What You Need To Know About OAS - Old Age Security
Fortunately, this is one of the more simple government benefits for seniors.
This benefit is available to all Canadians who have resided in Canada for at least 10 years. This benefit is paid from the general revenues of the Federal Government. You don't have to do anything to qualify, just live here for 40 years and you get the maximum.
The current maximum monthly benefit as of January 2023 is $687.56/month if you have lived here for at least 40 years from ages 18-65. The amount you get is indexed to inflation and is reset every quarter. Get the most up-to-date number by clicking here.
What happens if you have less than 40 years?
Your benefit will be prorated. You need at least 10 years to get anything. You are basically getting 1/40th for each year of residency.
Example:
10 years = 25% of the maximum.
20 years = 50% of the maximum.
30 years = 75% of the maximum.
40 years is the maximum of $687.56/month
Deferring OAS past age 65
You do not have to start taking OAS at age 65. In fact, if you defer you will receive .6%/month for every month you wait. A person starting today at age 70 would be entitled to $935.08/month. There are situations where it will make sense to delay. If you are in a higher tax bracket. Realizing a capital gain from the sale of property or a business. Doing an RRSP meltdown strategy. You always have to be careful that one action does not have a negative impact on another decision. Delaying OAS by 1 year means an additional $49.50/month. If you were to collect for 25 years, that's more than $14,851 of income, before indexing. Plan wisely.
What happens if you retire outside of Canada after age 65?
You must have at least 20 years of consistent residency in Canada to qualify to receive your OAS while living somewhere else in the world. Canada has service agreements with other counties around the world and it is possible to coordinate benefits that you are entitled to from each country and to receive your benefit in that local currency. You can also expect to have an automatic 25% withholding tax subtracted from your benefit unless you take the necessary steps to avoid it. This is where need to seek some tax planning to make sure you don't get hit with double taxation.
Tax Tips For Canadians Living Abroad
What is the OAS clawback?
Your OAS benefit is "means-tested", which means it is dependent upon how much taxable income you report each year. If your taxable income is less than $86,912 in 2023 then you will qualify for the maximum benefit. As your reported income increases above this threshold, your OAS will be reduced by 15% for every dollar above. Once your reported taxable income reaches $141,917 all of your OAS would be clawed back. The government doesn't want individuals who have greater means benefitting from the program. If you have lived through 65 cold Canadian winters you may feel differently :)
Strategies for reducing the possibility of a clawback:
1. Plan ahead. If you map out your retirement income in advance you can determine how much income you should be declaring each year throughout retirement. Perhaps it makes sense to take more income between the ages of 60-65 so that your income threshold will be lower once you are over 65.
2. Shift money into your TFSA. Take any excess cash you have and top up your TFSA. Any money you take out of your TFSA is tax-free and is not reported on your income tax return as income.
3. Don't wait until age 71 or later to start withdrawing money from your RRSP. Once you turn 71 you have to turn your RRSP into a RRIF and start taking out a minimum income. If your RRSP has grown, this can present a problem with too much reported, taxable income.
4. Realize any larger capital gains before starting OAS. (Selling a business or rental properties. Gradually selling shares that have had a large increase in value).
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Retirement Income, Investment & Tax Planning
Willis J Langford BA, MA, CFP
Nancy Langford CRS
Additional Blog: Over 65, collecting CPP and still working? Why it makes sense to keep contributing