In the twenty (20) years that I have been working with clients, I have yet to come across a government benefit that excites Seniors (and not in a good kind of way) more than their eligibility and/or claw back of Old Age Security (OAS) benefits.
Part of the frustration lies in that most people don't quite understand how the OAS benefit works. First of all, it's a social security benefit. Unlike the Canada Pension Plan (CPP), we do not directly contribute to an OAS pot. With CPP - you get out what you put in. It's that simple. OAS is nothing like CPP as it’s not based on your employment history. Someone who has never worked a day in Canada can be eligible for OAS, as long as they meet the rest of the criteria (see below).
To qualify for OAS you must meet certain criteria. Once you're eligible, you then have to worry about clawbacks (this is the part that gets Seniors angrier than being told the early bird special is SOLD OUT).
ARE YOU ELIGIBLE FOR OAS?
In order for a person to be eligible for OAS pension, he or she must:
1. be at least 65 years old;
2. be a Canadian citizen or legal resident at the time the OAS application is approved; and
3. have resided in Canada for at least 10 years since age 18, continuously and immediately before approval of the OAS pension.
IS IT POSSIBLE TO KEEP WORKING WHILE RECEIVING OAS?
YES - it is possible to keep working and still receive OAS benefits. But beware of the clawback! The income you earn while collecting OAS may create a partial clawback of your benefit. Once a person's net income (this includes any employment and investment income) exceeds $73,756 (2017), the OAS benefit begins to get clawed-back at a rate of 15%. If your income is over $119,615 then you've basically seen your full OAS pension returned back to the government.
You may even wish to delay receiving your OAS benefit to avoid any clawback all together! Delaying your benefit can also increase your benefit amount later on.
HOW DOES A FINANCIAL ADVISOR HELP YOU MINIMIZE OAS CLAWBACKS?
A Senior who is collecting a full pension from work and who is making withdrawls from their RRIFs as well is collecting income from their investment accounts can easily be pushed over this threshold. A widow (who doesn't have someone to split income with) can also quickly be put in a position of having their OAS clawed-back.
As a Financial Adviso, my job is to work with my clients to look at what types of investment income they are receiving to see if we can minimize the impact that income-type has on OAS. We'll look at whether it makes sense to delay their OAS until their income is lower - just because you're eligible to collect OAS, doesn't mean you should take it right away. We also look at using a younger spouse's age to have RRIF withdrawls based on - this reduces the minimum withdrawal amounts one must take each year. Lastly, if you're 65 or older, you and your common-law or spouse can elect to split your RRIF, CPP or pension income. This is usually done to help reduce your net income and hopefully avoid or reduce your OAS clawback.
The point is, there is a lot to consider when applying for OAS. It's a social benefit - not a right and is really meant to assist low-income Canadians. So failing to strategize and plan before applying for the benefit can result in clawbacks...and angry Seniors!