This article was reviewed by Chris Singer, CFP®.
What is Old Age Security in Canada?
The Old Age Security (OAS) pension is a monthly payment you can receive if you are 65 or older.
It is one of three financial pillars that will support you through retirement, the other two being the Registered Retirement Savings Plan (RRSP) and the Canada Pension Plan (CPP). OAS benefits are government-funded through a percentage of income tax that Canadians pay.
Eligibility for OAS is straightforward—you must be at least 65 and you must have been a citizen or legal resident of Canada for at least 10 years after age 18. Your monthly payment will increase the more time you’ve spent living in Canada, capping at 40 years.
Most people, you will be automatically enrolled for the OAS pension when they turn 65. You will get a message from Service Canada letting you know if this is the case, and your first payment will arrive the month after you turn 65.
However, there are some cases where you’ll have to apply for OAS yourself. This is usually because Service Canada doesn’t have enough information to enroll you automatically. You’ll know if you need to apply if:
- you get a letter from Service Canada asking you to apply
- the information in the letter you do receive from Service Canada is incorrect
- you don’t receive any letter about OAS the month after you turn 65
You can apply here: https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/apply.html
Depending on your situation, however, you may actually want to delay receiving OAS to increase your benefits. Let’s dive into when that might be the case.
When should you start collecting Old Age Security?
Though you are eligible for OAS once you turn 65, it might be in your best interest to delay collecting the money. The latest you can delay is age 70, after which there are no longer any benefits to waiting.
By delaying, you increase the amount of money you are eligible for once you decide to collect. It will increase by 0.6% multiplied by the number of months you defer (so 0.6% x 60 months if you wait until you turn 70). That’s an additional 36%!
When considering whether to delay receiving your OAS there are two important points to consider:
- the length of time you’ve lived in Canada
- your income
How long have you been a resident of Canada?
The amount of time you’ve lived in Canada is crucial to OAS. To receive the maximum amount of OAS, you must have lived in Canada for 40 years after age 18. If you are 63 years old and have lived in Canada for 35 years you should consider delaying your payments until age 68 to receive the greatest benefit (to hit that total of 40 years). If you are unable to reach the max of 40 years your partial OAS payment amount will be based on the number of years you’ve lived in Canada divided by 40.
Are you still earning income, and how much?
If you are still working or have a higher retirement income, that income will impact your OAS. If your income is higher than $79,054 (2022) you will have to repay part of your OAS payment in “clawback”, so delaying your payments can let you keep more of your pension. Essentially, delaying is most beneficial if you are still in a high-income bracket. If you are in a lower income bracket, there is less incentive to delay OAS. Most significantly, if you’re eligible for the Guaranteed Income Supplement, you should not delay OAS as that will also delay additional payments and eligibility.
Are you at risk of “clawback”?
When you earn more than the income threshold set by the government, you must pay a higher tax on your OAS. This is known as Recovery Tax, or “clawback”. OAS clawback reduces your benefits by 15 cents for every one dollar above the threshold (essentially becoming an additional 15% tax). The income threshold is updated every year and is currently $79,054 for the July 2021 to June 2022 period. This income is based on your 2020 tax return.
This essentially means that if you earn more than the threshold you are going to lose a part of your OAS. If you earn more than the maximum amount of $133,517 you won’t receive any OAS at all. This can be avoided by delaying receiving your OAS until you are no longer working for an income. Another benefit of waiting until you turn 70 to receive OAS is that your clawback threshold will increase. Instead of the maximum of $133,517 you’ll have a higher clawback ceiling, which is perfect for higher income earners.
This is a lot to consider so remember that you can always talk with your financial advisor to make the best plan for you.
Additional OAS Benefits—Guaranteed Income Supplement
When you are collecting OAS you may be eligible for other payments as well.
The Guaranteed Income Supplement (GIS) is an additional monthly payment you can get once you already qualify for the OAS pension. It’s primarily meant for people who have low or no income and require additional support. To qualify, you need:
- to be 65 or older
- to live in Canada
- an income below the maximum annual income threshold for the GIS based on your marital status. There are varying levels based on you and your partner’s qualifications, which you can learn about here.
Because of this final point, higher-income households are not eligible. If you’re earning above $47, 136 per year you won’t qualify for the GIS.
Benefits for your spouse or common-law partner
If you are receiving the GIS your partner might be eligible for the Allowance benefit. Because this is a part of the GIS, your combined income must be less than $47, 136 per year to qualify. In addition, your partner must:
- be 60 to 64 years of age
- be a Canadian citizen or a legal resident
reside in Canada and has resided in Canada for at least 10 years since the age of 18
Making the most of retirement
OAS is a great way to receive support in your senior years, and when used appropriately, can give you some great benefits. If you’re unsure about when the best time to start receiving OAS is for your specific situation, reach out to myself or Chris to book an appointment. We want to ensure you’re getting the most out of your OAS so you can enjoy a stress-free retirement!
If you have further questions, reach out to myself or Chris to book an appointment. We can’t wait to chat with you and discuss your financial options to make sure you’re getting the most out of your money.
In the meantime, read our eBook to learn some great tips on getting the most out of your retirement.