OAS Pension 101: How Retired Couples Can Earn an Extra $637 Per Month and Avoid CRA Clawbacks

Retirees have a way to earn more income without putting OAS payments at risk.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadian pensioners are searching for ways to boost their income without being hit with higher income taxes or a clawback by the Canada Revenue Agency on their OAS pensions.

Pension recovery tax

The CRA implements a pension recovery tax on Old Age Security payments when net world income tops a minimum threshold. The magic number in the 2020 tax year is $79,054.

The CRA imposes a 15% OAS clawback on every dollar above that amount. The process continues until the full OAS would be wiped out at the maximum income recovery threshold of $128,137.

Readers might think that this would only impact a small number of people, but it doesn’t take long to reach the $79,000 threshold when a person is receiving full CPP, OAS, and a generous defined-benefit employment pension. In addition, people might be receiving RRIF payments from their previous RRSP portfolios. Income from any side gigs or investments held in taxable accounts are also added into the net world income calculation.

TFSA solution

Owning income stocks inside a TFSA portfolio is one way pensioners can avoid being hit with OAS clawbacks. The CRA does not tax income generated through TFSA investments and withdrawals do not count towards income. The TFSA contribution room is as high as $69,500 per person in 2020. That’s large enough to build a decent income fund.

Which investments should you own?

Top-quality dividend stocks are cheap right now and provide attractive yield. Owning GICs carries less risk, but the Canadian banks are only offering GIC yields in the 1.5% range. That’s below current inflation.

Let’s take a look at two stocks that might be interesting picks right now for a diversified TFSA portfolio.

Enbridge

Enbridge (TSX:ENB)(NYSE:ENB) is a giant in the Canadian and U.S. energy infrastructure industry. The company transports about 25% of the oil produced in the two countries and 20% of the natural gas consumed in the United States.

The stock is down in the past couple of weeks due to the broad-based drop in the energy sector. Falling oil prices are hitting oil and gas producers. Enbridge, however, simply transports the products and has limited direct exposure to changes in commodity prices.

The sell-off appears overdone, and investors can now pick up Enbridge at an attractive price. At the time of trading, the dividend provides a yield of 7.5%.

Enbridge expects distributable cash flow to increase by 5-7% per year and dividend hikes should be in that range.

BCE

BCE (TSX:BCE)(NYSE:BCE) is Canada’s largest communications company with mobile and wireline assets that span the country. In addition, BCE owns media businesses that include sports teams, radio stations, a television network, specialty channels, and an advertising group.

The combined telecom and media assets make a powerful company that has the capability to interact with most Canadians on weekly, if not daily, basis. In fact, any time a person makes a call, listens to the news, sends a text, streams a movie, downloads a song, or sends an e-mail the odds are pretty good that a BCE asset is involved somewhere along the way.

The company raised the dividend by 5% in 2020. Ongoing hikes should be in line with growth in free cash flow.

The stock is down to $59 from $65 last month. That puts the dividend yield at 5.6%.

The bottom line

A balanced TFSA income portfolio of top stocks, including Enbridge and BCE, could easily generate a 5.5% yield today.

This would provide $3,822.50 in tax-free income on a $69,500 TFSA portfolio. A couple could earn $7,645. That’s $637 per month that wouldn’t put OAS payments at risk.

Should you invest $1,000 in Killam Apartment Reit right now?

Before you buy stock in Killam Apartment Reit, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Killam Apartment Reit wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Enbridge. Fool contributor Andrew Walker owns shares of BCE and Enbridge.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

Investor wonders if it's safe to buy stocks now
Bank Stocks

Where Will Royal Bank of Canada Be in 2 Years?

Down 12% from all-time highs, RBC stock trades at a sizeable discount to consensus price target estimates in April 2025.

Read more »

protect, safe, trust
Dividend Stocks

How I’d Allocate $1,000 in Defensive Stocks in Today’s Market

These defensive stocks are outperforming the broader market despite economic uncertainty, providing stability, income, and growth.

Read more »

Piggy bank and Canadian coins
Dividend Stocks

Where I’d Invest My Savings in the TSX Today

These two TSX stocks would be my first picks if I were putting more money into the stock market today.

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

How I’d Adjust My Portfolio to Benefit from Canadian Dollar Movements

TSX stocks benefit from Canadian dollar movements, although the loonie will be under pressure in 2025 due to trade uncertainty.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Monday, April 7

With a 6.3% weekly loss, the TSX just posted its steepest percentage decline in a single week since June 2022.

Read more »

Stocks for Beginners

Dip Buyers Could Win Big: The Best Canadian Stocks to Buy Now

These two growth stocks have taken hits recently, but their fundamentals remain strong, and their growth prospects are intact.

Read more »

A bull and bear face off.
Stock Market

Bear Market Bargains Emerge as Recession Stocks Return

If you want a deal, then go to the best stocks during a recession market dip.

Read more »

Canadian Red maple leaves seamless wallpaper pattern
Dividend Stocks

5 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These Canadian stocks have paid dividends for decades, making them reliable investments to generate regular passive income.

Read more »