The OAS Clawback in 2025

Key Updates for Retirees

For Canadian retirees, understanding government benefits is essential for effective financial planning. One of the key programs retirees depend on is the Old Age Security (OAS). However, higher-income individuals may face the OAS clawback—an income-tested recovery tax that can impact monthly benefits. Understanding the 2025 OAS clawback threshold and its implications is crucial for sound retirement planning. Here’s what to expect and how retirees can navigate these changes with financial insight from Dan Beyaert at Bellwether.

What is the OAS Clawback?

The OAS clawback, officially known as the OAS Recovery Tax, is a repayment required from retirees whose net income surpasses a set threshold. This means that retirees earning above a certain income will need to repay part, or in some cases, all of their OAS benefits. The clawback functions progressively, reducing benefits by 15% of the income exceeding the set threshold until the entire amount is recovered.

The 2025 OAS Clawback Threshold: What to Expect

In 2024, the OAS clawback threshold was approximately $86,912 net. For 2025, it was announced a threshold of $93,454 net. Retirees whose net income exceeds this amount will be subject to the clawback, starting at a rate of 15 cents for every dollar above the threshold. The benefit is taken away entirely at a net income of $151,688 net. Note that these thresholds are individual income amounts and not family. 

Key Updates for 2025

1. Inflation and Its Impact

Inflation can affect retirees' total income, which might inadvertently push them above the clawback threshold. In a higher-inflation environment, retirees with income sources such as pensions or investment returns may see nominal income increases that, while beneficial, could lead to OAS clawback eligibility. Keeping track of these changes and adjusting financial strategies can mitigate the impact.

2. Strategic Income Planning

Strategic income planning is one of the most effective ways to manage exposure to the OAS clawback in 2025. This involves deferring or spreading income sources over multiple years, making charitable donations, and utilizing Tax-Free Savings Accounts (TFSAs). Financial advisors like Dan Beyaert at Bellwether can help retirees create personalized income plans to optimize OAS benefits while minimizing clawback exposure.

How to Mitigate the OAS Clawback in 2025

1. Monitor Your Income

Regularly tracking income levels is essential. Retirees should keep a close eye on their investment returns, rental income, and any other sources of revenue that contribute to net income. This can help them anticipate whether they might breach the 2025 OAS clawback threshold.

2. Strategic Withdrawals from RRSPs

Retirees may benefit from strategically planning RRSP (Registered Retirement Savings Plan) withdrawals. Large lump-sum withdrawals can significantly increase annual income, triggering the clawback. Instead, spreading withdrawals over multiple years or converting an RRSP into a RRIF (Registered Retirement Income Fund) to take smaller amounts each year can help manage income levels.

3. Income Strategies Prior to 65

Drawing an income from RRSP’s or other sources prior to 65 can alleviate clawback scenarios. Since OAS is normally taken at age 65 or after. In addition, drawing down your RRSP earlier can alleviate mandatory RRSP or RRIF withdrawals after age 71 which can trigger the clawback. 

4. Maximize TFSA Contributions

The Tax-Free Savings Account (TFSA) remains one of the most effective tools for retirees to manage income without triggering the OAS clawback. Earnings and withdrawals from TFSAs are tax-free and do not count towards income for OAS purposes, making them an ideal vehicle for supplemental income.

Working with a Financial Planner  for OAS Planning

Planning around the OAS clawback requires a deep understanding of current income and potential future changes. Financial experts like Dan Beyaert at Bellwether can assist retirees in designing a financial strategy that maximizes benefits and reduces taxable income exposure. With specialized knowledge in retirement planning and government benefits, Dan offers tailored advice to ensure retirees keep more of their OAS and secure their financial future.

Conclusion: Staying Prepared for the 2025 OAS Clawback

The 2025 OAS clawback represents an important consideration for higher-income Canadian retirees. While it may seem daunting, proper planning can mitigate its impact. Anticipating the updated 2025 OAS clawback threshold, tracking income, and using strategic financial tools like TFSAs and income splitting can make a significant difference. Consulting with a seasoned financial advisor like Dan Beyaert at Bellwether ensures that retirees remain well-prepared, allowing them to enjoy a stable and prosperous retirement.

Whether seeking personalized strategies or general financial advice, taking proactive steps now will ensure a smooth transition into 2025 and beyond.