Planning for Seniors in 2025

Vince Crosby & Evelyn Jacks

Will seniors be receiving a raise in early 2025?  Unfortunately, not, at least for the first quarter.  Adjustments to the benefits are based on the Consumer Price Index (CPI), OAS and GIS benefits will not be increasing for the January to March 2025 quarter.

The federal government calculates the Old Age Security (OAS) and Guaranteed Income Supplement (GIS)  benefits payable to seniors quarterly.  The indexing rate is based on the difference between the average CPI for 2 periods of 3 months each.  That is, the most recent 3-month period for which the CPI is available and the last 3-month period where a CPI increase led to an increase in OAS benefit amounts

In total seniors will have received an indexing adjustment of 2.0% in the 12-month period from January 2024 to January 2025.  Let’s examine who qualifies these benefits and how this indexing adjustment is calculated.

Who qualifies?  Residents of Canada who have lived here at least 10 years since the age of 18 are eligible to receive the OAS. Non-residents who were a legal resident of Canada on the day before they left and who lived in Canada for at least 20 years since turning age 18 may also apply.  Here are the benefits for the calendar year 2024 as well as the first quarter 2025:

       OAS Benefits Receivable:  Calendar Year 2024 - Summary

OAS Benefits Receivable:  Calendar Year 2025 - Summary

OAS Clawback. OAS is income-tested, and could be clawed back if individual net income exceeds certain threshold limits, shown below for 2023, 2024 and estimated for 2025 at an indexing rate of 2.7%: 

What are the GIS amounts?  Low income earners may qualify for an additional benefit.  The indexed GIS is $1183.44 for singles and those married to a non-pensioner and $654.24 to the spouse of an allowance recipient or someone married to a pensioner.   The regular allowance is $1,381.90 and the survivor’s allowance is $1,647.34 in Q4 2024 as well as Q1 2025.

The CPP.  The Canada Pension Plan, on the other hand, will be indexed by 2.6% as per the CRA. The following shows the estimated amounts based upon that indexation: 

** per CRA website CPP for 2025 will be indexed at 2.6%, amount in this table are estimated based on this.  Canada Pension Plan amounts and the Consumer price index - Canada.ca

Planning.  Increasingly this is an important question for advisors and clients to discuss: should an Individual Elect to Begin CPP at Age 60, Age 65, or Age 70?  This question is not as simple as one might think. The answer depends on a number of factors, including:

• Is the taxpayer currently receiving a CPP survivor pension? Any survivor pension will likely be reduced or eliminated once the taxpayer begins receiving the retirement pension as the maximum pension applies to the sum of the survivor and retirement pensions.
• How long will the taxpayer live? For taxpayers who have a shorter than normal life expectancy, it may make more sense to begin receiving a reduced pension at age 60 as the total received during their lifetime will be less if they wait. For those who will live longer than normal, the increased pension received by waiting ‘til age 70 could result in a larger amount being received over the taxpayer’s lifetime.
• Will receiving an enhanced pension result in an OAS clawback once the taxpayer starts receiving CPP and OAS?
• Is there a possibility to split the CPP benefits with a spouse?Both spouses need to be at least 60 for one to assign up to 50% of the benefits to the other.

Bottom line:   Tax planning can help retirement dollars stretch quite significantly.  While the public pension system provides important benefits for seniors, it won’t be enough for most people to cover off on rising costs of food, housing and in particular rising medical costs.  Private savings will be necessary.

Advisors can help their clients to maximize the receipts from both with some simple moves:  make RRSP contributions to reduce clawbacks of Old Age Security, for example, if seniors are age eligible.  That’s just a tax deferral, however, as taxable RRIF or annuity income must be generated from the RRSP after age 71.  But it may be a smart one if it keeps the senior out of an Alternative Minimum Tax scenario, or if an increased capital gains inclusion rate results due to a one time sale of property.  Three is also an additional option to defer taxable income from RRSP accumulations with an ALDA (Advanced Life Deferred Annuity) which could be helpful in these cases.  

Income splitting is important as well to minimize taxes and quarterly tax instalment remittances made  by the household.  

Most important, higher income earners may wish to consider postponing the OAS and CPP to age 70 if they are in a clawback range, generating other income sources before this, to “average down” taxes payable.