As we step into a new year, it is a time when many of us resolve to update our estate plans. As part of that planning, a key objective is often to help secure the financial well-being of loved ones, including mitigating potential income loss to protect a surviving spouse after the other’s passing. Yet, a notable challenge often arises from a widespread misunderstanding surrounding survivor benefits.

While pensions from a deceased’s workplace may continue, a survivor’s pension benefit is often at a reduced rate. Many people don’t realize that government benefits may be lacklustre, thereby leaving a shortfall in income or cash flow for the survivor. This may pose challenges because essential expenditures like property taxes and other bills often persist at their usual levels.

Consider the situation in which both spouses collect maximum CPP and OAS benefits — this could potentially provide over $48,000 in annual retirement income for a couple, based on monthly CPP of $1,306.57 (2023) and OAS of $707.68 (Q4 2023) for a retiree at age 65. If one spouse were to pass away, consider that the deceased spouse’s annual benefits, or around $24,000, would be entirely lost.

This is because you cannot receive a survivor’s pension while also receiving a full retirement pension: The most that can be paid to a survivor who is eligible for CPP benefits and the CPP survivor’s pension is the maximum retirement CPP benefit. With OAS benefits, there is no survivor benefit. The CPP provides a “death benefit,” limited to a one-time payment of $2,500, available if the deceased has been a qualifying CPP contributor.

For survivors not receiving maximum CPP benefits, perhaps due to time out of the workforce, lower CPP contributions or other reasons, they may be entitled to a survivor’s benefit. Survivors are eligible for 60 percent of the deceased spouse’s CPP pension (if over age 65; under this age, survivor benefits are 37.5 percent of the deceased’s pension, plus a flat rate, if that spouse is not receiving other CPP benefits). When combining multiple benefits, the total amount of combined CPP benefits paid is adjusted based on the survivor’s age and other benefits received. You will need to apply for survivor benefits, keeping in mind that back payments will be made for up to 12 months, so delaying may result in lost benefits.

Since CPP and OAS can make up a significant portion of a couple’s retirement income or cash flow when both are living, thinking ahead about the potential loss of these benefits — or any income stream — is an important consideration. When reviewing wealth plans, having an income buffer in the event of the loss of one spouse or planning to pivot and use other sources for retirement income may be considerations. For information on CPP survivor benefits, see: www.canada.ca/en/services/benefits/publicpensions/cpp/ cpp-survivor-pension.html