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Last weekend my father and I made a trip to a marina near our cottage, and my youngest son joined us. We were having fun contemplating ways to spend my dad's most recent Old Age Security cheque on boating stuff. The store had a huge sale, and had posted a security guard at the door – an elderly gentleman – to prevent shoplifting. I said something to my father about Old Age Security and my son thought I was talking about the guard. We had a good laugh over that.

Last week I started a conversation about government retirement income and talked about the Canada Pension Plan. Today, I want to turn to the Old Age Security (OAS) program. Here's a primer.

The OAS

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The OAS program helps Canadians in retirement by making a monthly payment to you if you're eligible. Unlike the Canada Pension Plan, payments under the OAS system are not tied to your past employment. If you're a Canadian citizen or legal resident you may be entitled to collect OAS, whether you're living in Canada or elsewhere – provided you meet the minimum residence requirements.

Here's the deal: If you're a Canadian citizen or legal resident living in Canada and have lived here for at least 10 years since turning 18, you'll be entitled to collect OAS benefits once you reach the appropriate age – which is 65 – although things will be changing in the future. More on these changes in a minute.

If you're living outside Canada, you'll be eligible to collect OAS at the appropriate age if you were a Canadian citizen or legal resident on the day before leaving Canada, and you lived in Canada for at least 20 years after turning age 18. As an aside, even if you don't meet these residence requirements, you might still be eligible to collect OAS if the country in which you now live has a social security agreement with Canada. Check out the Service Canada website for more.

The amount

How much can you collect? The amount depends on how long you've lived in Canada after turning age 18, and the monthly payment amounts are reviewed every January, April, July and October, and are indexed to inflation. Payments are made typically the last week of each month. The maximum benefit is currently $564.87 per month, or $6,778 annualized, but your actual benefits can be reduced by a "clawback" if your income is over $72,809 (in 2015). The clawback is 15 cents for every dollar of income over $72,809. This means that your OAS benefits will completely disappear at an income level of $117,954 in 2015. By the way, if you're in jail, you can apply for OAS but your payments will be suspended until you're out (sorry, Uncle Jack).

The government will figure out your clawback by using your net income from your tax return in the previous year. So, if you had a high income last year but not this year, you might experience a clawback that is bigger than what's fair for the current year. You can solve this problem by requesting a reduction in your clawback by filing Form T1213(OAS) which you'll find online at www.cra.gc.ca.

The changes

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The federal government introduced some changes to the OAS system that became effective in July, 2013. Most notably, the age at which you can start to collect OAS is increasing from 65 to 67 over six years, starting in April 2023.

If you were born before April, 1958 you'll be able to start collecting at age 65 – you're unaffected. Those born after March, 1958, and before February, 1962, will start collecting between age 65 and 67, with the eligible age gradually increasing based on your date of birth. Born after January, 1962? You'll be eligible to collect starting at 67.

The second change to mention is that you can now defer the start of your OAS benefits for up to 60 months after the date you become eligible. By deferring, you'll permanently increase your monthly payments by 0.6 per cent for every month you defer. So, if you defer your payments by the full 60 months, your payments will be 36 per cent (0.6 x 60 months) higher each month than if you had collected as soon as you're eligible.

Lastly, enrolment for OAS will be automatic for many – but this is being phased in. Once you reach 64, you should receive a letter from the government explaining whether or not you're automatically enrolled or you have to apply.

Tim Cestnick is managing director of Advanced Wealth Planning, Scotiabank Global Wealth Management, and founder of WaterStreet Family Offices.

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