How much income can I earn while getting OAS?

1. Will you have other income from the Canada Pension Plan (CPP), too? (When you add that to your salary, it pushes you further into the clawback zone.)
2. How much Old Age Security (OAS) are you willing to lose? 
3. And, does it make sense to delay your CPP and OAS?

As a reminder, the amount of clawback you may face is based on your net income from all sources (worldwide, too), and how far into the clawback zone your income reaches. There’s no line in the sand where, once you cross, you lose all of your OAS pension. Instead, there’s a zone that, in 2024, starts at $90,997, and you slowly lose your OAS bit by bit (OAS pension recovery tax) as net income reaches $148,451. The initial threshold increases every year with the rate of inflation (the Consumer Price Index, or CPI).

How much OAS do you lose when you work in retirement?

The rate at which you lose your OAS is $0.15 for every dollar of net income above $90,997. This will make more sense if we work through a couple of examples.

Assume you have a net income of $100,000, for the purpose of simple math, putting you $9,003 ($100,000 minus $90,997) over the initial OAS threshold. You will have a recovery tax of $1,350 ($9,003 multiplied by 15%) of the $8,752 OAS pension. That is the pre-tax amount to pay back, and your actual spending loss is about $945. That is the after-tax amount received, assuming a 30% marginal tax rate.

Depending on your plans, you might accept that loss.

How CPP (and other pension income) can affect OAS

Now, what if you have additional income sources other than your salary? As a reminder, the OAS clawback is based on your total net income, which includes things like CPP.

What if you forget to add in your CPP and OAS to figure out your net income? Remember, your net income includes CPP, OAS, pension income, rental income, dividends, interest and taxable capital gains, to name a few. If your salary is $100,000, and you collect CPP of $15,000 and OAS of $8,732, then your net income is $123,732 and your OAS recovery tax is $4,910. 

Here’s how that’s calculated:

( ($123,732 – $90,997) x 15%)

Splitting income with a spouse

Once you get into the clawback zone, look for ways to either reduce your net income or split pension income with your spouse. 

If you have a defined benefit (DB) pension, you can split that income with your spouse at any age. And when you turn 65, Cindy, you can split registered retirement income fund (RRIF) income.

I mention this because I’ve met people who were under the impression they could split regular income after age 65. You can’t split your employment income after age 65, only pension income.

What should you do if you have an OAS clawback?

If you realize you’re going to lose some or all of your OAS, consider delaying your CPP and/or your OAS. There has been a lot written on delaying CPP, so I’ll keep to your question and focus on OAS. (For example, check out this article from MoneySense on delaying CPP until age 70.)

Most Canadians are automatically enrolled into OAS at age 65. So, Cindy, you must apply to have it stopped. You have six months to stop OAS once it has started. OAS increases by 0.6% for each month you delay it beyond your 65th birthday. That’s 7.2% a year, and 36% if you delay to age 70.

This is different from CPP, which increases at a rate of 0.7% for each month you delay beyond your 65th birthday. And this is one reason why delaying CPP over OAS normally takes precedence, plus the fact that there is no CPP clawback.

Why delay OAS

Another big advantage of delaying your OAS is that the upper threshold of the OAS clawback zone increases. It does so because of the clawback formula, losing $0.15 for every dollar you are over the threshold.

If OAS is $8,732 at 65, delaying to age 70 (for a 36% increase) bumps your OAS to $11,875. In this case, the upper limit of the OAS clawback zone is $170,163, almost $25,000 more than if you don’t delay your OAS.

Here’s the calculation for the above-mentioned clawback zone:

( ($11,875 ÷ 15%) + $90,997)

This means you can have a net income of up to $170,163 before you lose your OAS.

Other benefits of delaying include your OAS benefit increasing by 10% on your 75th birthday, based on the amount you are receiving ($11,875)—and not on the amount you would have received at age 65, $8,732, as an example.

So, a 10% increase of $1,187, rather than a 10% increase of $872 if you started OAS at age 65. And this extra amount further extends the upper end of the clawback zone, as I explained earlier. Also, OAS increases by the rate of inflation, and a 3% rise on $11,875 results in more money than a 3% rise on $8,732. 

Should you delay OAS if you’re working in retirement?

My suggestion is to look at your tax return from 2023, to confirm your net income amount, and then add in any new income you may receive in 2025, including CPP and OAS if they apply. Your accountant or financial planner can help you if needed. 

Then, later in 2024 or early 2025, check on the initial OAS clawback zone for 2025. You may even want to take it one step further and have some projections down so you can see the implications of taking or delaying your CPP and OAS. 

Cindy, I hope this helps.

Read more about Old Age Security:

• What are the OAS payment dates?
• Should you apply for OAS even if you have a high income?
• OAS entitlement and deferral rules for immigrants to Canada
• How to avoid OAS clawbacks when you’ve had a temporary increase in income

About Allan Norman, MSc, CFP, CIM

With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

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