What’s the best strategy for my CPP, OAS and RRSP money?

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By Julie Cazzin with Andrew Dobson

Q: I am 61 years old and have been told I may not survive past age 65. Should I start collecting my Canada Pension Plan (CPP) and other benefits now? Should I get guarantees for my husband who will likely live much longer than me and will need the income? And should I convert some of my registered retirement savings plan (RRSP) to a non-registered plan? What’s my best strategy for making good use of CPP, Old Age Security (OAS) and RRSP money for me and my husband?  — Bonnie

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FP Answers: I am sorry to hear about your health issues, Bonnie. There are several variables to consider with CPP, but the most obvious criteria for you is life expectancy. A healthy 61-year-old may benefit from deferring their CPP pension to as late as age 70 if they expect to live well into their 80s. Given your shortened life expectancy, you should definitely consider starting CPP right away. You can start a CPP retirement pension as young as age 60.

If you are entitled to 100 per cent of the CPP retirement benefit based on your contribution history, a discounted benefit starting at 61 would be about $11,600 a year in 2023. In contrast, a 100-per-cent benefit at age 65 is about $14,500 today. The earlier you start CPP, the lower your payments, but you get more months of payments during your life. There would be no benefit to defer in your case, Bonnie.

Your husband will be entitled to a CPP survivor’s pension upon your death. If this occurs prior to your husband’s age 65, and he is not yet receiving CPP, he would get a flat rate portion of 37.5 per cent of your retirement pension. If this occurs after he is 65, he will get 60 per cent of your retirement pension if he is not receiving CPP. Once he starts his CPP, he cannot get more than the maximum CPP retirement pension when adding together his pension and your survivor benefit.

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If he is receiving or will be receiving the maximum based on his own contribution history, he may get little to no survivor benefit. This is a primary reason to start your CPP now so that you, as a couple, can collect some of those benefits that you paid into over the years. Service Canada can provide more information on how to determine your CPP benefits. There is also a one-time CPP death benefit of $2,500 that would be payable upon your death to your husband.

You cannot begin your OAS pension until age 65, and so there may be little to no survivor benefit for your husband from it. There is an allowance for the survivor if they are 60 to 64 and their income is less than about $28,000.

With regards to your RRSP account, if your husband is the beneficiary, it can be transferred into his RRSP on a tax-deferred basis upon your death. He can then take withdrawals in the future to be taxed along with his other income in the year of withdrawal. As your RRSP beneficiary, your RRSP will pass outside your will, so it will not be subject to provincial probate fees.

Depending on the size of your combined RRSPs with your husband, and your current income, there may be an advantage to making some RRSP withdrawals over the next few years. If your RRSPs are large, and your husband will be in a high tax bracket in the future, it may be beneficial to take RRSP withdrawals over the next few years if your own income is low.

Again, Bonnie, I’m sorry to hear about your health issues, but I hope this information helps give you some guidance and peace of mind as you plan ahead.

Andrew Dobson is a fee-only, advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc. in London, Ont. He does not sell any financial products whatsoever. He can be reached at adobson@objectivecfp.com.