As you plan for retirement and the future, it’s important to understand how your income and assets can affect your benefits. One of the most significant factors is the Old Age Security (OAS) clawback, which can impact your OAS payments if your income is too high. In this article, I’ll outline what you need to know.
What is a clawback?
A clawback is a reduction in government benefits that occurs when your income or assets exceed a certain threshold. Essentially, the government will “claw back” some of your benefits to ensure that they are being directed towards those who truly need them.
How does the clawback work for AOS?
For AOS, the clawback is based on your net income. If your net income exceeds a certain amount, your AOS payments will be reduced or eliminated. In 2021, the threshold is $79,845. If your net income exceeds this amount, your AOS payments will be reduced by 15% of the excess income. If your net income exceeds $129,075, your AOS payments will be fully clawed back.
It’s important to note that net income is calculated after deductions for things like RRSP contributions and pension adjustments. However, it includes things like investment income, employment income, and rental income.
What can you do to avoid the clawback?
If you’re worried about the clawback, there are a few things you can do to minimize its impact. One option is to focus on tax-efficient investments, such as TFSAs and corporate class funds, which can generate income that is not subject to the clawback.
Another option is to consider income splitting with your spouse, which can help reduce your family income and minimize the impact of the clawback. This can involve things like pension income splitting, or setting up a spousal RRSP.
Finally, it’s important to work with an expert advisor who can help you understand your options and create a plan that is tailored to your unique needs and goals. By taking a proactive approach to your finances, you can minimize the impact of the clawback and ensure that you’re maximizing your benefits and income in retirement.
Final Thoughts
Understanding clawbacks for AOS and income brackets is an important part of retirement planning. By knowing how they work and what you can do to minimize their impact, you can ensure that you’re making the most of your retirement income and benefits. Make sure you consult with a good wealth advisor to ensure that you’re on the right track.
