The federal government is widely expected to make good on its election promise to restore OAS eligibility to age 65 for all Canadians, giving clients under age 58 reason to celebrate.
“Somebody that’s in their 50s […] can possibly retire two years sooner, and their monthly or bi-weekly savings might not have to be as aggressive as originally expected,” says Paul Shelestowsky, senior wealth advisor at Meridian Credit Union in Niagara-on-the-Lake, Ont.
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In 2012, the then-Conservative government increased the eligibility age to between 65 and 67 for people born April 1, 1958 or later. When fully implemented in 2030, the change was expected to save the government $7.1 billion a year (in 2014 dollars), shows a study from researchers at the University of Laval that was published in the Canadian Tax Journal.
The Conservatives’ plan would have increased the number of 65- and 66-year-olds living below the poverty line by 100,000 people, from 6% to 17% of that demographic, the researchers calculate.
The reversal, expected in the Liberals’ March 22 budget, would bring everyone’s age of OAS eligibility back to 65.
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The Conservative plan was supposed to be phased in, starting in April 2023 and ending in January 2029. People born on Feb. 1, 1962 or later, the oldest of whom are presently 54, would have been most affected, says Frank Di Pietro, director, Tax and Estate Planning, at Mackenzie Investments.
“Those are the individuals who wouldn’t have been able to collect Old Age Security until age 67,” he explains. “The retirement income projections for those clients will [likely] change, but for those born before March 1, 1958, [projections] won’t change.”
At 2016 benefit levels, two fewer years of eligibility would cost clients about $13,700 each in forgone income. “That shortfall has to come from your retirement savings,” says Shelestowsky.
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Consider the impact on a married couple, Bill and Padma, each born in July 1958, each making $50,000. Their advisor wants to fund their retirements, assuming Bill will live until 91 and Padma will live until 95.
If they want to retire at 65 with $60,000 in combined income, they would have to save $934,777 if they aren’t eligible for OAS at age 65. With OAS eligibility at 65, they would need $903,681, calculates Shelestowsky.
“Delaying the OAS by two years means $30,000 more in savings they would need to fund that shortfall,” explains Shelestowsky.
Seniors in their 60s also tend to spend more than people in later years of retirement, he notes. So two fewer years of OAS would come at a particularly inconvenient time.
This article was originally published on Benefits Canada‘s companion site, Advisor.ca