How to Reduce the OAS Clawback in 2025: Expert Tips from Bellwether Family Wealth

Strategies to Minimize the OAS Clawback

Reducing your taxable income through strategic financial planning can help minimize or even avoid the OAS clawback. Here are expert strategies:

1. Income Splitting with a Spouse

If you have a spouse or common-law partner, pension income splitting can help redistribute income between partners. Transferring up to 50% of eligible pension income to a lower-income spouse can keep your individual taxable income below the clawback threshold.

2. Defer Your OAS Payments

You can delay your OAS benefits up to age 70, increasing your monthly payments by 0.6% per month (or 7.2% per year). If your income is expected to be higher in your mid-60s but lower later, deferring OAS may be beneficial.

3. Optimize RRSP Withdrawals and Convert to a TFSA

Strategic RRSP withdrawals before age 65 can reduce taxable income later. Consider moving funds into a Tax-Free Savings Account (TFSA), where withdrawals are not counted as income for tax purposes.

4. Use Tax-Efficient Investments

Investing in tax-efficient income sources like Canadian dividends and capital gains can reduce taxable income since these types of income are taxed at lower rates than interest income.

5. Structure RRIF Withdrawals Carefully

After age 71, Registered Retirement Income Fund (RRIF) withdrawals are mandatory and taxable. Planning smaller RRSP withdrawals earlier can reduce large RRIF withdrawals that might push income above the OAS clawback threshold.

6. Use Capital Gains Exemptions

If you sell an asset, staggering capital gains over multiple years or utilizing the Principal Residence Exemption (for a home sale) can help minimize taxable income spikes that may trigger OAS clawback.

7. Work with a Financial Planner

The best approach to minimizing OAS clawback is a well-structured financial plan. A financial planner in Calgary, like those at Bellwether Family Wealth, can help create a strategy that optimizes your retirement income while reducing clawbacks.

Real-Life Example: Managing OAS Clawbacks Effectively

Case Study: How John Avoided the Clawback

John, a 68-year-old retiree, was earning $100,000 annually in pension and investment income. This put him above the $93,454 threshold, meaning he faced an OAS clawback.

What John Did:

• Worked with a financial planner to split pension income with his spouse.
• Withdrew funds from his RRSP before age 65 and moved them into a TFSA.
• Delayed his OAS benefits to age 70, increasing his monthly OAS payments.
• Invested in tax efficient capital gains generating equities rather than interest-bearing investments in his non-registered account. 

Results:

• John’s taxable income was reduced below the clawback threshold.
• He received 100% of his OAS benefits.
• His overall retirement income increased due to tax-efficient planning.

Future Predictions: Will the Clawback Change in the Coming Years?

As inflation rises and life expectancy increases, OAS thresholds are expected to continue adjusting. Keeping up with annual changes is crucial for effective retirement planning.

The Canadian government may also introduce policy changes, such as increasing clawback rates or adjusting thresholds differently than before. Working with a trusted financial planner ensures your plan stays up to date.

Conclusion: Take Action to Protect Your OAS Benefits

While the OAS clawback in 2025 presents challenges for higher-income retirees, smart planning can preserve more of your OAS benefits. Whether through income splitting, TFSA contributions, or RRSP withdrawals, financial planning can significantly impact your retirement income.

Work with a Financial Planner at Bellwether Family Wealth

who specializes in helping retirees manage their income strategically to minimize OAS clawbacks and maximize retirement savings.

Contact Bellwether Family Wealth today to discuss your personalized retirement strategy.

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