The fourth of four reviews of the Old Age Security (OAS) this year is over. From October to December 2023, eligible pensioners aged 65 to 74 could receive a maximum monthly payment amount of $707.68. For those 75 and older, the max is $778.45. OAS payments adjust with the Consumer Price Index but never decrease even if the cost of living decreases.
Employment history is not a factor in qualifying for the OAS pension. It’s an inflation-adjusted retirement income and a lifelong benefit that Canadian citizens or legal residents 65 or older receive. The payments to pensioners begin at age 65 and not anytime earlier.
However, OAS payments are taxable and part of annual income. Besides the timing to get the most of the benefits, retirees and older citizens must contend with income thresholds to avoid receiving reduced payments or none.
Dreaded OAS clawback
The clawback or recovery tax could diminish OAS benefits if a receiver isn’t aware of income thresholds. For the income year 2023, the minimum income recovery threshold is 86,912 for the above age brackets. However, the maximum income recovery thresholds are $142,609 for 65 to 74 years old and $148,179 for 75 or older.
A pensioner will pay a tax of 15% on any amount that exceeds $86,912 for this income year. The worst impact is when annual income reaches the maximum income threshold; you get nothing or $0.
Income splitting is legitimate and allowed to minimize the OAS clawback. Married or common-law couples can split some of their retirement income if one person earns more than the other.
Postponing OAS payments
If you don’t have an urgent need for money or are in good health, postponing or delaying OAS payments for one up to five years bump up the monthly payments. The amount increases as follows: 7% at 66, 14.4% at 67, 21.6% at 68, and 28.8% at 74.
However, the permanent increase at age 70 is 36% if you go the total distance. The delay incentive gives pensioners the flexibility to decide the timing of the OAS payments depending on the circumstance or financial situation within the period.
Supplement OAS with investment income.
Canadians with solid retirement plans usually invest to supplement pensions like the OAS and Canada Pension Plan (CPP). For example, Enbridge (TSX:ENB) is a reliable passive-income provider. At $46.65 per share, the energy stock pays a mouth-watering 7.6% dividend.
The $99.15 billion energy infrastructure company pays a mouth-watering 7.6% dividend. If you can accumulate 2,390 Enbridge shares ($111.493.50) over time, the annual dividend of $8,484.66 ($707.05 monthly) is almost equivalent to the OAS maximum monthly payment.
Enbridge is not only a large-cap stock but a Dividend Aristocrat, too. It has raised dividends for 28 consecutive years. Expect the business to grow further following three natural gas distribution companies in the United States. The utility-like business model makes the stock recession-proof.
Notification
Applying for the OAS is automatic more than mandatory. A notification comes to Canadian citizens or legal residents a month after the 64th birthday. You can enroll in the program and advise Service Canada when you want to start payments.
