Hello, everyone, and welcome to the Retiring Canada podcast! In today’s episode, we’ll be discussing delaying government pensions.
Here’s what we’ll cover:
The basics of CPP and OAS
Three real-world scenarios
The potential highest tax bracket you may ever encounter
How to integrate these decisions into your overall tax plan
The unique reality of planning for individuals
And finally, some actionable items for you to consider
Let’s dive in.
Why Delay Government Benefits?
Today, I’ll discuss strategies and reasoning for delaying government benefits, specifically CPP and OAS. Instead of delving too much into the technicalities, I’ll share real-life scenarios where delaying these pensions — sometimes up to age 70 — made sense.
The Basics of CPP and OAS
CPP (Canada Pension Plan):
Your CPP income depends on contributions made during your working years.
Taking CPP before age 65 results in a permanent reduction.
Taking it at 65 gives you the full amount.
Delaying it until age 70 provides a permanent increase.
OAS (Old Age Security):
OAS is based on years of Canadian residency, with no contribution requirements.
Less than 40 years of residency means a proportional reduction.
You can start OAS at 65 for full benefits or delay up to age 70 for a permanent increase.
Scenario 1: Sale of a Property or Asset with a Capital Gain
Over the last 18 months, we’ve had two cases where clients sold properties, triggering substantial capital gains.
The Situation:
One spouse had already started OAS, while a taxable event from the property sale caused their income to spike.
This spike led to the OAS recovery tax (clawback), effectively erasing their OAS benefits for 12 months.
The Strategy:
We reversed the OAS start date within the 6-month cancellation window, opting to delay benefits until after the high-income year.
Had we known about the sale earlier, we would have delayed OAS proactively.
Why This Matters:
The OAS recovery tax adds 15% on income over the threshold. Combined with a 33% marginal tax rate in Saskatchewan, the effective tax rate jumps to 48% — higher than the province’s top marginal tax rate of 47.5%.
Delaying benefits provided a permanent increase, compounded annually with inflation. In this case, delaying OAS by two years increased the annual pension from $8,700 to $10,000.
Scenario 2: The Tax Valley
The “tax valley” refers to the period between retiring from work and starting pensions like CPP, OAS, or defined benefit plans.
The Situation:
We worked with a couple where one spouse planned to retire at 63, with $1 million in RRSPs and LIRAs, while the other had $400,000 in RRSPs.
The Strategy:
As the working spouse’s income decreased, we began strategic withdrawals from registered accounts, even though the funds weren’t needed immediately.
We delayed CPP and OAS to reduce lifetime taxes while maximizing guaranteed fixed pensions.
The Result:
This strategy minimized tax liabilities, freed up tax-paid dollars for future needs, and avoided massive tax bills during estate transfers.
Without proper planning, their RRSPs and LIRAs would have compounded unchecked, leading to significant taxes for the surviving spouse or estate.
A Note of Caution:
Some advisors may suggest starting government pensions early while delaying registered account withdrawals, potentially creating a conflict of interest. Proper planning should prioritize tax efficiency, not just investment management.
Scenario 3: Personal Preferences
Finally, planning isn’t just about numbers; it’s about what feels right.
The Situation:
A couple debated when to start CPP and OAS. While the financial plan suggested delaying both to age 70, they chose to hedge:
The older spouse started at 65.
The younger spouse delayed to 67 for enhanced benefits.
The Result:
This balanced approach provided flexibility and peace of mind, showing that personalized planning often blends financial optimization with personal preferences.
Action Items for You
Assess your tax valley: If you’re nearing retirement, create a tax plan that integrates all income sources for optimal results now and in the future.
Request a CPP estimate: This will help you or your planner determine if delaying government benefits is right for you.
Explore planning resources: Check out the Fundamental Retirement Plan Process on our website for guidance.
That’s it for today’s episode! If you found this discussion helpful, please leave a 5-star review on your podcast app — it’s greatly appreciated.
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All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.