Old Age Security ClawbackJake Steele, Wealth Advisor, Managing Director
Many people are surprised that when they turn 65 they are not guaranteed to get all of their Old Age Security (OAS). They do not realize that OAS is income tested and if you make over a certain income in a year it will be “clawed back,” officially known as the OAS Recovery Tax.
How does the clawback work?
If you make $77,580 (2019) or higher, you get a reduction in OAS benefits by 15 cents for every dollar over that threshold.
George has a net income of $100,000 & currently receives $607.46 per month for OAS:
$100,000 – $77,580 = $22,420
$22,420 * 15% = $3,363 or Approx. $280.25 per month less in OAS
As you can see by the example above, George lost almost half his OAS because his income exceeded the $77,580 threshold by $22,420. If your income exceeds $125,937, your OAS benefit is reduced to zero and you receive nothing for OAS.
The amount clawed back is based on previous years income. You can request that the clawback be based on your current income year if it is significantly lower.
What can you do to avoid the clawback?
You can defer taking OAS as late as 70 years old. For every year you defer, your OAS income increases by 7.2% per year. This strategy works for individuals who may still work or will have a higher income in their late sixties.
Having a financial plan that takes into account future income is paramount to avoiding your income being clawed back. Preparing in advance for retirement and having a retirement plan can help to keep your income low enough so that you get all your government benefits.