Most individuals save a portion of their earnings to lead a comfortable life during retirement. It’s crucial to save enough during your working years and eliminate any financial challenges in retirement.
One way is by ensuring you are paid the entire pension amount by the Canadian government. The maximum OAS (Old Age Security) payout a Canadian retiree below the age of 74 receives is $698.6 each month, translating to an annual payment of $8,383.
However, the Canada Revenue Agency might tax this benefit by as much as 15% if you are in a higher income bracket. For example, the OAS recovery tax will be implied if the individual’s net annual income is over $81,761 in 2022. Moreover, the entire OAS amount will be clawed back if your annual income is over $134,626.
So, if you earned $90,000 in 2022, your OAS payment will reduce by $1,235.85 (which is 15% of the difference between $90,000 and $81,761).
But here’s how Canadian retirees can avoid the OAS clawback in 2023.
Defer OAS payments
Canadians can defer their OAS benefits by a few years, which also increases the payouts significantly. If the OAS is delayed by five years, the monthly payment may increase by 36%, indicating the maximum annual amount will be over $11,400.
Monitor the sale of capital assets
It’s crucial to defer the sale of capital assets such as your house to avoid the OAS clawback. Retirees should monitor the sale of capital assets and time these transactions to a certain extent, if possible.
Generate income in a TFSA
Any returns generated in the TFSA (Tax-Free Savings Account) are exempt from Canada Revenue Agency taxes. So, retirees can maximize their TFSA contributions and hold blue-chip dividend stocks such as TC Energy (TSX:TRP) in this popular registered account.
TC Energy has grown its asset base from $25 billion in 2000 to more than $100 billion in 2023. Its annual dividends have increased from $0.80 per share to $3.72 per share in this period. An energy infrastructure giant, TC Energy’s portfolio of infrastructure assets and $34 billion of secured growth projects should allow it to increase dividends between 3% and 5% annually in the near term.
TC Energy continues to perform well across market cycles. Around 98% of its cash flows are secured by long-term take-or-pay contracts, allowing TC Energy to generate a predictable stream of earnings.
Despite a sluggish macro environment, it reported comparable earnings before interest, tax, depreciation, and amortization of $2.8 billion in the first quarter, an increase of 16% year over year. Its segmented earnings almost doubled year over year to $2.2 billion, while comparable earnings per share rose 8% to $1.21.
TC Energy remains on track to place $6 billion of projects in 2023. It is also advancing its asset divesture program worth $5 billion, which will be used to reduce balance sheet debt.
TC Energy stock currently offers shareholders a dividend yield of 7.3%. Priced at 11.7 times forward earnings, the TSX stock is trading at an attractive multiple. Bay Street remains bullish on TRP stock and expects shares to surge over 20% in the next 12 months.
