When to take CPP and OAS

how's everybody doing today I want to talk to you guys about a very important decision that retirees have to make which is when are you going to take CPP Nos this is actually a really difficult decision because if you get this wrong it could actually mean the difference between having a comfortable retirement and having a really uncomfortable last few years of your retirement and life so you kind of want to get this right and it's and like I said it's it's not an easy decision the problem with this decision and a lot of financial planning decisions is that people make them based on you know what their sister did or their coworker did and CPP and OAS is a really tricky one especially because somebody might say well my sister took it at sixty so I did and she did it because of this well unless your sister is in the exact same financial situation as you are and unless you and your sister are gonna live to the exact same age then you shouldn't make your decision based on that I mean it's just not a good way to go about making your decision the other reason people take it early a lot of the times is because you know who doesn't want more money in their pocket today but is that always gonna be the right thing and no it's not I mean sometimes it is and sometimes it isn't so we'll get into it first thing we need to talk about is a few of the basics of CPP and OAS and I'm not gonna go into too much detail here but I have made videos explaining exactly why you get and a lot more of the rules and I'll post them down in the comments first thing with CPP it's just something that you get an amount based on how much you put into that over the course of your career along with your employer and right now if you took CPP at 65 years old the maximum amount that a Canadians gonna get is 1155 dollars per month but the average Canadian at 65 is only getting about six hundred and seventy nine dollars per month because they didn't max out their CP CPP contributions over the course of their career and then with OS OS is based on how long you've lived in Canada so as long as you've lived in Canada for at least 40 years over the age of 18 then you're gonna get maximum OS at 65 years old which in today's dollars is six hundred and seven dollars per month now the good thing about both of these pension benefits is that they increase with inflation as you get older as the cost of living goes up so that so you're gonna get like a slight raise every quarter or half a year or whatever but it is gonna work in your benefit in the long term another thing that you need to know about both of these benefits is they're completely 100% taxable as income so that's very important to consider so now we got to talk about how they change and CPP and OAS are a little bit different but they're they're fairly similar so I'll just go with CPP first and then OAS second you say okay well why do wouldn't I just take it as early as possible well the government has sort of wants to keep money in their pockets so they're trying to incentivize you to leave that money in their hands for longer but it actually might be more beneficial for you to do that and so we'll kind of get into it so with CPP you can take it anywhere between the ages of 60 and 70 years old and 65 is like your number that you're shooting for where people were supposed to retire at 65 and they're supposed to start taking it now so any month you take it before the age of 65 you're gonna get a 0.6 percent reduction in how much you're gonna get so if you take it five years early you're gonna get a 36% reduction in your CPP and then every month after 65 up until 70 you're gonna get a 0.7 percent increase in how much you would have got so your maximum is going to go up because your due getting it and so if you delay all the way until 70 then you're gonna have a 42 percent increase in your CPP amount actually works out to a lot of money OAS is quite similar but you can't take it before 65 years old so the only thing you can do is delay taking it upwards until 70 years old and you're gonna get a 0.6 increase every month that you delay up until 70 so a maximum increase of 36 percent I hope that makes sense there are two more things that kind of need to discuss before I get into like an example and actually when to take CPP nos and the first is with CPP which is something called the post retirement benefit makes things a little bit more complicated and confusing but say in between 60 and 65 you decide to take your CPP but you're still working well now you have to be contributing to CPP still so you're gonna be getting X amount of dollars and that's going to go up a little bit every month because you're still contributing it to it and then after 65 you can choose I'm not gonna really explain it too much more than that but it's a thing so you can take it and get an increase over time if you're still working and with OAS this is something everybody knows about OAS for some reason which is called the OAS clawback which means basically if you make too much money the government just isn't going to give you old age security anymore but it is quite a bit of money that you actually have to make before they're gonna start clawing this back and how it works is basically if you make after-tax this is your after-tax individual income not you and your spouse so this is just you after-tax if you make over seventy seven thousand five hundred and eighty dollars you're gonna start getting a decrease for every dollar you make beyond that until you make over a hundred and twenty five thousand nine hundred and thirty seven dollars after-tax then you're not gonna get old age security in the following year because they base it on the previous year's income so those are things to consider that's a big consideration to make especially if you're still working so now let's just get into an example of how much money you're gonna get and for my example I'm going to use full OAS of six hundred and seven dollars a month that's sixty five years old and I'm gonna use a thousand dollars a month that's 65 for CPP because most people realistically just don't quite hit the maximum there's a couple years where they maybe didn't make enough money so if you take it at sixty you're not getting any old age security at all and you're getting CPP in the amount of six hundred and forty dollars a month you've taken thirty six percent decrease in in the amount so you're getting seven thousand six hundred and eighty dollars per year we get to sixty-five CPP you got a thousand dollars a month oh yes you got six hundred and seven dollars a month you have a total income of nineteen thousand two hundred and eighty four dollars a month not too bad now if we delay that all the way to seventy now you're gonna get the forty two percent increase on the CPP and the thirty six percent increase on the old