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

Q : My spouse and I are doing some retirement planning and running some projections on future income in retirement. But we’re wondering what happens to Canada Pension Plan (CPP) and Old Age Security (OAS) payments in retirement when a spouse dies? Any info would help.  — Thanks, Fernando

FP Answers: Retirement planning often revolves around a couple living a healthy active lifestyle and then dying around age 90 or 95. But what happens when a spouse dies early or becomes disabled? Dreams die and finances change.

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

Experience 1

Four years ago, my wife Caroline went out for a morning run and returned home with a brain injury and now, among other things, she can no longer drive or comfortably travel in a moving vehicle for more than 10 minutes. She can’t travel. As long as I’ve known my wife, she has always wanted to follow in her mother’s footsteps and spend her winters in Florida. She may never get to Florida again.

We could have taken 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 someday down the road. We lived like we had all the time in the world.

But time doesn’t stand still and the older we get, the faster time flies by. There are no do-overs, and there comes a time when we can’t do what we used to do and, eventually, we die. It’s a fact that shouldn’t be forgotten when thinking about the things you want to have and do. What’s your reason for not doing them today?

Your planner should be helping you identify, achieve and maintain your desired lifestyle without the risk of you ever running out of money, or dying with too much money. You want to have a good life now as well as a good life in the future. This is lifestyle planning, the first step in an overall plan.

Experience 2

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

As a couple, mom and dad were able to split their pension income. Once mom passed, dad wasn’t able to split his pension income anymore, resulting in 100 per cent of his OAS being clawed back. Mom was a stay-at-home mom and had a small CPP pension. Dad didn’t get any of her CPP pension.

I find a lot of people are under the impression that if their spouse passes, they’ll receive 60 per cent of the other’s CPP benefits. But CPP is not like a traditional defined-benefit plan. A CPP recipient can only receive the maximum CPP. My dad was already getting the maximum CPP, so he wasn’t eligible to receive any of my mom’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 provided a defined-benefit plan. He took a reduced pension when he retired so that if he died first, mom would continue to receive a portion of his pension. Well, mom died first and he’s still taking a reduced pension for a benefit mom will never receive.

As for dad’s expenses, he didn’t find they dropped much. Grocery costs are a bit lower and now there is one car in the driveway rather than two. My dad’s suggestion to anyone who has lost a loved one is to stay active and continue 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 how’s dad doing now? About two years after my mom’s passing, he met a wonderful life companion and, at age 84, he just arrived home from a river barge cruise in Southern France. He’s staying active, and he’s back travelling again. He is living a full life and making the best use of the time he has left.

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 of?  What would you like less of? Remember that life is not a rehearsal. What are you waiting for?

Allan Norman, M.Sc., CFP, CIM, RWM, provides fee-only certified financial planning services through Atlantis Financial Inc. Allan is also registered as an investment adviser with Aligned Capital Partners Inc. This commentary is provided as a general source of information and is not intended to be personalized investment advice.