Should High-Income Earners Apply for OAS? A Comprehensive Guide

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Old Age Security (OAS) is a cornerstone of retirement income for Canadians aged 65 and older. However, for high-income earners, deciding whether to apply for OAS can be tricky due to clawbacks and financial planning considerations like deferral options. This guide helps you determine the best strategy to maximize your OAS benefits while minimizing potential losses.

Deferring OAS: How Does It Work?

OAS payments can begin as early as age 65, but recipients can choose to defer payments until age 70. Here’s why this matters:

  • Monthly Increase: For every month of deferral, OAS payments grow by 0.6%, totaling 7.2% per year or up to 36% by age 70.
  • Break-Even Ages:
    • Deferral to Age 66: Payments surpass those starting at 65 by age 78.
    • Deferral to Age 70: Payments break even by age 81 but are higher for those who live longer.

Pros of Deferring OAS

  1. Higher Payments: Lifetime benefits increase if you live long enough to make up for delayed payments.
  2. Reduced Clawback Risks: High-income earners can avoid clawbacks by waiting until their income drops below the threshold.

OAS Clawback: What High-Income Earners Need to Know

The OAS clawback affects individuals with net incomes exceeding $81,761 (2025 threshold). For every dollar earned above this limit, 15 cents is deducted from OAS payments.

  • Full Clawback: At incomes of $133,141 or more, OAS payments are entirely clawed back.
  • Example:
    • If your annual income is $200,000, your OAS would be fully clawed back. In such cases, deferral may be a better option.

Key Strategies for High-Income Earners

1. Delay Both OAS and CPP

Postponing OAS alongside Canada Pension Plan (CPP) can maximize retirement income while minimizing tax liabilities:

  • CPP Deferral Benefit: Increases by 0.7% monthly (8.4% annually) for each year deferred beyond age 65.

2. Consider Incorporation

If you’re self-employed or transitioning to self-employment, incorporating your business can reduce your personal taxable income. Corporate income is taxed at a lower rate, which might help you stay below the clawback threshold.

3. Age-Specific Recommendations

  • At Age 65:
    • Deferral is often advisable for healthy, high-income earners still working.
  • At Age 70+:
    • Apply immediately, as further delays won’t increase payments. Even if clawbacks apply, receiving OAS positions you to access other targeted benefits.

Additional Benefits of OAS Deferral

1. Extended Clawback Threshold

Delaying OAS increases the clawback threshold due to the 36% payment boost, allowing more income before clawbacks kick in.

2. Inflation Adjustments

Deferred OAS benefits are indexed to inflation, ensuring higher payments over time.

3. Bonus at Age 75

Recipients receive a 10% boost to OAS payments at age 75, calculated on deferred amounts. This provides an added financial edge.

When to Apply for OAS Despite High Income

If you are 70 or older, deferral is no longer possible. Applying ensures you can benefit from any additional one-time payments or targeted programs available to OAS recipients.

Summary: OAS Decision Checklist for High-Income Earners

  • Deferral is ideal for those with high current incomes, as it reduces clawback risks and maximizes long-term benefits.
  • Apply immediately if:
    • You’re 70 or older.
    • Your income has dropped below the clawback threshold.
  • Consult a Financial Planner: Tailored strategies can help align OAS decisions with your overall retirement plan.

By carefully evaluating the timing of your OAS application, you can minimize clawbacks, boost benefits, and secure a more comfortable retirement. Ready to optimize your OAS strategy? Start planning today! 😊

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