Do you have to apply for OAS even you probably have a excessive revenue?

A buddy stated I ought to apply for OAS immediately regardless that it should all be clawed again. I’m anxious concerning the tax ramifications.

—Greg

Outdated Age Safety (OAS) can begin as early as age 65 or be deferred to age 70. For every month of deferral, the pension will increase by 0.6% (7.2% annualized). To be clear, that doesn’t imply there’s a 7.2% return in the event you defer OAS. You hand over a 12 months of pension to have a 7.2% greater pension for all times. 

In case you think about the cumulative OAS pension funds, in the event you defer by a 12 months, you’ll be taking part in catch-up for the following 13 years. In different phrases, in the event you defer your OAS to age 66, it should take you till age 78 to obtain extra cumulative OAS in comparison with beginning at age 65. 

In case you defer your OAS to age 70, it will take solely 11 years, to age 81, to compensate for the cumulative funds, however you’ll be that a lot older and have much less time to catch up as nicely.

There’s a time worth to cash, such that receiving a greenback right this moment is best than receiving a greenback subsequent 12 months. That’s as a result of you’ll be able to make investments that greenback, otherwise you do not need to attract down your different investments as a lot and may preserve them invested. Because of this, relying on the assumptions used, you could have to stay nicely into your 80s to be higher off for having deferred OAS. 

When is OAS clawed again?

Within the case of a high-income earner such as you, Greg, there’s a disincentive to beginning the OAS pension early. It is because it’s means-tested with a partial discount within the pension for these whose web revenue exceeds $81,761, with a full compensation at $133,141 of revenue. This compensation, or clawback, is calculated as 15 cents for each greenback your revenue exceeds the low finish of this threshold.

At $200,000 of revenue, you’ll be nicely previous the higher finish of the brink. A 65-year-old whose revenue is excessive ought to in all probability think about deferring their OAS till their revenue decreases or till as late as age 70.