Maximize your OAS

Imagine reaching retirement and, after years of saving, the government ‘claws back’ your Old Age Security (OAS) pension because your income is too high.

How could this happen? The government requires repayment of the OAS benefit by persons age 65 and over with taxable income above $69,562 in 2012, including payments from registered and non-registered investments, pensions and other income.

There are steps you can take now, and after age 65, to maximize your retirement income. To do so, work with a knowledgeable financial advisor.

For example, couples may choose to perform incomesplitting — essentially moving income from a higher-income spouse to the spouse in a lower tax bracket — with a spousal RRSP that can reduce a couple’s overall taxable income. Retirees may also split up to 50% of your various pension incomes with a spouse.

Your advisor can also help choose the most tax-efficient investments. For example, mutual funds, capital gains from stocks and dividends are taxed at a favourable rate. You may also consider corporateclass mutual funds, which are structured as a corporation for preferential tax treatment. Remember that investments held in tax-free savings accounts (TFSAs) are non-taxable.

Once you enter retirement, your advisor can help you plan how to take income from your investments. This includes converting your RRSP to a registered retirement income fund (RRIF), so that you gradually withdraw the funds and defer tax payments as long as tax laws allow.