Inflation a scourge for retirees? Ottawa’s silver lining(s)

Rising RRSP contribution limits

Inflation also influences RRSP maximum contribution savings limits. In 2021, the limit was $27,830. For 2024, it is $31,560, which is a difference of 13.4%. Over a similar time period, 2018 to 2021, it rose from $26,230 to $27,830, a difference of 5.7%. 

“Thus, recent inflation caused the RRSP limit to more than double over a similar time period,” Ardrey concludes. “This of course can increase your tax-deferred savings and also your annual tax deduction for your RRSP contribution.” 

OAS clawback threshold also rises

Among the goodies that will appeal to Canadian retirees is the rising threshold where they may encounter clawbacks of OAS benefits. Many retired couples in Canada pay close attention to this at the end of every calendar year. 

The goal is for each member to maximize retirement income from all sources (pensions, investments, etc.) but to stay slightly below the point where Ottawa starts clawing back OAS benefits. 

After all, OAS payments are for many a welcomed $690-a-month payment (that’s before tax) or $8,300 a year, and it’s inflation-indexed to boot. In 2020, the threshold at which OAS benefits began to get clawed back was $79,054, according to Hector, but that number has risen every year: to $86,912 in 2023 and a projected $90,997 in 2024. 

So, senior couples with similar incomes in Canada should be able to earn almost $182,000 between them before even starting to see their OAS benefits get clawed back. And if that does happen, that’s what many would describe as a “nice problem to have.” 

Is CPP inflation hedging a reason to take CPP a bit early?

Fortunately, CPP benefits are clawed back at any level, although of course they are still taxable. Here too, inflation indexing comes to the rescue for retirees and semi-retirees. In fact, for the second year in a row semi-retired actuary Fred Vettese argued that Canadian near-retirees hoping to maximize CPP payouts by waiting to age 70 might instead take it a year or two early to take advantage of inflation adjustments that kick in each January. 

Vettese suggested that in late 2022—and more recently in this article—that those thinking of starting CPP in 2024 should start it before the new year. He responded in an email to me: “I determined it definitely made sense to start it in late 2023 instead. Doing so is worth an extra few thousand dollars.”