If you earn too much money, you could lose your Old Age Security (OAS)

I am so happy to be Canadian

Canada has a great social safety net. It has many programs that protect its citizens against falling below a certain level of poverty.

Some of the most valuable services provided by the government are welfare, Child Tax Benefit, Canada Pension Plan, unemployment benefits, universal health care, Worker’s Compensation, Employment Insurance, subsidized education, homeless shelters, Old Age Security, Guaranteed Income Supplement and a few more.

What is the Old Age Security

The Old Age Security is a pension program provided by the government, an individual doesn’t have to pay into the benefit. You can claim the OAS even if you have never worked a day in your life. Or you can claim it even if you are still working.

To qualify for OAS you need to:

Be at least 65 years old,
Be a Canadian citizen or legal resident,
Have lived at least 10 years in Canada.

Even though you qualify to start receiving OAS at age 65, some people opt to defer it until age 70. The advantage of deferral is that you can get an additional 0.6% for each month that you defer it.

If you don’t think you will have a long life, maybe the best thing is to start claiming it as soon as possible. On the other hand, if you think you will have long healthy life, maybe a deferral would be a good option.

The program is available to citizens over 65 and people have to apply to get it. If you don’t apply, you don’t get it.

Old Age Security and taxes

This income is taxable. The basic amount for 2020 is $613.53 This amount is adjusted quarterly according to the Consumer Price Index.

The Old Age Security clawback

The thing to keep in mind is that if your taxable income is above $74,788 your OAS is reduced at the rate of 15% of net income and it disappears completely if you earn more than $122,843.

In the past, I have encountered people afraid of earning too much money because they will lose their OAS. I find this ridiculous. A person earning $122,483 a year is earning $10,237 per month. That person can certainly survive without the $613.53 free money from the government.

But for those who are concerned about getting every penny from the government, they should try to keep their taxable income below $128,137.

One of those ways is to stop contributing to their RRSP once their RRSP reaches a certain level. Let’s just make up the number of $700,000. (I am making up this number out of the top of my head, this calculation will require more fancy mathematics).

Maximize the contributions towards the TFSA. The TFSA money can be withdrawn at any time tax-free, this is not taxable income.

After reaching a certain level of wealth, start distributing your wealth to your children.

My feelings about Old Age Security

But frankly, it’s too much hassle to get some free money, just let go of it and earn as much as you are capable of earning without worrying about the OAS clawback.

I am happy if my tax dollars go towards Old Age Security

Some people criticize the Canadian safety net because the taxes collected to support this program could better spend by growing the economy. But frankly, this is not a lot of money and people over the age of 65 don’t have too many employment opportunities, many of them are in declining health. $613.53 is not much, but for a poor elder person with a lack of opportunity, this could be a lifesaver. Personally, I don’t mind my tax dollar going towards helping someone in need of help.

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