age security so now we're looking at 1420 a month in CPP and eight twenty six a month in old age security so a total of twenty six thousand nine hundred and fifty two dollars a year which is a seven thousand six hundred and sixty eight dollar increase or six hundred and thirty nine dollars a month which could make a huge difference later in life so now you now we're gonna talk about where does this break even what if I take it early and then I invest that money obviously that's what I'm gonna do or hopefully that's what you're gonna do so how does that work out that's a very hard thing for me to generally say let's find your break-even point because it totally depends on what your tax rate is it totally depends on what your rate of return is going to be on your investments and so all I'm going to do is I'm just gonna talk about how much money came in and Nan was taxed and where is that breakeven point so if you take it at sixty and I'm just comparing CPP now I'm taking old age security out of the equation just CPP because I want to get into the rest of my videos is going a little long already so where is the break-even point so basically this is just money this is all I'm saying so if you take it at sixty-five instead of six teeth with your CPP you're basically going to start having more money in your pocket after the age of 73 now if you wait until 70 instead of 65 then it starts to beat it once you're after about the age of 81 so now we're gonna talk about reasons to take it early and reasons to delay and the very first and biggest reason why you would take it early is if you think that your life expectancy really isn't that long you're entering your 60s and you're like I'm ill you know you're gonna take it you may as well get some of your money back from the money you put it into your pension it's just something that you should do another reason why you might take it early is just because you need the money to survive otherwise you're not gonna be able to survive but there is a big asterisk I want to put on this for when I get into why you might want to delay especially with the CPP so we'll talk about that in a second and here's one of the more confusing things is if you didn't work between the ages of 55 and 60 years old you're probably gonna want to take CPP at the age of 60 because the calculation is different so you haven't worked as many years so it actually might work out in your benefit you might get more or to be close if you take it earlier because of the change in the calculation now why would we delay I mean the very obvious reason is because if you live a long time you're going to have more money especially if you live well into your 80s 90s or even into your hundreds it's gonna be hard to make the rest of your money last so this extra $7,000 a year increase with inflation is gonna make a huge difference one other thing and I see and it bothers me is when people are still working and they decide to take CPP is different because of what I talked about with the post retirement benefit but what if you're taking old age security because you want to check coming in but you're still working I've seen people that have taken OAS been still working and got it completely clogged back so that they didn't get the raise the next year you know it was just a mistake and and that's what you really want to look out what's your income how much are you gonna have left after tax now the other one is is so you this would be so we're gonna delay CPP but not old age security so you take old age security at 65 if you have things set up and you look like you don't have an income from any other sources maybe have cash or TFSAs or something then you can actually qualify to get G is the guaranteed income supplement and allow your CPP to grow by 42 percent in five years while you're getting all this free government money because you look like you have you know a very low income on paper it's hard to set that up you have to pre-plan pretty far in advance I have a video where I talked about it and I'll post that in the comments too and another big thing is always rsps a lot of times people do end up with our speeds that are actually like just too big they have too much money in there are ESPYs it happens you know and then it starts to become a tax problem and so our main goal with the RSP is is to try and pick exactly how long are you gonna live and let's take that out in equal chunks until exactly the day that you pass away but what might be a good thing to do is to say well we're we know that once we over 71 we have to RIF we're gonna be having to take out more than we even want we're gonna have more income that we want our tax bill is going to be pretty high maybe we should live off RRSPs for a few years and allow your OS and CPP to actually gain in value and start peeling out of the RS peas and then we can sort of pay a little bit more tax on the RS peas now but even it all out over the course of your life and like I said financial planning is funny because if we knew exactly what the rates of return we're gonna be exactly how long you are gonna live then we could make the perfect decisions we just don't know those things and the other funny thing about it is is that those are the 15 years where it means the most this is when you really need a financial planner a 30 year old a 40 year old like me and I'm kind of just set I have a plan I know I'm just building towards this time but five years before retirement and that first 10 years in retirement is when you really want to look like every year and you really plan your income and when you're taking this because the longer you can make your money last the less tax you can pay the better off you're gonna be and it does take a lot of strategic planning and a lot of time so sorry for the long video thank you very much for watching if you haven't already please subscribe and if you're into podcasts I just started a podcast where I interview people from amitin that owned businesses just telling me their story about how they started their business and and the struggles and the triumphs that they have and it's been a lot of fun it's called a funny story about money you can find it on Spotify and pod bean right now I think thank you very much

Channel: K4 Financial

Views: 217,013

Keywords: When to take CPP, when to take OAS, Old Age Security, Canada Pension Plan, Retirement, GIS, Guaranteed Income Supplement, RRSP, Taxes in retirement, When to retire, Canada, Pensioners, financial education, financial planning, financial planner, financial advisor, investment, investment for beginners, financial management, personal finance tips, personal finance, financial advisor tips, personal finance tips and tricks, financial literacy, financial independence, canada financial

Id: huEG7uSswXY

Length: 16min 25sec (985 seconds)

Published: Fri Jul 12 2019