FP Answers: What happens to CPP and OAS payments when a spouse dies and how do we plan for this?

Lifestyle planning should be the first step in your overall plan so you can have a good life now and in the future.

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By Julie Cazzin and Allan Norman

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Q: My spouse and I are planning for retirement and projecting future income in retirement. But we wonder what happens to Canada Pension Plan (CPP) and Old Age Security (OAS) payments in retirement when a spouse dies? Any information would help. — Thank you Fernando

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PF responses: Retirement planning often revolves around a couple leading a healthy, active life and then dying in their 90s or 95s. But what happens when a spouse dies prematurely or becomes disabled? Dreams die and finances change.

I’m going to share two personal experiences with the hope that you can use them in your own life and planning so that you never get to a point where you look back and think, “Rats! If only I had known, I would have traveled to… or retired earlier or…”

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Four years ago my wife Caroline went out for a morning run and came home with a brain injury and now, among other things, she can’t drive or ride comfortably in a moving vehicle for more than 10 minutes. She cannot travel. Since I have known my wife, she has always wanted to follow in her mother’s footsteps and spend her winters in Florida. She may never go back to Florida again.

We could have done more trips to Florida when she was fit and able, but we didn’t. There was always a reason to put it off until next year, or a day later. We lived as if we had all the time in the world.

But time does not stop and the older you get, the faster time passes. There is no redoing, and there comes a time when we can no longer do what we used to do and eventually we die. This is a fact that should not be forgotten when thinking about the things you want to have and do. What is your reason for not doing them today?

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Your planner should help you identify, achieve, and maintain your desired lifestyle without risking running out of money or dying with too much money. You want to have a good life now and a good life in the future. This is lifestyle planning, the first step in a comprehensive plan.

Here is another personal example. Six years ago, I lost my mother. I asked my dad what the financial consequences were for him when mom passed away. Mom’s OAS benefits have stopped. There are no survivor benefits associated with OAS. My dad also lost his OAS due to clawback tax rules.

As a couple, mom and dad could split their pension income. Once Mom passed away, Dad was no longer able to split his pension income, resulting in 100% clawback of his OAS. Mom was a stay-at-home mom on a small CPP pension. Dad got nothing from his CPP pension.

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I find a lot of people are under the impression that if their spouse dies, they’ll get 60%. 100 of the other’s CPP benefits. But the CPP is not like a traditional defined benefit plan. A CPP beneficiary can only receive the maximum CPP. My father was already receiving the maximum CPP, so he was not eligible to receive my mother’s CPP. He did, however, receive the one-time $2,500 CPP survivor death benefit.

The other thing Dad pointed out was that the company he worked for offered a defined benefit plan. He took a reduced pension when he retired so that if he died first, mum would continue to receive part of his pension. Well, Mom died first and he’s still taking a reduced pension for a benefit Mom will never receive.

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As for Dad’s expenses, he didn’t find that they had dropped much. Grocery costs are a little lower, and there’s now one car in the driveway instead of two. My dad’s suggestion to anyone who has lost a loved one is to stay active and keep doing things. Instead of Dad taking Mom to a play or an Ontario Hockey League game, he would call a friend or acquaintance to go with him.

And dad, how is he now? About two years after my mother passed away, he met a wonderful life partner and, at 84, he has just returned home from a river barge cruise in the south of France. He remains active and he is back on the road. He lives a busy life and makes the best use of his remaining time.

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I know most people are busy, routines are hard to change and very few people know what they want. Start by thinking about your current lifestyle. What would you like more? What would you like less? Remember that life is not a rehearsal. What are you waiting for?

Allan Norman, M.Sc., CFP, CIM, RWM, provides certified fee-based financial planning services through Atlantis Financial Inc. Allan is also registered as an investment advisor with Aligned Capital Partners Inc. He can be contacted at www.atlantisfinancial. ca or alnorman@atlantisfinancial.ca. This commentary is provided as a general source of information and is not intended to be personalized investment advice.


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