Wealth Strategies: Managing Retirement Income and the OAS Recovery Tax

For many Canadians, retirement income comes from multiple sources, including government benefits, pensions, registered accounts, and personal investments. While generating sufficient income is an important goal, how that income is structured can be equally important.

One area that is often overlooked is the impact that taxable income can have on government benefits, particularly Old Age Security (OAS). Understanding how the OAS recovery tax works can help retirees make more informed decisions about withdrawals, income sources, and long-term tax planning.

The Role of OAS in Retirement Income

Old Age Security is a taxable government benefit available to eligible Canadians aged 65 and older. Unlike the Canada Pension Plan (CPP), OAS is not based on employment history or contributions. Instead, eligibility is primarily determined by age and residency requirements.

For 2026, maximum monthly OAS payments are approximately $740.09 for individuals aged 65 to 74 and $814.10 for individuals aged 75 and older, with payments adjusted periodically to reflect inflation.

When Income Begins to Impact Benefits

OAS is subject to a recovery tax, commonly referred to as the OAS clawback.

For OAS payments received between July 2026 and June 2027, the recovery tax begins when 2025 net world income exceeds $93,454. Benefits are reduced by 15 cents for every dollar of income above this threshold.

At higher income levels, OAS benefits may be eliminated entirely. For example, OAS is fully recovered at approximately $148,451 of income for individuals aged 65 to 74 and $154,196 for those aged 75 and older.

Where Retirement Income Matters

Not all sources of retirement income affect OAS equally.

• Common sources of taxable income include:
• RRSP and RRIF withdrawals
• Pension income
• Employment or consulting income
• Dividend income
• Capital gains from non-registered investments
• Rental income

Conversely, withdrawals from a Tax-Free Savings Account (TFSA) generally do not impact OAS eligibility because they are not included in taxable income.

This distinction highlights the importance of coordinating various income sources throughout retirement rather than focusing on individual accounts in isolation.

Planning Opportunities

While OAS recovery is not necessarily something to avoid at all costs, understanding its impact can help retirees make more tax-efficient decisions.

Planning strategies may include:

• Coordinating RRSP and RRIF withdrawals over multiple years
• Utilizing pension income splitting where appropriate
• Incorporating TFSA assets into retirement cash flow planning
• Considering the timing of large capital gains realizations
• Evaluating whether delaying OAS commencement may be beneficial

The objective is not simply to reduce taxes, but to create a sustainable retirement income strategy that aligns with an individual's goals and circumstances.

Professional Guidance

Retirement income planning involves more than determining how much income is needed—it also involves understanding where that income comes from and how it may affect taxes and government benefits.

If you have questions about how OAS, RRIF withdrawals, pensions, or other income sources may impact your retirement plan, we encourage you to speak with your Milestone Wealth advisor to review your individual circumstances.

Source: Wealthsimple

©2026 Milestone Wealth Management Ltd. All rights reserved. Information, opinions, and estimates are provided for general information purposes only and may change without notice. This communication is not intended as investment, retirement, or tax advice. Readers should not act on this information without consulting Milestone, their investment advisor, tax advisor, financial planner, or legal professional. This communication is intended for Canadian residents only and does not constitute an offer or solicitation in any jurisdiction where such an offer is not permitted.