Over the years, Canadians have been watching a battle in their government over the age of retirement. Unfortunately, this means that planning for retirement is tricky. People of working age must plan for the days where they are only financially supported by their savings and government pensions, but how much should they plan for and when will it begin?
When you search online for the answer, it's not immediately clear. For such an important topic, clarity must be achieved. In this guide, we'll break down the history of the battle over the Old Age Security (OAS) retirement age and where the government stands now in terms of requirements.
Finally, you'll be able to see what year you'll be eligible for retirement so you can plan with confidence.
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Retirement Age in Canada: 67?
The Canadian government has been working hard to avoid running out of social security money by choosing a retirement age for OAS that works for everyone. At the same time, political leaders argue that pushing the eligibility age higher means taking much-needed assistance away.
In 2016, Prime Minister Justin Trudeau fought to lower the eligibility age from 67 to 65, a reversal of a previous policy by his predecessor. Since then, proposed retirement ages have bounced between 60 and 70, so what is it now?
For now, the OAS retirement age is still 65. However, the government agreed that they should begin slowly raising the age until it hits 67 by 2029. This change was originally proposed in 2012, challenged in 2016, yet confirmed a few years later.
When Will 67 Be The Official Retirement Age?
The bill decreed that starting on April 1, 2023, the official retirement age for OAS eligibility would slowly begin increasing. The goal is to have the full implementation of 67 as the retirement age for the entire population by January 2029.
For now, the steady increase and what it means for you will depend on your birth year. Check these dates below to see when you qualify:
For Those Born in 1958
Anyone who was born in the year 1958 will continue to be eligible during their 65th year. The month of the year in which you become eligible, however, differs based on the month you were born.
If you were born in January, February, or March of 1958, you are eligible for OAS on your birthday. If you were born in April or May, you must wait one month after your birthday.
People born in June or July must wait two months after their birthday. If you were born in August or September, you must wait three months after your birthday.
Those born in October or November must wait four months after their birthday. Finally, if you were born in December, you must wait five months after your birthday.
For Those Born in 1959
Luckily, those born in 1959 are also eligible within their 65th year. The pattern set for those born in 1958 is continued throughout this age group as well.
If you were born in January, you'll have to wait five months after your birthday. If you were born in February or March, you'll have to wait six months.
Those born in April and May must wait seven months, while those in June and July must wait eight months. People born in August and September must wait nine months, and those born in October and November must wait ten months. Finally, those born in December must wait eleven months.
What If I Was Born After 1959?
Only those born in January of 1960 are still eligible for OAS in their 65th year. They will have to wait 11 months after their birthday to start receiving benefits. Anyone born after January must wait until they are 66 years old.
The pattern set in the previous two years is continued throughout, adding a month after your birthday for every section of months that passes. For those born after January of 1962, the official age of retirement will be 67.
Average Retirement Age in Canada
In 2020, Scotiabank conducted a survey to determine how the general population of Canada felt about saving for retirement. In this survey, they found that about 68% of Canadians were saving for retirement, but the majority of them were worried they weren't saving enough.
Understandably, Canadians often have to put off retirement due to financial needs. In the same survey, 53% of Canadians worried they might have to go back to work after retirement. This is because they don't have a good idea of how much they should save for retirement.
Fortunately, the government offers programs such as OAS to supplement any other savings and income retirees have. Because of this financial help, the average Canadian claims they expect to retire at 64.
Whether this age takes into consideration the eligibility ages currently set in place for full benefits is unclear.
Mandatory Retirement Age in Canada
Canadians have the right to work for as long as they want and need to. Employers are not allowed to make that decision for you, and laws prohibit them from firing you due to your age. However, there are limits in place for OAS eligibility that could help you determine what age to retire.
The age range that you can apply to begin receiving OAS with an effect on the amount you are paid begins at 60 and ends at 70. You can choose to retire early, before 65, but there is a penalty. The Canada Pension Plan (CPP) system is set up to encourage workers to wait until 70 to retire by adding benefits for every month past 65 that you work until 70.
How Will Waiting Past 65 Affect My Benefits?
If you wish to continue working past your eligible retirement age, you can continue making contributions and working simultaneously until you are 70 years old. These contributions will build your post-retirement benefits. You can continue working past 70, but your pension will no longer increase past that date.
For every month after age 65, you wait to start receiving benefits, your payments increase by 0.7%. In other words, you'll receive a 7.2% increase for every year after 65 you wait to apply for benefits. Waiting until 70 years old to apply means you'll receive an increase of 42% on your payments.
Any contributions you make to your post-retirement benefits will go into effect the next year and stay that amount for the rest of your life. You'll be collecting 42% more in payments permanently than you would have if you applied at age 65.
How Will Working Past Retirement Affect My Pension?
You may choose to apply for retirement benefits but continue working. If you were worried that working and collecting at the same time would decrease your pension, you'd be wrong.
Working past retirement will not lower your pension. The pension will instead supplement your other income. Whatever level of benefits you're eligible for at your age will stay the same, and you can collect them while you continue to work as usual.
How Will Retiring Before 65 Affect My Pension?
If you choose to receive your retirement payments before 65, you will have to incur some penalties. For every month before your 65th birthday that you've prematurely applied, a 0.6% deduction is taken from your pension. In other words, applying for benefits on your 60th birthday means you'll be taking a 36% deduction on your pension.
Can I Get Retroactive Payments After 65?
If you decide to apply after you turn 65, you can get retroactive payments for up to 11 months. How much you receive each month will depend on how many months after you turn 65 that you apply.
CPP Payment Dates
When you're depending on CPP for your retirement, you'll want to know exactly when to expect these payments. Unfortunately, the Canadian government changes this date every month and the pandemic has made dates more unclear. In general, however, you should plan to receive your CPP payment on the third to last Wednesday.
For example, expect these dates for 2022:
- January 27, 2022
- February 24, 2022
- March 29, 2022
- April 27, 2022
- May 27, 2022
- June 28, 2022
- July 27, 2022
- August 29, 2022
- September 27, 2022
- October 27, 2022
- November 28, 2022
- December 21, 2022
Alternatively, you could choose to check the government website for updates.
When Is The Best Age for Me to Retire?
At the end of the day, everyone's life circumstances are different. Many people live long, healthy lives and feel fit to work well past the age of 65. Others may suffer from disabilities and health conditions that make it difficult to continue working and might choose to retire early for lower pension payments.
You'll want to consider how much money you've personally saved for retirement and calculate how much money you'd need to live comfortably after retirement. If you think you've saved enough to live on your savings and pension, there's no reason to continue working unless that's what you love to do.
Speaking with a financial advisor is a great option for determining the right retirement age for you.
Prioritize Financial Planning for Retirement
The Canadian government offers many resources for those who wish to stop working due to disabilities or age. Understanding the CPP and OAS system, in conjunction with proper planning of your finances, will help you choose the best retirement age.
Insurdinary believes in making financial information transparent and easily comparable for everyone in Canada. With top-notch comparison tools and resources, Insurdinary can help you plan your finances for everything from loans to insurance plans.
Visit our blog for more advice on financial planning and retirement!