How to Bridge the Gap to Inheritance – MoneySense

CPP/OAS strategy without other pensions

You can start your retirement pension with Canada Pension Plan (CPP) at the age of 60, or postpone it until the age of 70. For every month you delay after the age of 60, the pension increases.

If you retire at the age of 60 and continue to work, you must continue to contribute to the pension until at least the age of 65. This usually increases your pension, with an adjustment every year, but not as much as a postponement.

Since you’ve already started your CPP, there isn’t really a strategy, Esther. But for others reading along, a healthy senior who expects to live well into his or her 80s should strongly consider delaying the start of retirement. They will receive more cumulative CPP dollars as they reach their late 70s. Even after taking into account the time value of money that comes from withdrawing from other investments, or not being able to receive and invest the payments, someone in their mid-80s or older may be better off financially.

There is also the benefit of a more guaranteed income that is simple and indexed to inflation, protecting the cost of living and longevity, especially for someone without a defined benefit plan.

Although you plan to start your Old Age Security (OAS) at age 65, Esther, you might want to think twice about this:

1. The same logic as CPP applies. You can defer your OAS until age 70 and it also increases with each month of deferral. If you are healthy and expect an average or longer-than-average life expectancy, deferral can give you more lifetime retirement income, despite the temptation to have more cash flow today.
2. There is an OAS pension collection tax if your income is greater than approximately $95,000 in 2026. If you are still working and receiving both CPP and OAS, you should be careful about losing some of the OAS pension you are hoping to start. This income-related clawback from OAS is 15 cents on the dollar above that threshold, creating an effective tax rate of 43% to 52% and up to $95,000 depending on the province or territory you live in.

Given your expected low income in retirement, starting OAS can be a costly decision. There is also a low-income supplement, the Guaranteed Income Supplement (GIS), which an OAS retiree with a modest income may qualify for and which can play a role in your future income planning, Esther.

Traveling in retirement

Planning to travel while you’re young and healthy is an important reason not to work too long or delay retirement. There must be a good balance between saving for tomorrow and living for today; it is one of the biggest risks of retirement planning.

Conventional retirement planning methods aim to minimize the risk of running out of money before age 100, but this can also maximize the risk of missing out on life experiences.

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Counting on an inheritance

You need to be careful about budgeting for an inheritance that may be lower than expected and come later than anticipated. It’s a risky part of retirement planning, even if you have full visibility into a parent’s finances.

The substantial nature of the inheritance you provide, Esther, is an important factor in your own retirement planning. Since you are 64, I assume your mother is well into her 80s or older.

In your case, the key to bridging the gap to that inheritance is permanent real estate.

Real estate strategy after retirement

The advantage of owning versus renting from a financial perspective is exaggerated in my opinion. Until recently, real estate prices in many Canadian cities were rising at an extraordinary pace, leading some to believe that this is the key to wealth creation.

Real estate may not be an investment, unless it concerns a rental property that generates rental income. A primary residence should probably grow slightly above inflation, in line with wage growth. Perhaps this is why prices have leveled off or fallen recently. Although interest rates have risen, they have only risen to a normal level, and not to an extraordinarily high level.

When discussing the increase in the value of real estate, property taxes, maintenance, renovation and interest costs are often not taken into account.

All that to say that selling and renting wouldn’t be a failure according to this financial planner, Esther. But you might consider an apartment or senior community where you can live as long as you want, as opposed to an apartment with a landlord who has risks when it comes to long-term stays. Being forced to move at age 70 or 80 with 90 days’ notice may not be a good risk to take.

One solution you may not have considered is borrowing against your debt-free apartment. You can apply for a mortgage or home equity line of credit based on your income and qualifying ratios. A line of credit can be more flexible than a fixed-sum mortgage paid into your bank account because you can withdraw money as needed and pay interest as you borrow.