Enjoy more income in retirement by minimizing the OAS clawback

The Old Age Security (OAS) program provides a guaranteed stream of income to Canadians in retirement – but those with taxable income above a threshold (in 2025, $93,454) start losing some of their OAS to the pension recovery tax (commonly referred to as the clawback). When taxable income reaches a second threshold (in 2025, $151,668 at age 65 to 74 and $157,490 at age 75 plus), OAS evaporates entirely.

The good news is that several strategies can help you keep more of your OAS, boosting your income in retirement.

1. Split pension income with your spouse

Do you and your spouse have different amounts of taxable income? Allocating up to 50% of eligible pension income to the lower-income spouse may bring the higher-income spouse’s taxable income down to a level that reduces or eliminates the clawback. You can split registered pension plan payments at any age, and Registered Retirement Income Fund (RRIF) withdrawals starting at age 65.

2. Take some income from your TFSA

Unlike withdrawals from a RRIF, withdrawals from a Tax-Free Savings Account (TFSA) do not count as taxable income. During your working years, consider redoubling your efforts to maximize your contributions to a TFSA (in 2025, the limit is $7,000 plus any unused contribution room from previous years). Building a significant balance in a TFSA provides a source of retirement income that won’t factor into clawback calculations.

3. Withdraw strategically from your RRIF

Since RRIF withdrawals are considered taxable income, it can help to keep them to the minimum required annual withdrawal amount – a percentage of the remaining balance that is 4.00% when you’re age 65 and rises to 20% by age 95. You can reduce mandatory RRIF withdrawals by electing to base them on the younger spouse’s age. You may also choose to withdraw more than the required amount from a Registered Retirement Savings Plan (RRSP) or RRIF during lower-income years. That way, less has to come out in higher-income years.

4. Invest tax-efficiently in non-registered accounts

Investments are taxed at different rates, which means there’s an opportunity to reduce taxable income by favouring certain investments in non-registered (taxable) accounts. In general, capital gains and eligible dividends from Canadian companies are more tax-efficient than interest. Mutual funds that provide return-of-capital (ROC) distributions can be helpful as well, since ROC is not taxable income. Note, however, that it’s very important to select investments based on your overall objectives, risk tolerance and income strategy – not primarily to avoid the clawback.

5. Speak with your advisor about additional strategies

There are other ways to protect OAS, including using a spousal RRSP, lending to the lower-income spouse, delaying the RRSP-to-RRIF conversion as long as possible and continuing to contribute to an RRSP to age 71, and triggering large capital gains in non-registered accounts before starting to collect OAS. Again, every strategy must match your goals and needs, which is why it helps to talk them through with your advisor.