Retirement has a funny definition of “rich.” You don’t need a yacht, a second home in Tuscany, or even someone else mowing your lawn before the government starts taking back part of your Old Age Security (OAS).
For the 2026 income year, the estimated OAS recovery threshold is just $95,323. Cross it and 15% of the income above that line can come back off your OAS. That reduction would affect payments from July 2027 through June 2028. That makes tax planning something I’d start well before age 71.
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A comfortable retirement
The OAS recovery tax looks at individual net income, not whether you personally feel wealthy. Say a retiree has $105,000 of net income from a workplace pension, CPP, OAS, investment income, and registered withdrawals. That’s $9,677 above the estimated 2026 threshold. Multiply that by 15%, and roughly $1,452 of OAS could be heading back to the government.
The problem can become larger once a Registered Retirement Savings Plan (RRSP) turns into a registered retirement income fund (RRIF). An RRSP must mature by the end of the year its owner turns 71, and RRIF minimum withdrawals begin afterward. Those withdrawals are taxable whether you actually need the cash or not.
Shrink the RRSP
This is why I wouldn’t necessarily spend retirement’s early years protecting a giant RRSP balance at all costs. Someone who retires at 60 with relatively little taxable income could consider making planned RRSP withdrawals before CPP, OAS, workplace pensions, and mandatory RRIF withdrawals all arrive together. You pay tax on the withdrawal today, but potentially at a lower marginal rate while reducing future forced withdrawals.
The after-tax money could then be contributed inside a Tax-Free Savings Account (TFSA) when sufficient contribution room exists. TFSA income and withdrawals generally don’t affect federal income-tested benefits such as OAS.
Couples can also potentially split up to 50% of eligible pension income. The goal isn’t avoiding tax entirely. It’s smoothing taxable income rather than allowing several retirement-income sources to pile onto the same years.
Build income
That brings me to Bank of Montreal (TSX: BMO). BMO stock operates personal and commercial banking businesses in Canada and the United States, alongside wealth management, capital markets, and one of Canada’s largest ETF businesses. For retirees, the appeal is straightforward: hold dividend-producing investments inside a TFSA and the income can compound without adding to annual taxable income.
The latest numbers have improved the investment case as well. Fiscal third-quarter adjusted earnings per share (EPS) climbed 22% year over year to $3.96, while provisions for credit losses fell to $722 million from $797 million. Its CET1 capital ratio remained a healthy 13%.
BMO stock is also freeing up capital. It agreed to sell Moneris for approximately $2 billion and announced plans for a new normal course issuer bid covering as many as 25 million shares, subject to approval. Its quarterly dividend currently sits at $1.71, or $6.84 annually. At the recent share price of $238.32, that produces a yield around 2.9%.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| BMO | $238.32 | 41 | $6.84 | $280.44 | Quarterly | $9,771.12 |
That $280.44 could remain entirely outside taxable income when held in a TFSA, assuming the account follows TFSA rules.
Bottom line
BMO stock isn’t exactly sitting in the clearance aisle. Shares trade around 14.5 times forward earnings versus a five-year average near 10.8 times, while its U.S. banking turnaround still needs to deliver better returns.
I’d therefore build a position gradually rather than sprint after the shares. A portfolio of diversified Canadian dividend stocks can spread that risk while building more tax-free retirement income.
The OAS clawback doesn’t wait until someone feels wealthy. Planning several years earlier can leave retirees with a smaller future tax pile, more control over RRIF withdrawals, and a TFSA paycheque Ottawa has considerably less interest in.
