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Old Age Security (oas)

What Is Old Age Security (OAS)?

For many Canadians, retirement doesn’t spark images of travel, golf, or white sandy beaches. Instead, it summons feelings of stress, scarcity, and anxiety. A recent survey released by CIBC found only half (52%) of Canadians feel confident about their plans for retirement, and 88% have not done any detailed retirement planning.

Without a defined benefits pension plan, RRSPs, or personal savings and investments, a lot of Canadians are worried about the future of their finances. Luckily, there are government programs like the Old Age Security (OAS) pension. While OAS is not enough to cover all of your costs in retirement, it can help fill the gaps.

What Is Old Age Security (OAS)?

The Old Age Security program provides a basic pension to nearly all Canadian seniors (65+) in the form of monthly payments. It also provides a Guaranteed Income Supplement (GIS) to low-income seniors.

Most of the time, you will be automatically enrolled for the OAS pension payments by Service Canada unless they don’t have all of the information they need. If you are not automatically enrolled, you will need to apply to get OAS.

The purpose of OAS is to add another source of income to your retirement. It is not designed to be the only source you rely on. Even with the addition of the Canadian Pension Plan (CPP) benefit, you will likely require other sources of retirement income to make ends meet.

How Much Does Old Age Security Pay per Month?

This is the million-dollar question. Or, maybe it’s more of a hundred-dollar question. How much you receive through OAS per month depends on your income, and how long you’ve lived in Canada after the age of 18 years.

According to the Government of Canada, the maximum monthly payment amount for April to June 2022 is $648.67. To receive OAS, your annual income must be less than $133,527. If you’re single, widowed, or divorced, and you make less than $19,656, the maximum monthly amount you can receive is $968.86. If you have a spouse or partner who receives OAS and your annual income is less than $25,968, the maximum monthly payment is $583.20.

Old Age Security payments are reviewed by the Government of Canada in January, April, July, and October to ensure they are keeping up with the cost of living. The Consumer Price Index (CPI) is used to determine this measure. The CPI indicates the changes in prices of common Canadian goods and services like food, shelter, and transportation. If the cost of living goes up, then your monthly OAS payments will go up. However, if the cost of living goes down, your monthly payments will not decrease.

As of July 2022, senior citizens aged 75 years and older will also see an automatic 10% increase in their Old Age Security Pension.

Who Qualifies for Old Age Security?

To qualify for OAS, you must live in Canada when you apply and you must be 65 years or older. To receive the full pension amount, you need to have lived in Canada for at least 40 years after turning 18. The amount you get is calculated based on the number of years you lived in Canada, after age 18, divided by 40.

For instance, if you lived in Canada for 20 years after your 18th birthday, 40 divided by 20 equals 50. You will receive 50% of the full OAS pension.

Unlike the Canadian Pension Plan (CPP), you don’t have to have a history of work in order to qualify.

Can You Take OAS Early?

You are eligible to receive your first OAS payment the month after you turn 65. While you can not take OAS early, you can delay your OAS payments. You can receive a higher amount of OAS pension for each month you delay your first payment, and your OAS payments can be deferred until age 70.

Do You Have to Pay Taxes on OAS?

Yes, your OAS payments are considered taxable income. Taxes are not automatically withheld each month, but this is something you can set up with the government.

There is also a Recovery Tax that can be applied to your OAS payments. You are required to pay the recovery tax if:

  • Your annual income is more than the yearly threshold
  • You live in a country where the non-resident tax on Canadian pensions is 25% or more

The Recovery Tax, also referred to as a clawback, requires you to pay back some of your OAS if your income exceeds $81,761 in 2022. You can expect to pay 15% on every dollar you make that exceeds the minimum income amount up to a maximum income threshold ($133,527 for 2022). At this point, you don’t receive any OAS payment. Recovery payments are deducted each month, so you don’t get stuck trying to repay the money at the end of the year.

Are Canadians Retiring With Debt?

According to a study by the Sun Life Barometer, the average Canadian retiree is carrying $10,436 in non-mortgage debt. There are many reasons why you might find yourself entering retirement with debt including:

  • Mortgage debt. Many retirees haven’t paid off their homes and carry this debt into their retirement. There is risk involved if interest rates go up if you’re on a tight fixed retirement income. 
  • Credit cards. Many people rely too heavily on their credit cards and then have a very difficult time paying them off.
  • Grey divorce. More Canadians are getting divorced in retirement or as they approach retirement. When you get divorced, you have to split your assets in half. Plus, the process of getting divorced can be expensive.
  • Lack of financial planning. Without a solid financial plan, it’s easy to let your dollars slip through your fingers. If you want to stay out of debt, it’s important to have a budget and a financial plan.

Once in retirement, there are a number of costs that you might not anticipate like an unexpected home repair or rising inflation. Many Canadians also fail to adequately plan for the cost of home care or senior housing. According to a study by Comfort Life, an information source for Canadian retirement, the average monthly fees for senior care range from $1,453 to $4,500 and up. How much it costs depends on where you live as well as the size and quality of your accommodation. Your OAS payment will only cover a small portion of this amount.

What Happens to My Debts When I Retire?

Retiring with debt is a reality for many Canadians. While this isn’t a club you want to be a part of, you will be in good company. Unfortunately, if you retire with debt, it doesn’t just go away. This is why some Canadians choose to delay retirement, downsize, or find other sources of income to help pay down debt.

Who Can I Talk to About My Debt?

If your debt is unmanageable, you might also consider filing for a Bankruptcy or Consumer Proposal. Whether or not one of these debt relief solutions is right for you will depend on several variables including whether or not you own assets.

If you are considering Bankruptcy or Consumer Proposal, speak with one of our Licensed Insolvency Trustees (LIT) as soon as possible. An LIT can walk you through all of the debt management options available and help you come up with a path forward. Call us at 519-310-JOHN (5646) or contact us online.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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