Chevreau: Why the budget spares boomers on OAS - Macleans.ca
 

Chevreau: Why the budget spares boomers on OAS

They’ll have a whopping 17 years to make adjustments to their retirement plans


 

Sean Kilpatrick/CP Images


While the pre-budget hype was that Canadian baby boomers were going to have to delay their retirement after Thursday’s federal budget was unveiled, their Findependence Day has not been severely postponed for anyone who is now 54 years old or older as of March 31, 2012.

As expected, the Old Age Security eligibility age will rise gradually from the current 65 to 67 but this doesn’t start to happen until 2023, according to the just-released budget.  When you add the 11-year notification of this change to the six-year phase-in between 2023 and 2029, I’d agree with Finance Minister Jim Flaherty that Canadians [or their financial planners] have “ample time to make adjustments to their retirement plans.”

For younger people born on or after Feb. 1, 1962, OAS eligibility will be age 67. Technically, boomers were born between 1946 and 1964 but in my view, if you were born between 1962 and 1964, you likely didn’t grieve over the JFK assassination and can hardly be considered a true baby boomer.

Click here for all the latest news and insight on the 2012 federal budget

Delaying retirement: OAS takes a leaf from deferred CPP benefits

Most interesting is the fact the OAS program is being tweaked to reward those wishing to delay retirement, somewhat like the Canada Pension Plan pays better the longer you delay receiving benefits. Canadians can voluntarily defer receiving OAS payments for up to five years, beginning on July 1, 2013. So, for example, if you delayed receiving OAS until 66 rather than 65, the payout would be $6,948 rather than $6,481.

Coupled with delaying CPP, it’s clear many workers with marginal incomes will have two strong incentives to keep working right up to age 70. Apart from the higher CPP and OAS payouts, investment portfolios will have that much more time to grow: including Tax Free Savings Accounts (TFSAs). And as any financial planner can tell you, five extra years of working and saving also means five fewer years of spending down a portfolio.

Seniors will now be enrolled automatically into the OAS and GIS (Guaranteed Income Supplement) programs rather than leaving it up to citizens to apply. Previously, many seniors missed out on benefits because they failed to apply and even once they learned they had to apply, were shortchanged because of limited retroactivity. Credit the NDP for making this suggestion earlier this month.

The poorest seniors already got a raise of sorts when the government boosted GIS payments as of last July. More affluent senior couples already benefit from pension income splitting, a fact that will become apparent when they file their annual taxes before the end of April.

For seniors who delay OAS/CPP, TFSAs will be a boon

To the extent this is an austerity budget designed to slay the federal deficit, it will hasten the day when previous promises kick in and the nation’s books are balanced. Budget 2012 aims to do that by 2015-2016. If that happens, then TFSA contribution limits will double to $10,000 from the current $5,000. The TFSA will be a real boon to lower-income seniors because it won’t trigger OAS clawbacks or various means-tested benefits. Those who delay receiving CPP/OAS until 70 will be able to build up much larger TFSAs that will ultimately spin off tax-free income: the potential exists to contribute an extra $50,000 if the deficit is eliminated and they contribute $10,000 a year from 2016 to 2021.

The Tories have also previously promised that once the books are balanced they will introduce income splitting for families with children under the age of 18. While Ottawa has so far opted for Pooled Registered Pension Plans (PRPPs) over an expanded CPP, the country’s baby boomers now have most of the necessary tools to build financial independence.

It’s still important to save and invest but boomers who had a late start have a reprieve if they choose to stay in the workforce until their late sixties or 70. Meanwhile, those who have long planned for an earlier exit from the workforce can stick with their previous plans — OAS eligibility at 67 is hardly the bogeyman some feared.

Jonathan Chevreau will soon be editor in chief of our sister publication MoneySense. Read more of his blog here.

 


 
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Chevreau: Why the budget spares boomers on OAS

  1. Why the budget spares boomers on OAS – because the rest don’t vote in as great numbers

    • I thought it was because most MP`s are boomers.

      • Don’t they get their pension at 55?

  2. “The TFSA will be a real boon to lower-income seniors because it won’t trigger OAS clawbacks…”

    OAS clawbacks don’t even start until your income is around $69,000, and you have to make another few thousand before clawbacks become significant.  What kind of fantasy world do you live in where an individual making $75,000 is a “lower-income senior”?

    TFSAs are nice if you are in a high tax bracket, or if you have the money to put into high-risk/high-reward investments… let’s not pretend they’re a benefit for the poor.

  3. Thank you for pointing out that 1962 is not “boomer”.  I am fed up with being put in with that group.  I did not “come of age” in the sixties and I do not culturally or economically identify with them  I grew up existing on their leftovers.  I dropped out of university in ’82 to support my husband through his education and then there were no jobs, We bought a house in ’87 when the market started booming and when I had my babies our mortgage interest hit 12%, I divorced, survived cancer, raised the kids alone on a clerical wage and I went back to university in 2007 with my eldest child.  I was born a month too late to retire at 65.  After raising the kids on a low income I am starting to put away for retirement now, at age 50.  I will get by, as I always have, after the boomers strip all the resources ahead of me.  The fact that it includes OAS is of no consequence.  Gen X are not slackers, but we are jaded.

  4. Seems like cheerleading bad news.

    Better to throw them out next election and put the retirement age back to 65.

    These pundits are dreaming in technicolour, nobody is going to want to hire daft, slow moving, senile people. The choice to work to age 70 will probably not be yours.

  5. Wow, yet another article from a boomer who will receive their OAS at 65 telling us that “OAS eligibility at 67 is hardly the bogeyman some feared.”. Yes, *some* is the key word here.

    If it’s no big deal then I’m sure your next article will be an open letter addressed to the government telling them your generation is willing to make sacrifices too? I won’t be holding my breath for that one.