A retirement account can provide the cash you need and still create an extra tax cost. Once income passes the Old Age Security (OAS) recovery threshold, another taxable withdrawal can mean both income tax and the repayment of part of your pension.
For 2026 income, the starting threshold is $95,323. Eligible Tax-Free Savings Account (TFSA) withdrawals don’t add to that income. The year attached to the number matters, as the deductions coming out of today’s OAS payments are based on an earlier tax year.
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Put the years in order
The $95,323 threshold applies to income earned in 2026. The regular OAS recovery deductions for July 2026 through June 2027 use 2025 income and the $93,454 threshold. The 2026 return affects the calculation and subsequent deduction cycle.
The recovery rate is 15% of income above the applicable threshold, up to the OAS received. That doesn’t mean every dollar of income is charged another 15%. The extra charge applies to the portion above the threshold while OAS remains available to recover.
Suppose a retiree’s relevant 2026 income is $94,000 before a planned $10,000 Registered Retirement Savings Plan (RRSP) withdrawal. The withdrawal increases it to $104,000. That’s $8,677 above $95,323, creating about $1,301.55 in OAS recovery, before ordinary income tax on the withdrawal.
If the same $10,000 comes from an eligible TFSA, the relevant income stays at $94,000. In this example, that choice avoids the additional $1,301.55 recovery. It doesn’t erase taxes on other income or change the retiree’s underlying OAS entitlement.
| WITHDRAWAL SOURCE | STARTING RELEVANT INCOME | WITHDRAWAL | RELEVANT INCOME AFTER WITHDRAWAL | 2026 OAS THRESHOLD | INCOME ABOVE THRESHOLD | OAS RECOVERY |
|---|---|---|---|---|---|---|
| RRSP | $94,000 | $10,000 | $104,000 | $95,323 | $8,677 | $1,301.55 |
| TFSA | $94,000 | $10,000 | $94,000 | $95,323 | $0 | $0 |
The relevant income calculation generally includes taxable pensions, RRSP withdrawals, and taxable investment income. Eligible Canadian dividends are grossed up, so the reported amount can exceed the cash received. That can surprise someone relying on dividends to stay below the threshold.
A dividend that stays inside the shelter
Fortis (TSX: FTS) is a possible income holding within the long-term portion of a retirement TFSA. Its regulated electricity and gas utilities provide essential services, with approved rates supporting returns on eligible infrastructure.
The declared quarterly common dividend was $0.64, or $2.56 annualized. At the October 9 price of $76.03, a $25,000 budget bought 328 shares for $24,937.84. Those shares generated $839.68 annually at an unchanged dividend.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| FTS | $76.03 | 328 | $2.56 | $839.68 | Quarterly | $24,937.84 |
That income is much smaller than the example’s $10,000 spending need. It can contribute to the budget, while cash or other holdings supply the rest. Holding an income stock doesn’t require making the entire withdrawal from its dividend alone.
Fortis reported second-quarter earnings of $0.78 per share. The $0.64 dividend represented about 82% of that quarter’s earnings. Seasonal utility results make one quarter an incomplete full-year coverage measure; the figure still prevents the payment from being described as costless.
Stability still needs financing
Fortis targets average annual dividend growth of 4% to 6% through 2030. Regulated investment can support growth, but it requires borrowing, approvals, and effective construction. The current annualized yield was about 3.4%. It supports an income role, with no reason to assume the share price will stay steady. Higher borrowing costs can affect financing and make bonds more attractive to competing investors.
The account choice is therefore distinct from the stock choice. Dividend investing examines whether the business supports the payment. The TFSA determines whether eligible Canadian income and withdrawals enter the taxable-income calculation.
My judgment is to combine a measured Fortis position with other sectors and a cash plan for upcoming expenses. Protecting essential spending also helps avoid selling shares after a decline simply to maintain a tax-conscious withdrawal schedule.
Bottom line
The $95,323 figure belongs to 2026 income, and eligible TFSA withdrawals don’t count toward it. In our example, choosing TFSA cash avoids about $1,302 of additional OAS recovery. Fortis can help produce income inside that shelter, while diversification and reliable access to cash keep the retirement plan usable.
