Don’t lose OAS benefits you are entitled to…

As a retirement income specialist, I see many instances of people not fully understanding the OAS benefits available and missing out on benefits they are entitled to.

The Old Age Security benefit (OAS) is for Canadians age 65 and older. It is based on residency in Canada.

OAS is a lifetime pension indexed to inflation that is not based on contributions or work. The normal start date is age 65. However, if you defer beginning your benefits till age 70, you can increase this pension by 36%. In fact, each month you delay can increase it by 0.6%. It is not an all or nothing decision to delay. It is important to know that if you have net income above the threshold, you may want to look at deferring so that you are benefiting from the increase. This benefit can help to form a base level of guaranteed income indexed to inflation. Having the option to defer it to increase this benefit is significant.

I have seen many that begin OAS at age 65 while still working, only to be faced with it all being recovered back and they miss out on the increases because they started it.

There is much confusion around whether the benefits begin automatically or not. It varies and causes many difficulties in people making the best decisions for themselves. Some will receive a notice just prior to age 65 saying it will automatically begin at age 65 and they have the option to defer it. If someone misses or doesn’t understand this notice, and is still working or has other high income, they potentially can lose out on benefits they otherwise would be entitled to.

The other side to this is that people are over age 70 and still have not applied for OAS benefits. Some don’t know about them at all, while others assume they make too much income and it would be taxed back anyway, so there is no point to applying.

This is the situation to look at more closely. Once you turn 70, there is no more increase in benefits that you are accumulating by delaying and you can only go back for retroactive benefits for 11 months. Once you are 70 years and 11 months, if you have not applied, and your net income is below $151,668, you are losing benefits that you are entitled to and cannot recover these benefits.

Why does this happen? It happens easily because people don’t know what their net income actually is or how to project or estimate it. They wrongfully assume they make too much when it is not the case after income splitting and other tax strategies in retirement. The other situation is that maybe they are correct and wouldn’t be able to keep any of it because their income is too high. This may not be the case further into retirement. After age 75, the threshold is higher with the 10% increase and over time, perhaps their net income is lower in the later years.

If you have lived in Canada for at least 40 years between age 18 and 65, you would receive 100% of the benefit. If you have lived in Canada at least 10 years between age 18 and 65, you would receive a partial benefit. To calculate your partial benefit, divide the number of years in Canada (between age 18 and 65) by 40 and that gives you the percentage of the maximum benefit you would receive. For example, let’s say you lived in Canada for 22 years. 22/40 ‎ = 0.55. 55% of the maximum benefit. The maximum benefit for those 65 - 74 is $727.67/m in 2025. The maximum benefit for those 75 and over is $800.44/m in 2025.

You can still receive OAS outside of Canada if you move out of the country. Benefits would continue for 6 months if you had lived in Canada less than 20 years (after age 18). However, if you lived in Canada 20 years or more, you can continue receiving the OAS benefit while living abroad.

As many people are aware, if your income is too high in retirement, you can have your OAS clawed back. This is frustrating to many, but proper planning in many cases can avoid this.

The “clawback” is called a recovery tax. If your net income is above the threshold, you will have to repay 15% of the amount over the threshold until it is all “recovered”. The threshold in 2025 is $93,454. Once your net income is above $151,668, it is all taxed back for those under age 75. If age 75 or older, the net income would need to be at $157,490 for it to be all taxed back. This is because at age 75, your OAS benefit is increased an additional 10%.

With the ability to split some types of income in retirement between couples, the net income can be reduced to a level that both, in many cases can still receive most or all of their OAS benefits.

This is one of the many areas in retirement planning, where a critical decision is being made that affects the rest of your life.

Your quality of life in retirement is too important not to invest in now!

How important is your retirement income plan? It is paramount. 

A retirement income plan is not just a projection of numbers showing you are okay to retire. Many investment advisors can look at your portfolio, know roughly what you live on now, and do a projection to see if you have enough for retirement or if you need to save more. The problem is that this does not address the many pivotal decisions you need to make at this important stage of life.  It also does not make you feel like you can retire with your investment manager saying you can.  You need to SEE it and fully understand all aspects of what you are headed into. Investment management and financial planning are completely different areas of expertise.  I do not manage client’s investments for that very reason.

Retirement income planning is a process that you need to go through to address the different areas of your life and finances.  Attempting to do this on your own is not recommended as there are normally blind spots that you are unaware of.  You don’t know what you don’t know!  I have watched over the years many clients that have attempted to do this on their own, only to realize they should have a professional look at it that deals with this every day, not just once in a lifetime.  I have seen how they think about it and try to make calculations.  If they only relied on their calculations, their quality of life would have suffered for many reasons and these are highly educated, intelligent people. This is why I can say with confidence that having the right professional help with your retirement plan will significantly improve the quality of your life. 

I went into this area of expertise partly because I love strategizing, but also because I saw this as such an important stage that no one was addressing in the best way possible.  The Fee-Only/Advice Only model allows you to receive unbiased advice.  Truly fee-only financial planners are only compensated by the fees that you pay for the planning.  They do not receive any compensation from commissions or referral fees.  This gives you a greater sense of trust in the advice you receive because you know it is truly unbiased advice.  The financial planner can focus on only what is best for you as there is no pressure to generate additional revenue from you.  I go one step further.  Many fee-only financial planners find clients and want to build up a client base to work with the same clients over time.  This means they will be focused on creating a structure, subscription, retainer, or some other model to have you continue to come back on a regular basis.  This is helpful to clients to stay on track over time. While I do offer clients the option of returning for an update or check in, and I may have a limited number of ongoing clients, my model is to create a plan that if you never came back, you would still be better off after having gone through the process and the learning that takes place.  You are armed with the knowledge necessary to know when a check in might be needed.  For me, I want to keep doing the comprehensive retirement income plans for clients and take them through my process.  I enjoy new situations and watching people go from extreme worry to total confidence in their future.  The other benefit to clients is that I gain much more financial planning experience because I am continually meeting new clients with different complexities, and taking them through my process.  Other financial planners have even said to me “But Marlene! That is the hard part!”.  They view getting a new client and doing a comprehensive financial plan as the hard part, but my view is that it is the best and most fun part!

Now let’s talk about price…or is it investment?  The way I look at is that you pay for something of paramount importance in your life.  You may not be sure what you are headed into fully, but when you move forward, you will be astonished at the value you receive.  One of the things I look for are blind spots.  What if you could receive money, but you don’t know that it is available?  What if you missed something important on your taxes?  What if there is a strategy that you could use that could create or save you thousands, tens of thousands, or hundreds of thousands of dollars? This happens! 

What if you had very little funds to work with and you make that decision to hire me and I find you over $100K that you would not have had otherwise?  These don’t happen with each situation, but they do happen on a regular basis with my work.  I don’t have any idea of who it is going to happen to, but I am always thrilled when it does.  It can make such a difference and we are only speaking of blind spots!  That is not considering all of the other aspects of the planning process that save money and change lives for the better. 

The decisions you make at this stage of life, whether you continue to work or not, are going to determine the quality of your life now and in the future.  You go through this life transition once, you are worth it to spend whatever you need to, to make sure you are taken care of and have the highest quality of life possible.