The global pandemic has had an unforeseen and unprecedented impact on almost every aspect of our lives. New considerations about our health and wealth have taken shape. In a recent landmark study of 1,000 Canadian respondents across five generations, Edward Jones, in partnership with Age Wave, examined how the pandemic was impacting the outlook for retirement in Canada.

A key finding was that eight million Canadians are reconsidering their retirement timing as a result of COVID-191. One in three Canadians planning to retire are thinking about retiring later than they had prepandemic for reasons that include reduction in savings, loss of investment value, need for more income, and uncertainty about how much money they will need in retirement.

At the same time, nearly one in ten of those who had been planning to retire are now considering retiring earlier than before. Some of these individuals are simply looking forward to enjoying retirement and spending time doing things that are more important to them than work, but some Canadians are simply not optimistic about their future work opportunities.

Whatever the reason, a change to your planned retirement date impacts the critical assumptions of your retirement strategy. Two of the key areas that may be impacted by a change to a planned retirement date are the optimal times to begin taking Canadian Pension Plan/Quebec Pension Plan (CPP/QPP) and/or Old Age Security (OAS).

OAS and CPP/QPP Forecasted Expenditures, 2020-21

Old Age Security (OAS) Canadian Pension Plan (CPP) Quebec Pension Plan (QPP)
$59.5 billion $52.2 billion $16.0 billion
Source: Employment and Social Development Canada, Canada Pension Plan/Old Age Security Quarterly Report – Monthly Amounts and Related Figures Type of Benefit from July to September 2020.

CPP/QPP

The amount you will receive from CPP/QPP depends on several factors, including the age you decide to claim your pension, your average earnings throughout your life, and how long and how much you contributed to the CPP/ QPP. The standard age to start taking CPP/QPP has traditionally been 65, however, you may take it as early as age 60 or as late as age 70. The monthly amount you receive will be smaller the earlier you make your claim and increases to a maximum amount by age 70.

Many people are surprised to learn they will not receive the maximum amount (only 6% of Canadians do), with the average recipient receiving about 60% of the maximum. If your retirement date has moved up or back by a significant amount, this may impact your entitlement. Periods of low or no salary may decrease the amount of your CPP/QPP (though up to eight years of your lowest earnings will be excluded in calculating the base component of your CPP retirement pension). And staying in the workforce longer at a relatively higher salary may increase your entitlement.

OAS

OAS may be taken beginning at age 65 and can be deferred for up to 60 months in exchange for a higher monthly amount. Delaying receiving your OAS pension means your monthly pension payment will be increased by 0.6% for every month of delay, up to a maximum of 36% at age 70. Low income individuals may be eligible to also receive the Guaranteed Income Supplement. Unlike CPP, your employment history is not a factor in determining your eligibility but your income in retirement is a factor in the amount of OAS you receive. If your net income is above the maximum annual income threshold allowed for a given year ($79,054 in 2020) some, or all, of your OAS pension may be “clawed back” (i.e. subject to the Recovery Tax). Benefits are reduced by 15 cents for every $1 above the threshold amount and are eliminated completely once the maximum income level is reached ($128,137 in 2020).

CPP income is also included in the income limits for OAS, so coordinating when to begin taking your government pensions is wise. It may make sense in your unique circumstances to defer CPP until age 70 while claiming OAS at age 65, or it may be better to defer both or neither.

Whether or not you will want to delay OAS is generally determined based on anticipated income leading up to and during retirement, life expectancy, and retirement lifestyle goals. There are a number of strategies that can help reduce the clawback, but whether they make sense for any particular individual must be assessed on a case-by-case basis.

The changing face of retirement

Many people think about maximizing the government pension benefits by delaying CPP/QPP and/or OAS. But let’s not overlook the obvious - you may need the money earlier, even if it means taking a lower amount and forgoing a potentially higher benefit later. Our national study revealed that the greatest financial worry for retirees is not recession, inflation, or taxes, but rather encountering unexpected expenses. And during COVID-19, nearly two-thirds of retirees (63%) say they are willing to offer financial support to their family, even if it could jeopardize their own financial futures. Priorities change and emergencies happen and that’s why revisiting the assumptions in your financial strategies is critical to staying on track.

Summary of Government Retirement Benefits - CPP & QPP

Government Benefits Canadian Pension Plan (CPP)
(at age 65)
Quebec Pension Plan (QPP)
(at age 65)
Monthly (indexed) $1,175.83 $1175.83
Yearly (indexed) $14,109.96 $14,109.96
Eligibility Employees and self-employed Employees and self-employed
Taxable Yes Yes
Clawback (Recovery Tax) No No
Earliest Eligibility 60 60
Latest Age for Increased Benefit 75 75
Source: Canada Revenue Agency and Edward Jones.

Summary of Government Retirement Benefits - OAS

Government Benefits Old Age Security
(at age 65)
Monthly (indexed) $615.53
Yearly (indexed) $7,362.36
Eligibility Canadian citizens and residents
Taxable Yes
Clawback (Recovery Tax) Yes, when net income is between $79,054 and $128,137 including the amount of OAS pension received, with full repayment thereafter
Earliest Eligibility 65
Latest Age for Increased Benefit 70
Source: Canada Revenue Agency and Edward Jones.

Work with your financial advisor

In determining the right financial strategies for you, including when to claim CPP/QPP and OAS, changing retirement dates and shifting priorities (such as assisting family members in need) are two critical considerations. But they’re not the only ones. Your financial advisor can work with you to develop or revise strategies that work for you now and throughout your lifetime.

Important Information:

Source: 1. Calculation from The Four Pillars of the New Retirement survey data and and U.S. Census Bureau International Data Base: Canada Mid-year Population by Single Year Age Groups, December 2019.