Tips to Avoid the OAS Clawback in Retirement

For many high-net-worth retirees, Old-Age Security (OAS) is not a primary source of income but losing it unnecessarily can be frustrating. With thoughtful planning, it’s often possible to retain more of this benefit while still maintaining the lifestyle you’ve worked hard to achieve.

The OAS program provides retirement income to Canadians age 65 and older who meet residency requirements. However, once your income reaches a certain threshold — approximately $95,000 for 2026 — the OAS pension recovery tax (commonly known as the clawback) begins. At that point, your benefit is reduced by 15 cents for every dollar above the threshold, and for higher-income retirees (roughly $155,000+ depending on age) the OAS is clawed back completely.

While it may not be possible to avoid the clawback entirely, strategic planning can help you keep more of your OAS over time. Here are six practical strategies to keep more of your OAS benefit.

Strategic Withdrawals from RRSPs/RRIFs
Withdrawals from Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) are fully taxable and included in your net income, which directly impacts OAS clawback. Once an RRSP is converted to a RRIF, minimum withdrawals are mandatory each year, and these percentages increase as you age.

Withdrawing from your RRSP betweenthe ages of 60-64 — before OAS begins — can reduce the size of your RRIF later. Even if you don’t need the funds immediately, they can be redirected into a Tax-Free Savings Account (TFSA), where future growth and withdrawals are tax-free. This “early withdrawal” approach can significantly reduce mandatory RRIF withdrawals later in life, helping you stay below clawback thresholds when it matters most.

Split Pension Income
Pension income splitting is one of the most effective planning tools available for couples. You can allocate up to 50% of eligible pension income (including RRIF income after age 65) to a spouse.

This can help lower the higher-income spouse’s net income, potentially bringing it below the clawback threshold, while also reducing overall household taxes. In many cases, this strategy alone can preserve thousands of dollars of OAS annually.

Use your Tax-Free Savings Account Strategically
Not all income is treated equally in retirement — and this is where the TFSA shines.

Withdrawals from a TFSA do not count as taxable income and have no impact on OAS clawback calculations.

Delay OAS until age 70
OAS doesn’t have to begin at age 65. In fact, delaying it can be a powerful planning tool. For each month you delay OAS, your benefit increases by 0.6%, or 36% if you wait until age 70.

This strategy can be particularly effective if you expect higher income in the early years of retirement — for example, due to travel, business income, or large withdrawals.

By delaying OAS, you reduce the likelihood of clawback during those higher-income years and secure a larger, inflation-adjusted benefit later when your income may naturally decline.

For Business Owners: Use Shareholder Loan Repayments
This is a powerful and often overlooked strategy for incorporated clients.

If you’ve previously loaned funds to your corporation, you may be (such as unused RRSP contribution room or capital losses) able to withdraw cash as a repayment of that loan rather than as a dividend or salary. These repayments are not considered taxable income, meaning they do not impact your OAS clawback position.

This can be especially useful in years where additional cash flow is needed, allowing you to fund lifestyle expenses without increasing your net income. Be sure to consult with your accountant or tax advisor to ensure proper structuring before implementing this strategy. Careful income timing can make a meaningful difference.

Be Aware of Income Timing and One-time Spikes
One of the most common — and avoidable — causes of unexpected OAS clawback is a temporary spike in income. This can come from selling a property, realizing large capital gains, or withdrawing a lump sum from an RRSP. Since OAS clawback is based on your previous year’s income, a single high-income year can reduce your OAS payments for an extended period.

If possible, consider spreading income over multiple years, crystallize gains gradually, or offset income with deductions.

Final Thoughts
With some proactive planning, OAS can remain a valuable part of your retirement income — even at
higher income levels. Avoiding the OAS clawback isn’t about earning less, it’s about structuring your
income more efficiently.

The most effective strategies often involve a combination of approaches: Strategic withdrawals from RRSPs/RRIFs, using TFSAs, splitting income, and managing timing. When co-ordinated properly, these methods can help preserve both your OAS benefits and your overall financial flexibility.

The right strategy will depend on your unique situation, so it’s important to review your plan regularly with your advisor, and adjust as your income and goals evolve. ■