Will you have other income from the Canada Pension Plan (CPP), too? (When you add that to your salary, it pushes you further into the clawback zone.)
How much Old Age Security (OAS) are you willing to lose?
And, does it make sense to delay your CPP and OAS?
As a reminder, the amount of clawback you may face is based on your net income from all sources (worldwide, too), and how far into the clawback zone your income reaches. There’s no line in the sand where, once you cross, you lose all of your OAS pension. Instead, there’s a zone that, in 2024, starts at $90,997, and you slowly lose your OAS bit by bit (OAS pension recovery tax) as income reaches $148,451. The initial threshold increases every year with the rate of inflation (the Consumer Price Index, or CPI).
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How much OAS do you lose when you work in retirement?
The rate at which you lose your OAS is $0.15 for every dollar of income above $90,997. This will make more sense if we work through a couple of examples.
Assume you have a net income of $100,000, for the purpose of simple math, putting you $9,003 ($100,000 minus $90,997) over the initial OAS threshold. You will have a recovery tax of $1,350 ($9,003 multiplied by 15%) of the $8,752 OAS pension. That is the pre-tax amount to pay back, and your actual spending loss is about $945. That is the after-tax amount received, assuming a 30% marginal tax rate.
Depending on your plans, you might accept that loss.
How CPP (and other pension income) can affect OAS
Now, what if you have additional income sources other than your salary? As a reminder, the OAS clawback is based on your total net income, which includes things like CPP.
What if you forget to add in your CPP and OAS to figure out your net income? Remember, your net income includes CPP, OAS, pension income, rental income, dividends, interest and taxable capital gains, to name a few. If your salary is $100,000, and you collect CPP of $15,000 and OAS of $8,732, then your income is $123,732 and your OAS recovery tax is $4,910.
Here’s how that’s calculated:
( ($123,732 – $90,997) x 15%)
