Case Study: Sequencing Retirement Income to Help Preserve OAS

This is an illustrative composite scenario. The retiree, the income sources, and all figures below are fictional and are presented only to show how income sequencing can help manage the OAS clawback. It is not a real client and not personal advice; every number is a hypothetical example, and your own plan would differ.

Consider a retiree we will call Richard, aged 70 and living in Ottawa, who has done well over his career and now has more retirement income than he strictly needs to spend. He was surprised to learn that part of his Old Age Security was being clawed back, and he wants to understand whether anything can be done about it without upending his lifestyle.

The situation

Richard receives CPP and OAS, a modest defined benefit pension, large RRIF minimum withdrawals, and investment income from a sizeable non-registered account. He also has a well-funded TFSA he has barely touched. His spouse has considerably lower income. His total net income sits above the OAS clawback threshold, so a portion of his OAS is being recovered each year.

He is not struggling; he is simply losing a benefit he could partly keep. The question is whether the shape of his income, rather than its total, can be adjusted to preserve more OAS and lower his overall tax.

The issue and the risk

The clawback is driven by one number, so the issue is really about controlling that number.

• Net income is the trigger. The OAS clawback is calculated on net income, so every taxable dollar above the threshold costs part of the benefit.
• RRIF minimums are inflexible upward. Richard’s RRIF minimum withdrawals are large and fully taxable, and they rise with age, pushing his income higher over time.
• Idle TFSA, busy taxable account. He is funding his lifestyle from taxable sources while a tax-free TFSA sits unused, exactly backwards for someone near the clawback.
• Unused splitting. His spouse’s lower income creates room to split pension income that is currently going to waste.

The risk is a slow, permanent leakage of OAS and an overall tax bill higher than it needs to be, simply because the income is poorly sequenced.

Options considered

Richard’s advisor compared the levers available to manage his net income.

Lever	Effect on net income	Note
Draw TFSA for spending	No effect, tax-free	Reduces reliance on taxable income
Pension and RRIF income splitting	Lowers the higher earner’s income	Needs a lower-income spouse
Smooth RRIF withdrawals	Avoids spikes	Limited by the minimum
Manage capital gains realisation	Controls taxable gains	Timing flexibility
Corporate-class or deferral structures	Defers taxable distributions	Suitability varies

The strongest results came from combining several levers rather than relying on one, a theme developed in tax planning for retirees.

The approach and illustrative figures

The team restructured the shape of Richard’s income without reducing how much he could spend. The figures below are hypothetical examples to show the logic, not recommendations or projections.

First, they changed his spending source. Instead of funding lifestyle shortfalls from taxable investment income, Richard began drawing on his TFSA for a portion of his spending. Because TFSA withdrawals do not count toward net income, this lowered the figure the clawback is based on while leaving his lifestyle intact.

Second, they split income with his spouse. Eligible pension and RRIF income was split on their returns, shifting taxable income from Richard to his lower-income spouse and reducing his net income below where the clawback bit hardest. The general approach lives in pension income splitting.

Third, they managed his non-registered account more deliberately, controlling the timing of realised capital gains and favouring more tax-efficient holdings, so that the taxable income it generated each year was steadier and lower. They could not reduce his RRIF minimum, but they stopped adding avoidable taxable income on top of it.

In the illustration, these combined steps lower Richard’s net income enough to preserve a meaningful portion of his OAS and reduce his total tax, all without cutting his spending. The exact result depends on the year’s thresholds and his specific numbers, which vary.

The outcome and lessons

In the scenario, Richard keeps more of his OAS, pays less total tax across the household by using his spouse’s lower bracket, and funds the same lifestyle as before. Nothing about his standard of living changed; only the sequence and source of his income did.

The lessons apply to many comfortable retirees:

• Shape matters, not just size. Two retirees with the same spending can have very different net incomes.
• Use the TFSA near the clawback. Tax-free withdrawals are the cleanest way to fund spending without raising net income.
• Split income where a spouse allows. A lower-income partner is a valuable planning asset.
• You cannot dodge the RRIF minimum, so manage everything else. Keep avoidable taxable income down.

Planning early, and the strategy’s limits

Richard came to the problem after the clawback had already started, but the most effective planning often happens earlier, in the years before OAS begins. A retiree in their early sixties, before government benefits start and while RRIF minimums are still modest, frequently has a window of relatively low taxable income. Drawing down registered accounts during that window, filling lower tax brackets, can shrink the future RRIF balance and the large minimum withdrawals that later push income over the clawback threshold.

In other words, some of the best clawback planning is done before anyone is receiving OAS at all. Had Richard drawn more from his RRIF in his early sixties, his minimums in his seventies would have been smaller and his clawback exposure lower. The lesson for younger retirees is that the clawback is easier to manage prospectively, by shaping the trajectory of taxable income over decades, than it is to fix once large RRIF minimums and full benefits are already in place.

It is worth being candid about what income sequencing can and cannot do. For a retiree whose income is very high regardless of how it is arranged, with large pensions and sizeable mandatory RRIF minimums, the clawback may be unavoidable, and chasing it too hard can lead to worse overall decisions. The goal is to manage net income sensibly, not to distort an otherwise sound plan in pursuit of preserving every dollar of OAS.

Richard’s advisor was careful to frame the clawback as one consideration among several, alongside overall lifetime tax, estate efficiency, and simply having the income he needed to live well. Where a modest clawback is the price of an otherwise optimal plan, it is often worth accepting. Good planning keeps the clawback in perspective rather than treating it as the single number to minimise at all costs.

How this applies to your own situation

If you are near or above the OAS clawback threshold, the useful question is not how to earn less but how to arrange your income so that less of it is taxable in your own hands in any given year. Look at whether you are funding spending from taxable sources while a TFSA sits idle, whether you can split income with a spouse, and whether your non-registered account is generating avoidable taxable income.

Managing the clawback is really about managing net income across a household, which is a core part of retirement tax planning. Our retirement planning and tax planning work helps retirees preserve benefits and reduce tax without sacrificing the life they want.

Next step

The OAS clawback quietly erodes a benefit that careful sequencing can often partly preserve, with no change to your lifestyle. If you would like your income reshaped to keep more of it, book a private consultation and we will model the options for your household.