On February 12, 2020, Logan Wealth Management kicked off its 2020 webinar series with guest presenter, Marlene C. Buxton BA, CFP®, CLU®.  Marlene is the principal Fee-Only Financial Planner of Buxton Financial Inc. This presentation was entitled: Should you take CPP and OAS as soon as it’s available?  A Video of this webinar can be found here.

PART 1 OF 3

Everyone’s retirement plan looks a little different, but we all share a common goal, and that is to be able to live comfortably in our old age. No matter when you decide to stop working or whether you’ve ever been employed, knowing what your financial future looks like is important.

Old Age Security (OAS), Canada’s largest pension program, can play an important role in your plan as it provides a base level of income that is indexed and guaranteed for life. A fact that’s especially helpful if you don’t have a pension plan with your employer. As a government social benefit, OAS gives eligible residents and citizens a taxable monthly payment once they reach the age of 65, and unlike the Canada Pension Plan (CPP), the amount is based on residency, not employment or contributions.

So, how can you receive the maximum OAS amount? By meeting these three requirements:

1. 1. Live in Canada for at least 40 years after the age of 18.
   2. Have your taxable income (your net income on line 236 of your tax return) be under $79,054 in 2020.
   3. Delay receiving your OAS from 65 to age 70 which allows you to receive 36% more.

If you don’t meet those requirements, you can still receive OAS, however, the amount will be reduced.

1. 1. You will receive partial OAS if you have lived in Canada for at least 10 years after age 18. If you fall into this category, for every year you lived in Canada, you qualify for 1/40^th of the full pension. So, if you were a resident for 10 years, you would get ¼ of the full pension.
   2. For every dollar above a net income of $79,054 in 2020, you will have to pay back 15% of the amount over this number up to roughly $128,137, at which point your OAS will be fully clawed back. Or more simply said, if you make more than $128,137 a year in income through pensions, investments, or minimum RRIF withdrawals, you will not receive OAS.

Now there are some exceptions. If you worked for a Canadian company but lived outside the border for a period of time, for example with the Armed Forces, those years may still qualify. Or if you become a non-resident of Canada after residing in the country for at least 20 years after turning 18, you may still qualify (if not, payments will stop 6 months after you depart).

Let’s expand on the net income point. We stated earlier that if your taxable income was over $79,054 in 2020, you’d be required to pay back some of your OAS. And if that amount ended up being $128,137, you’d have to pay back all of it. This is what’s known as the OAS Pension Recovery Tax; the threshold amounts are set every year and increase with inflation. To maximize your OAS, and avoid clawback scenarios, there are a few ways to do it.

1. If you’re a couple, you could split your income to make your household income total $158,108, allowing you both to still qualify for full OAS.
2. Use all tax deductions possible to lower taxable income, including making RRSP contributions if you have room. Or if you’re over 71, and your spouse is younger, making an RRSP contribution into their account.
3. Withdrawing cash from a TFSA or any non-registered asset will not incur any taxable income, and therefore be exempt from calculations.
4. If you’re under 65, drawing funds from your RRSP allows you to defer OAS and receive 36% more once you start receiving it at age 70.

You’ll be comforted to know that if you realize you should have deferred OAS within a six-month period of receiving benefits, you can contact Service Canada, and have it deferred. Of course, you’ll need to pay back any OAS payments received within those six months, but that just makes sense.

As you plan your retirement, know that not every strategy will work for you but that your goal should be to maximize your benefits in retirement. For a personalized assessment and more financial guidance, talk to your advisor at Logan Wealth Management.