Last week we looked at one part of Canadian retirement benefits: CPP. Although CPP does provide a potentially larger benefit, OAS should not be overlooked.
The second part of government-provided retirement income is Old Age Security (OAS). Rather than being funded by direct contributions like CPP, OAS is funded by general tax revenues.
OAS pays a monthly benefit to eligible recipients over the age of 65. Unlike CPP, you can not start receiving OAS early. However, just like with CPP, your benefits are increased if you choose to delay receiving OAS. For every month you delay receiving OAS after your 65th birthday, your pension payment will increase by 0.6%. This increase is limited till age 70 (36% total increase) when receiving OAS is mandatory.
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Employment history is not a consideration like it is for CPP. OAS can be received without ever having worked.
If you are living in Canada, to be eligible, you must:
- Be 65 years old or older
- Be a Canadian citizen or a legal resident at the time your OAS pension application is approved
- Have resided in Canada for at least 10 years since the age of 18
OAS can be collected if you are living outside of Canada. For this to happen, you must:
- Be 65 years old or older
- Have been a Canadian citizen or a legal resident of Canada the day before you left Canada
- Have resided in Canada for at least 20 years since the age of 18.
OAS Benefits Received
The amount you receive from OAS is dependent on how long you lived in Canada after age 18. Your annual retirement income also plays a role in how much you receive. If you have a high income in retirement, there is a clawback that is applied.
If you have a very low income in retirement, you may be eligible to receive additional benefits. We will talk about it later. The benefits received are adjusted quarterly according to the consumer price index (CPI).
As of July 2020, the max that anyone receives from OAS is $613.53 per month or $7,362.36 annually.
Above we mentioned an OAS clawback for those with a higher income. OAS is means-tested. Once your income hits the lower threshold, $79,054, 15 cents is clawed back for every $1 of additional income.
This means that for someone with $128,137 of income in retirement, they will receive $0 of OAS.
You can think of the clawback as a 15% tax on any income above the minimum threshold. If you were to make $95,000, the total amount you would receive from OAS annually is $4,970.46.
Calculated as follows:
- $95,000 – $79,054 = $15,946
- $15,946 * 0.15 = $2,391.90
- $7,362.36 – $2,391.90 = $4,970.46
This clawback makes sense as those with high retirement incomes don’t need the extra money. However, it almost seems to be punishing or taking away something from those who were diligent savers.
Thankfully, a friend and colleague of ours wrote an article on a potential solution. Check out OAS Clawback Secrets For the High-Net-Worth. A well written and informative article from someone who also knows what they are talking about.
Other OAS Benefits
Much the same as CPP, OAS has additional benefits other than just the retirement benefit. These benefits include; Guaranteed Income Supplement, Allowance, and Allowance for Survivor.
Guaranteed Income Supplement
Provides a monthly non-taxable benefit to OAS pension recipients with a low income that are currently living in Canada. To qualify you must meet both criteria:
- You are receiving OAS pension
- Your annual income is lower than the annual maximum threshold
Your GIS eligibility is reviewed every year. You must meet the eligibility requirements every year to receive it.
Depending on living arrangements and marital status, the amount that you receive can differ. For more information on that, click here.
The allowance is available to a small group of people. To be eligible you must meet all of the following:
- Be between 60-64
- Your spouse or common-law partner receives OAS and is eligible for the GIS
- Be a Canadian citizen or legal resident
- You reside in Canada and have done so for at least 10 years since age 18
- You and your spouse or common-law partner’s annual combined income is less than the maximum allowable annual threshold.
The amount of allowance that is received depends on marital status and previous years’ income. Check out this table for more information on that.
To continue receiving the allowance you must qualify every year. The payments will stop the month after you turn 65. You must apply to receive the allowance. The application should be submitted 6-11 months ahead of your 60th birthday.
Allowance for Survivor
Much like the allowance, however with the added criteria that the applicant is widowed. The full criteria is as follows:
- Must be 60-64 years old
- Canadian citizen or legal resident
- Reside in Canada and have done so for at least 10 years after age 18
- Spouse or common-law partner has died and you have not remarried
- Annual income less than the maximum annual threshold
Eligibility is determined on a yearly bases. The amount that is received is dependent on your previous year’s income.
Just like the regular allowance, you must apply to receive the allowance for survivors. This application should be done 6-11 months prior to your 60th birthday.
Last week we learned that the max CPP you could receive is $1,175.83. If we add the max OAS of $613.53, we get $1,789.36 (this is on an individual basis and marital status and income can change these numbers).
Although $1,789.36 is a decent chunk of change, for many people that would not be enough to survive. It is important to start the retirement planning process early. With diligent planning in the early stages, it can help to ensure a successful retirement.
If you haven’t started planning out your financial future, contact us. We would love to sit down and talk with you to help you define and achieve your goals.
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