retirement planning

You probably heard the news that in the latest federal budget, the government has changed the age at which payouts from the Old Age Security (OAS) payment program begin from 65 to 67. If you didn’t, you’re probably too young to think it matters to you. Well guess what, it does!

While the odd sensational headline may have made it sound like your retirement has been has been pushed back, the reality is that the OAS payment should and will really only account for a portion of your retirement income.

The current maximum amount a person can collect is $540.12 (or $6,481.44 a year), with the average claimant receiving $510.21 (as of January 2012). Do you think you could live on a little over $500 a month? Probably not.

Here, we review what the change means – and review some retirement planning options – based on your current age bracket.

If You’re 54 or Older

If you were born on or before March 31, 1958, you can relax (about the OAS payment anyway). In a convenient political sleight of hand, the government deferred the announced changes for more than a decade, with a phased-in implementation beginning in April 2023 (or two or three election cycles down the road). Once you turn 65, your OAS payments will start to kick in as you’d expected.

That said, another change introduced in the budget is the option to defer claiming your OAS for up to five years, starting on July 1, 2013. What this means is that, if you choose (or you’ve neglected your retirement planning and don’t really have a choice) you can work until you’re as old as 70, continuing to collect your salary, and then apply for a higher than normal OAS payment.

For example, someone turning 65 in September 2013 who chooses to work for another year before retiring would receive up to $6,948 in annual OAS payments (based on current rates) instead of $6,481. Work until you’re 70 and you’ll get $8,814 a year in OAS, on top of the five years of additional earnings.

If You’re 50 to 54

Things get a little complicated for people in this age bracket as you fall within the phasing-in period. Your payments will be deferred by one month to two years, depending on the exact month and year you were born in. See the chart here for specific details. Then sneak a peek below at our advice for those who know for sure that their OAS has been bumped back two years.

If You’re 49 or Younger

For anyone born on or after February 1, 1962, your OAS won’t kick in until you turn 67. So, yes, your retirement has in effect been pushed back two years. But, as mentioned above, only a fool (or someone who can live on a few bucks a day) would rely on the OAS only for their retirement plan.

And while the government was keen to point out that there are no changes to the Canada Pension Plan on the books, who’s to say what could happen in the next 25+ years before the members of this group get to 65. Savvy long-term planners know that they can’t rely solely (or even in part) on government handouts for their retirement needs.

As with any type of investment strategy, the key is diversification. Even if you’re lucky enough to have a retirement savings plan through your employer, you should at least investigate some of the other options available to provide you with the money you’ll need for a long and luxurious retirement. Most of us have taken advantage of the immediate tax-savings that come with investing in a Registered Retirement Savings Plan (RRSP). The newer option is a Tax-Free Savings Account (TFSA). The two programs offer similar investment styles, buying into a mix of mutual funds, stocks, and bonds. The key difference is that while there are no immediate tax advantages to TFSAs, any money earned in the investment in your account is non-taxable.

Depending on your tolerance for risk, you can balance out these (relatively) safe and steady investment options with a mix of secure bonds and GICs or a more volatile, but potentially more lucrative portfolio of stocks or real estate holdings.