Postpone OAS? Knowledge Bureau Poll Provides Surprises
Posted: August 13, 2013
Posted in:OAS deferral
It’s always a bit of a gamble when making any life decision without full information—especially when it regards your own mortality and money.
Our July poll question asked, “Canadian seniors may choose to postpone receiving their Old Age Security for up to 5 years starting this month, resulting in a higher benefit later. Do you think this is a good planning opportunity?” While many of our KBR readers felt it was a worthy discussion to have with clients, 59% (126 voters) believed that it was best to take the money when you can.
David H. comments: “Take it while you can and enjoy most of it, after tax. Better that than getting nothing if you don’t make it to age 70.”
Dan adds: “No survivor benefit and will also depend on family health history and current health status, but generally sooner the better to enjoy while healthier and active.”
Don believes the risk of deferring may be too great: “Too much money left on the table. Considering future dollar value of today’s payments and approaching old age, the odds of making up the money would be slim unless you made it to a really old age. Too much of a gamble. A bird in the hand.”
R states: “The only time it would be a good idea is if the senior is already at a high tax bracket. Otherwise, one never knows how long you have to live. Even if you don’t need the money for living expenses, you would be better off in the long run to personally invest the monthly benefits and let it grow.”
Several readers pointed out that this is an opportunity for choice, depending on your own personal situation. CBROPHY writes: “BEING ALLOWED TO ‘CHOOSE’ IS A GOOD THING. We have self-employed clients working at 65 with higher income and OAS ‘clawed back’, whereas if they deferred OAS til they fully retired, then benefit would be higher and income-splitting RRIF or pension income would likely allow lower taxable income below clawback limit. Every situation is different, but choice is always good following a discussion of option with their financial advisor.”
David weighs in on probabilities: “Like most things in life, the OAS pension benefits an individual will receive are virtually unknowable in advance. Nonetheless, in addition to the obvious clawback considerations, a pensioner should weigh the advantages of more inflation-adjusted (i.e. inflation-protected) income later in life against the possibility that he will die before enjoying those advantages. My mother died at age 97; my father lived to 100. There’s no guarantee that I will live that long, but I would be a fool to ignore how long my retirement might be…and just plain lazy if I didn’t construct the probability distribution and perform the simple net present value calculations. Of course it’s a planning opportunity!”
Doris brings great clarity to the question at hand: “The question was whether this was a planning opportunity. Absolutely! You have the opportunity to sit down and discuss the ramifications both ways to the client, and what options they have available to them.
OAS, when it was initially introduced, was a benefit to people 65 and over. However, it averaged a very short payout, I believe less than two years, when first instituted. With life expectancies being what they are, the program itself is providing something more than it was originally intended to.
There will always be people on both ends of the spectrum. This is an excellent opportunity for a conversation with your clients, regardless of the outcome.”
Knowledge Bureau thanks the 213 voters who participated in July’s poll. This month’s poll question: Are today’s small businesses and their workforces prepared to grow and meet changing demands while trying to fill the knowledge and experience gaps left as baby boomers retire over the next 5 years? Weigh in here.