CPP Pensioners: 2 Tricks to Avoid OAS Clawbacks

Don’t lose all your hard-earned cash to taxes. Take advantage by using these quick tricks.

| More on:
Senior Man Sitting On Sofa At Home With Pet Labrador Dog

Image source: Getty Images

Whether you’re about to retire or not, you’re likely aware of the Canada Pension Plan (CPP) and Old Age Security (OAS). We pay taxes into them, and you’ll have seen CPP on your tax form from the time you first started working.

Yet CPP is the one that gets most of the attention, and it’s likely because it simply has the word “pension” in it. Meanwhile, it’s actually OAS that you should start looking into. If you make under $128,149, then, as of writing, you can receive $614.14 per month. That comes to $7,369.68 per year in income. There are cases where that number is higher or lower, but it is mainly still this number.

But here’s where it gets tricky. If you make more than $79,054 for 2020, then comes the clawbacks. These clawbacks take off 15% of every dollar you make over this maximum. That’s $0.15 off of every dollar of your income! If you make that $128,149, that means you’ll be taxed $7,364.25, making your OAS pretty much worthless.

So, here is how you can avoid those clawbacks.

Capital gains

If you have investments that could trigger capital gains, it’s best to get that all out of the way before 65. If you take on those funds before 65, you can put it in a safe place that you don’t have to claim on taxes in the future. That way, you could keep your total household income to a minimum for OAS.

Where should you put those funds? Put them in a Tax-Free Savings Account (TFSA). That money cannot be taxed by the government, and you have $69,500 of contribution room to put aside those capital gains. That’s at least a start to keep those funds safe from the tax man.

Delay CPP

The longer you can delay CPP, the better. If you take it at age 60 when you can, all is well and good. However, if you can delay claiming CPP until you’re 70, that will increase your payments by 42%! This would also reduce your income between age 60 and 70, meaning you have less to claim from OAS.

If you take out your CPP at 65, you’ll receive $14,109.96. However, delaying until 70 boosts that up to $20,036.14! Add on OAS, and you could have a total of $27,405.82, or $2,283.82 per month.

Next steps?

Invest. Just over $2,000 isn’t enough to live on for the rest of your life. You’ll need to continue living off of your savings and investments for years to come. With the average Canadian living well into their 80s, and likely longer in the coming years, it’s a great time to find some passive-income producers.

A perfect option is Pembina Pipeline (TSX:PPL)(NYSE:PBA). Pembina is providing the solution to the oil and gas glut, with a multitude of upcoming projects to create pipelines across North America. The company is supported by long-term contracts, so it already has the funds available to create these projects, and keep its dividends growing.

Right now, the company has a dividend yield of 8.45%! It’s hard to find such a solid stock with such a high dividend yield. If you were to invest just $30,000 into this stock, that could bring in $2,606.89 per year in passive income.

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.

Fool contributor Amy Legate-Wolfe owns shares of PEMBINA PIPELINE CORPORATION. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

More on Coronavirus

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft
Coronavirus

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »

Senior housing
Stocks for Beginners

Home Improvement Stocks Are Set to Fall (When They Do, Buy These Like Crazy!)

Home improvement stocks are due to drop further in the coming months. But with solid underpinnings for the sector, it…

Read more »

An airplane on a runway
Coronavirus

Forget Boeing: Buy This Magnificent Airline Stock Instead

Boeing (NYSE:BA) stock is looking risky right now, but Air Canada (TSX:AC) stock? Much less so.

Read more »

Man considering whether to sell or buy
Stocks for Beginners

Goeasy Stock: Buy, Sell, or Hold?

When it comes to smart buys, goeasy stock (TSX:GSY) is up there as one of the smartest money can buy.…

Read more »

Woman has an idea
Stocks for Beginners

Here’s Why Magna International Is a No-Brainer Value Stock

Magna stock (TSX:MG) has been climbing back once more, but still offers huge value for long-term minded investors.

Read more »

Aircraft wing plane
Coronavirus

1 TSX Stock Down 60% That Could Bounce Back Stronger

Air Canada (TSX:AC) stock got severely beaten down in the March 2020 COVID crash. Here's why it's probably not going…

Read more »