicable to each individual. Some might go for growth, some might go for dividends, some might go for safety and some might go for any combination of the dozens of investing practices.

            I don’t analyze the various portfolios and accounts in an overall manner. I break them down by the type of investment and which account they are in. The RRIF and LIF are 100% equity. My GIC RRSP is, well GICs. The Wife’s RRSP is 64/36 equity/GIC. Our TFSAs and my non-reg are 100% equity and our rainy day savings are 100% HISA/1 year term GICs. Not much point in calculating an overall yield as it would be unlikely I’d invest any CPP funds in the same breakdown. I’d likely go with XIU if I were to go that route and it yields just over 3% and who knows what the total return would be.

            As you’ve read, I don’t *know* what I’m going to do. There are merits for all the scenarios (early, normal or defer). For now, I’ll get the RRIF and LIF figured out (as far as amounts go) in the new year and revisit the CPP thing in April or May. I’d like to know where in the tax brackets we will be sans farm income and RRIF/LIF income.

            Reply
            1. I recall XIU total return over the last decade Lloyd is about 6-7%. It should be the same next decade. A low-cost fund for the U.S. market like XUU (that you can own on the CDN-side) has delivered about 12-13% over the last 5-years. (The fund has only been around since 2015.)

              The combination of those two funds + your rock-steady GICs should provide cash for life. Your CPP and eventual OAS will be gravy it seems. Well done!!!

              Reply
              1. I think that is why I’m leaning towards XIU. With an approximate 3% distribution I can build up the endowment funds and still get some growth going forward (and it is decent diversification). I have the majority of the non-reg in that now with a smaller holding of XEI that I’ve had for a bit that I never got around to selling. All distributions from these two non-reg holdings now go to the endowments so I’ve just let them go on by themselves. The RRIF/LIF can go into there and *if* I take the CPP I could put that in there as well. Once I get tax brackets figured out in 2021 I could have the option to take some of the GIC RRSP funds out to optimize taxes. Lots of options and really there is no pressing need to do much of anything for the next few years if I don’t feel like it.

                Reply
                1. Yup. XIU is a great product. I mean, if the top-60 companies in Canada aren’t making money, then nobody is. I used to own it and was a big fan until I decided to unbundle it for my love and bias of dividend paying stocks in Canada. Who knows, I might eventually own it again when I get tired of dividends 🙂

                  I figure any combination of XIU (CDN) + XUU (US) + some small XAW (int’nl) or VIU (ex-North America) is a great combo.

                  You have lots of options and that is outstanding.

                  Reply
  14. Concerning the overall discussion of CPP here is probably the most comprehensive report of it I have ever read. Just finished. Very well done. I learned some things that are beneficial to my decision making. I noticed Doug was also a contributor.

    Hope it is helpful.

    https://static1.squarespace.com/static/5c2fa7b03917eed9b5a436d8/t/5fce8835cf1e13320fa435a5/1607370805626/FINAL+-+NIA_Get+the+Most+from+the+Canada+%26+Quebec+Pension+Plans+by+Delaying+Benefits.pdf

    Reply
    1. Ya, that study was mentioned over at the other place this morning. I took a look at it and yes it is very well done. Not sure I learned much that I wasn’t already aware of though. I did like the one comment…. “I was looking for (but didn’t see) a family income scenario where the surviving spouse loses much of their deceased’s CPP (and all of their OAS), while having spent down their RRSP savings to defer CPP till 70.”

      I added the comment that in some cases, a portion of a company pension could be lost as well. Certainly if I die, my spouse only gets half of my pension *and* loses my health benefits. This is a cost that must be taken into consideration that does not seem to get mentioned much. Theoretically, a good advisor would bring such things up right?

      Reply
  15. I checked that out. I agree that is not often raised, and a good advisor should raise it to consider.

    In the study I was surprised of 4000 people surveyed age 40- 64, 2/3 did not know benefits could be delayed, and 40% of people surveyed had already started taking benefits.

    Similar here but the shoe is on the other foot. The survivor income benefit for me is 60% (non cola) but other benefits continue. This pushes me towards the delay category.

    What was most noteworthy in the report for me was the impact of wage growth on the delayed payout. That gives an extra pop to the benefit.

    For me another consideration is self managed investments. Now its still great to handle it. Assuming longevity do I want to, and will I be able to manage investments in 20 years, vs. having less to manage and receiving more CPP into my bank account. Or it may be necessary to look at other options for management.

    Reply
    1. I’m seldom surprised anymore with the lack of financial awareness of the general population. Sure, the specifics of a program are often beyond a lay person (raises hand) but at least having a rudimentary knowledge of the program given the technology available ought not to be a stretch.

      I have trouble trying to figure out next week. Worrying too much about logistics ten-twenty years from now is beyond my poor little pea brain. Having said that, I can see us working with a professional at some point in the future as the wife has no interest in managing the finances. I will have to have something set up in the event I go first or at least a path for her to take. But I do not want the cupboard to be bare, or even scarce, should that happen. I did volunteer taxes for a few years and found myself getting angry at guys (and they were always guys) who left their wives in a financial lurch. Not gonna happen in this house.

      Reply
      1. Ya, agree on widespread lack of financial awareness. But it never ceases to amaze me. People know how to work every tiny aspect of their smart phone; and every available app. but don’t understand the basics of financial stuff that truly is important. Shakes head.

        Pea brain- not my friend. My wife has zero interest in finances too. I totally get it on leaving a wife in the lurch. Never here too. I have written instructions in our IPS, on what she is to do if I die first. She will be very fine.

        Reply

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