Seniors Get Old Age Security Rate Increase

OAS rates are indexed quarterly based on changes to the Consumer Price Index.  Seniors, who have not seen a raise since January 1, will receive an additional $2.85 per month starting in July.  The Guaranteed Income Supplement (GIS) also increased by the same percentage.

For singles and seniors married to a non-pensioner, changes announced in Budget 2016 kick in this month increasing the GIS from $773.60 per month to $856.39.

Of course, not everyone who is over 64 is collecting Old Age Security.  Those who have not been resident in Canada for ten years as of their 65th birthday do not qualify.  Those who have been here for more than 10 years but less than 40 may receive a reduced pension.  Those with very high incomes qualify to receive the pension, but it is clawed back starting at net income of $73,756 and is fully clawed back when income exceeds about $119,400 (for 2016).

How do you get more out of the Old Age Security program?  The secret is in waiting for it.  For each month you delay starting your OAS, you’ll receive an increase of 0.7% (about $4).  Those who wait until they are 70 will receive an increase of 42%.  In today’s dollars, that means a pension of $814.18 instead of $573.37.

But wait, that means no OAS for 60 months. Is it really worth it?

With a break-even period of just less than 12 years, those who have income below the clawback zone (about $73,000 currently) will be better off if they delay – so long as they live to age 82.  With an average life expectancy of 80 years for men and 82 for women, many will benefit more from the system by waiting.

The following seniors should not postpone OAS:

• Those who need the money to live on starting at age 65.
• Those who in poor health and are expected to have a short-than-average life expectancy.

The following seniors should postpone OAS:

• Anyone whose income is above $118,000 -  since their pension will have to be repaid, receiving the lower amount is not beneficial.
• Those in good health with incomes over $73,000.   At least part of any pension received will be clawed back so delaying and getting a larger pension later will likely be beneficial.

For those who are healthy and can control their income levels, the optimal plan is to maximize income to age 70 while postponing OAS and then reduce income levels to below the clawback threshold once OAS begins at age 70.  By drawing down RRSP balances before OAS begins, taxes at death can likewise be reduced.

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