Understanding the Basics of OAS in Canada

What OAS is and Its Overall Function in Canada

The Old Age Security (OAS) is a critical component of Canada's retirement income system. It's a program administered by the Canadian government that provides a monthly income for individuals aged 65 or older. The intent of OAS is to ensure a minimum income level for seniors regardless of their work history. It is funded out of the general tax revenues of the Canadian Government, which means that you do not pay into it directly. OAS benefits are a crucial support for older Canadians, especially those with lower incomes.

OAS Eligibility Criteria

To qualify for OAS, one must be at least 65 years old and have lived in Canada for a minimum of 10 years since turning 18. Furthermore, the individual must also be a Canadian citizen or legal resident at the time the OAS pension application is approved. Additionally, the person must be living in Canada when the benefits start. It's essential to note that OAS eligibility isn't tied to work history - instead, it's based on residency in Canada.

The Process of Applying for OAS in Canada

Applying for OAS involves getting through a process sanctioned by the government. The Social Development Canada or the Canadian Embassy, consulate, or high commission processes the application in the country where the person lives. It usually takes around three months to process the application from the date it is received. The amount of benefit expected depends on how long the applicant has lived in Canada after the age of 18. It's advisable to apply for the OAS six months before you turn 65.

Determining the Value of OAS Benefits

How Much is OAS in Canada?

The amount one receives from OAS depends on various factors, primarily the length of residence in Canada after turning 18. As of 2021, the maximum monthly OAS benefit is $615.37. To receive the full amount, one must have lived in Canada for at least 40 years after turning 18. For each year less than that, the amount of retirement pension you would receive decreases on a sliding scale.

Gauging Changes in OAS Benefits Over Time

The OAS benefits are adjusted quarterly in January, April, July, and October based on the Consumer Price Index changes. These income-tested benefits can increase, decrease, or remain the same depending on numerous factors, such as overall economic condition, legislation changes, and inflation adjustments.

Understanding OAS Clawbacks

Individuals with a net world income exceeding the threshold amount will have to repay part or their entire OAS pension. This repayment is commonly referred to as the "OAS clawback." The clawback threshold for 2021 is $79,845. If your income surpasses this, you are required to give back 15% of the excess income above the threshold to a maximum of your total OAS benefit. Understanding the concept of clawbacks is essential to effectively strategize one's retirement income planning.

Optimizing OAS Benefits for a Better Retirement

Delaying OAS Benefits

Did you know you can increase your OAS benefits by delaying your uptake? As of July 1, 2013, you can choose to defer your OAS pension for up to 5 years after the date you become eligible, increasing your pension by 0.6% for every month you delay.

Navigating around Clawbacks

Strategizing your retirement income effectively can help in reducing or even avoiding the clawback. This could include planning the timing of your RRSP/RRIF withdrawals, splitting your pension income, and considering tax-sheltered savings like TFSAs.

Understanding Government Support Avenues to Optimize OAS

Apart from the base OAS pension, the government offers other support avenues that can supplement your retirement income. Low-income seniors may be eligible for the Guaranteed Income Supplement (GIS), and there is also the Allowance and the Allowance for the Survivor available to people aged 60-64.