Federal budget to push back retirement age to 67
The Conservative government’s newly released federal budget confirmed what many had expected: a plan to raise the OAS program eligibility age in Canada from 65 to 67.
The Conservative government is today expected to announce plans to raise the retirement age in Canada from 65 to 67 when it unveils the federal budget.
Old Age Security (OAS) benefits will be delayed for millions of Canadians in an effort to cope with the rising costs associated with the aging population, the Globe and Mail is reporting.
The OAS benefit provides as much as $540 monthly to Canadians 65 and older, with higher income seniors getting less. Anyone making more than $112,772 receives no OAS payments.
The changes will not affect workers nearing retirement, but will be phased in over the coming years.
Michael Wolfson is an expert advisor with EvidenceNetwork.ca and Canada Research Chair in Population Health Modeling/Populomics at the University of Ottawa. He is also former assistant chief statistician at Statistics Canada and former federal advisor on pension policy.
Wolfson says that if the eligibility age was today raised to 66-years-old, the government would net a savings of $3.5 billion (after factoring in a decrease in income and sales tax revenues). But the changes would also cost the provinces $500 million in lost revenue from income and sales taxes.
Many of the nearly 700,000 Canadians age 65 and 66 might have to compensate for the shortfall by working more, withdrawing more from their savings and/or moving in with relatives.
Without taking such measures, the number of Canadians aged 65-66 falling below StatsCan’s after-tax Low Income Measure (LIM) would more than double from about 50,000 to nearly 120,000, Wolfson estimates. This would also force more seniors into provincial social assistance programs.
As a result, the net benefit to the country of raising the retirement age would essentially be nil, Wolfson said in a recent commentary for Troy Media earlier this week.
Though the changes are likely to meet with the ire of seniors’ groups and worry many Canadians planning their retirement, Warren MacKenzie, president of Weigh House Investor Services, says people with a solid financial plan should not be blown off course by the changes.
Losing two years of OAS shouldn’t be life-altering for younger Canadians, he said. “If the government delays the age for starting OAS to 67, that means you would lose no more than $13,000—even less after taxes,” says MacKenzie. “If that’s going to make a noticeable difference in your retirement, then you’re cutting it too close.”
All of this is a useful lesson for anyone building a long-term financial plan. Every plan makes assumptions, and a lot can change between now and the day you retire. But as long as you develop good habits during your working years, you’ll be on solid ground. In your early and mid-career years, it’s simple: spend less than you earn and invest the rest wisely. As you approach retirement age, crunch the numbers once a year or so to see if you have enough money to last. If not, working for a few more years can make a huge difference. If you find yourself spending at unsustainable levels after you’ve already retired, MacKenzie says small reductions in monthly spending are usually enough to get you back on track.
While we’re likely to see more tinkering with government benefits, that doesn’t mean you should factor these programs out of your retirement plans. “In the years to come, people are going to have to depend more on their own resources, but it’s unnecessarily conservative to assume you’re going to get nothing,” says MacKenzie.
Thursday’s budget, which will be unveiled at 4 p.m. ET, will also introduce changes to pensions for government staffers, including MPs and senators, the Globe reports. Today, taxpayers fund roughly 60% of public servant pension plans and more of that burden is expected to fall on the shoulders of the employees.
-with files from MoneySense's Sarah Efron
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