How to deal with the new changes to OAS

Will changes to OAS affect retirement? The feedback that I have been getting on the changes to OAS from my readers has been neutral.  I thought it would be more pessimistic but there appears to be a lot of Canadians that feel the changes to the age of eligibility from age 65 to 67 are appropriate, necessary and will not impact retirement.

With mixed feelings comes mixed solutions

I guess one possible solution if you don’t like the change is to let your Members of Parliament (MPs) know about your dissatisfaction.  This is not the first time in OAS history the government has tried to make changes.  In the past lobbying efforts were successful so with a long phase in period, it’s not too late to express any concerns you might have.

I’ve also heard some news reports and articles suggest that if another party came into power before 2023, they could reverse this change. If you have significant concerns over the changes then make sure you voice these concerns.

Be responsible for your own retirement

It’s pretty clear with all the talk about the retirement gap and the low savings rates in Canada, we have a responsibility for funding our own retirement incomes.  To rely on CPP and OAS alone for retirement is grossly irresponsible.

The move in the eligibility age from 65 to 67 translates to about $12,960 of total income over 2 years (based on today’s maximum benefit of $540 per month).

How to save more money for retirement?

If the new rules means that those under the age of 54 will lose up to a couple of years of OAS, then one of the ways to make up that lost income from age 65 to 67 is to save more money.  Simple math suggests that if you save about $100 per month for the next 10 years, you will have enough to make up the $12,960 of lost OAS.  It matter less which account you use (TFSA, RRSP or non-RRSP) and more that you stay disciplined to put away the $100 per month.

$100 dollars per month translates to about $3 to $4 per day.  Do you have a latte factor where you could save an extra $3 to $4 per day that will help cut expenses and save a little money?  The latte factor is a term popularized by well know author David Bach.  The Latte Factor is finding a few dollars a day to save from eliminating those small day-to-day purchases.  Lattes are just an example.

Or maybe you are in a position to put away a lump sum of $10,000 today. At 2.5%, that $10,000 will grow to about $12,960 over 10 years.  At 5%, you only need to save $8000 today.

My five cents

In the past, I have often used the phase my two cents.  With inflation and now the elimination of the penny, I am going to share my five cents on the OAS issue.

Some people have portrayed the change in the age of eligibility as insignificant and necessary.  I don’t really think it’s either.  I especially don’t think it it’s insignificant because I think every dollar is significant.  I’ve met many people who count on every dollar for retirement.

The government is concerned about the retirement gap as a result of higher debt levels and low savings but yet they have taken away retirement resources and created a bigger gap.

The reality is that rules change all the time and I believe people need to be aware of change and plan ahead.  I view the change to OAS as a negative one but I also recognize that years back, the government introduced some positive changes with pension splitting rules, introducing the TSFA and allowing people to access CPP without quitting their jobs.

Hopefully the change to OAS will get people to do more retirement planning to understand how much money they need to save especially given that there will be less money from this government benefit.  The government has given Canadian adequate time to do some planning to see if this change impacts the retirement plans of Canadians.

I’ve always said that Canadians need to focus things they can control.  They can’t control the rules but they can control their planning, their savings rates, and their debt levels.

Taking control of your future means taking control of your future by planning for your retirement.  Retirement planning will help you to understand how much you need to save and how too much debt will impact on your golden years.  The underlying message has not changed . . . you have to be responsible and accountable for your own retirement and your financial future.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

5 Responses to How to deal with the new changes to OAS

  1. Why are Boomers in so much denial about retirement? Gordon Pape’s makes the point in his latest book that if you do not have a retirement plan in place by age 50, you are too late. I meet so many who do not have a plan at all.

  2. My big gripe is some people are going to get an extra $13,000 free from the government and others just 2 years younger don’t. You could have paid the same taxes (or more) and you lose out on the money. I don’t have an answer on how to phase it in better, but that does seem unfair. Perhaps changing the clawback income level would have been fairer.

  3. Jim, I totally agree with you, cutting OAS isn’t an insignificant change. That’s real money coming out of the pockets of hard-working Canadians. Moving the GIS up to 67 was another unpleasant surprise. This emphasizes the fact that government benefits aren’t fixed and we need to take it upon ourselves to invest as much as we can in our RRSPs to be ready for retirement. Who knows how many times CPP and OAS will change before I retire in 30 years – for all we know retirement age could be 70 or 75 by then!

    • You are wrong about, cutting OAS isn’t an insignificant change. It is significant.
      We do not know where we will be in 30 years from now, nor do we know what our curcumstances
      will be. We cannot forsee the future. You may very well be in much need of the OAS.
      What happens if you become unemployable, have a disability, etc. You would be sorry if it wasn’t there. I am in that position and I would be starving if it wasn’t for the OAS and the GIS.

  4. I wish the government had introduced this change like the rules concerning CPP that you can take OAS at an age starting at 65 but at a slightly reduced benefit so those who wait until 67 or even 70 would receive a larger monthly amount. That would have been more fair than changing the age and affecting a lot of people like myself. This may be equitable for those aged 25 but not if you are age 50.

    Another option might have been to allow those affected to increase their RRSP limit or TFSA limit by the amount they are potentially losing. Not that everyone would have the available cash but allowing an extra $500 contribution for 20 years would have been more fair than this change.

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