Source: Ativa Interactive

Understanding the Impact of Working Beyond 70

Many Canadians wonder whether they can or should continue working past the age of 70 while collecting Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. The short answer is yes, you can—but it comes with financial trade-offs. Let’s break down the advantages, drawbacks, and key considerations of delaying full retirement.

Case Study: Sarah’s Financial Dilemma

Sarah turned 65 in June 2024 and still works full-time, earning $96,000 annually. She receives a survivor benefit of $389 per month and has worked full-time for 20 years. She’s considering delaying CPP and OAS until age 70 but wonders if she can continue working past that while receiving these benefits. Her financial picture includes:

• $250,000 in total savings ($150,000 in an RRSP)
• A $100,000 mortgage on her condo
• No company pension, relying on investments and employment income

Delaying CPP and OAS: Why It’s a Smart Move

Many financial experts recommend delaying CPP and OAS until age 70 if possible. Here’s why:

• Higher Monthly Benefits: Delaying CPP past 65 increases payouts by 8.4% per year, resulting in a 42% boost by age 70. OAS increases by 0.6% per month, or 36% by 70.
• Indexed for Life: Both benefits are adjusted for inflation, providing long-term financial security.
• No Immediate Need for Extra Income: Since Sarah is still working, she doesn’t urgently need these funds.

Estimated Annual Benefits at 70:

• CPP: ~$20,000+ (depending on contributions)
• OAS: ~$10,000+
• Total Indexed Base Income: ~$35,000 per year (not including RRSP withdrawals or other savings)

Will Working Past 70 Affect Your CPP and OAS?

Yes, but the impact depends on income level and tax implications. Here’s what to consider:

1. OAS Clawback

OAS is subject to the OAS recovery tax (clawback) if your income exceeds $90,997 (2024 threshold). For every dollar earned above this, OAS is reduced by 15 cents per dollar. If Sarah continues earning $96,000, she will lose a portion of OAS but not all of it.

2. Higher Tax Brackets

• Combining employment income, CPP, OAS, and investment withdrawals could push Sarah into a higher tax bracket, reducing net benefits.
• Deferring RRSP withdrawals until retirement could help lower taxable income in the future.

Strategies to Maximize Retirement Income

1. Pay Down Mortgage Before Retirement

• If possible, using part of savings or a secured line of credit to eliminate the mortgage could free up $1,000+ in monthly cash flow.

2. Optimize RRSP Withdrawals

• Withdraw strategically in lower-income years to minimize taxes.
• Convert to a Registered Retirement Income Fund (RRIF) at 71 to take required minimum withdrawals.

3. Consider TFSA Contributions

• Tax-Free Savings Accounts (TFSAs) provide tax-free investment growth and withdrawals, making them an excellent vehicle for additional savings beyond RRSPs.

4. Flexible Work Arrangements

• If working full-time becomes difficult, transitioning to part-time or consulting roles could maintain income without pushing tax brackets too high.

Should You Continue Working Beyond 70?

The decision to work past 70 depends on personal circumstances, health, and financial goals. Here’s a quick checklist:

Do you enjoy your work? If yes, continuing may provide purpose and fulfillment.
Do you need additional savings? Delaying withdrawals from RRSPs and increasing CPP/OAS benefits could improve long-term financial security.
Are you prepared for potential health changes? Having a backup plan (e.g., disability insurance, downsizing options) is crucial.

Final Thoughts

For Sarah, delaying CPP and OAS until 70 makes financial sense, as it guarantees higher lifelong benefits. While working past 70 is an option, she should be mindful of tax implications and the OAS clawback. With strategic financial planning—such as paying down her mortgage, optimizing RRSP withdrawals, and using a TFSA—she can ensure a comfortable retirement, whether she chooses to continue working or not.

If you’re in a similar situation, consulting a financial planner can help tailor a strategy that fits your specific goals and ensures long-term security.

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