# CPP and OAS question.



## Fraser19 (Aug 23, 2013)

Hey guys,

I am trying to figure out how much to put into my RRSP and what to put into my TFSA. My question is at what income level does CPP and OAS start to become reduced. My understanding was that CPP and OAS started to become reduced at around $67,000.00 of yearly income. However I do not remember where I found this information. Naturally I would like to get the maximum amount so I would prefer to put any money that will be tuned into income not in a RRSP so that I can get the maximum amount.


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## AltaRed (Jun 8, 2009)

CPP does not get reduced. It is pension income that is subject to income tax just like any other income. 

OAS clawback for 2014 starts at $71,592 http://www.taxtips.ca/seniors/oas-clawback.htm and is subject to indexation each year. Planning to minimize OAS clawback is limited. As the link says, cap gains and the dividend grossup affects clawback but it would be silly to avoid these sources of income just to save 15 cents on the dollar on OAS clawback. If one retires early enough, the primary option to reduce clawback is to potentially start drawing down RRSPs early to minimize impacts of minimum withdrawals.

That said, if one is lucky enough to have that level of retirement income post-65, one does not need OAS in any event. OAS should really be called Old Age Supplement for low income earners, i.e. a social program.


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## Jon202 (Apr 14, 2009)

Also, CPP maximum annual benefit is $12,460 (@65) but very few get the maximum, a long way away from the clawback threshold.


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## Fraser19 (Aug 23, 2013)

Ok, that's good info. 
I am 26 right now and have a good job with a little lower than average income. Once I actually complete my degree I will get a 20% increase so that will change things a bit. My company RRSP set up with manulife is doing pretty good and when calculated fairly conservatively it says I should have a income of 56,000.00 a year. It is the pretty basic if I put in 5% they match that 5%. Naturally I put in that 5%. 
I am going to move my TFSA from CIBC to QuestTrade. I was wondering about that. If I hold Dividend stocks in the TFSA does that dividend count as a contribution or growth within the TFSA that would be non taxable?

Once I have my loans paid off I will bump up the contribution probably another 3% in the RRSP and add another 100/month into the TFSA.

Hope that made sense.


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## AltaRed (Jun 8, 2009)

Any income earned within the TFSA is growth and is tax free. It does not affect contribution room.


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## alingva (Aug 17, 2013)

AltaRed said:


> CPP does not get reduced.


 I would add "yet"


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## alingva (Aug 17, 2013)

http://www.servicecanada.gc.ca/eng/about/scpublications.shtml

http://www.servicecanada.gc.ca/eng/services/pensions/oas/payments/index.shtml

If your individual net income is above $70,954 for 2013, your monthly Old Age Security (OAS) pension payment amount will be reduced, beginning in July 2014, to recover the repayment amount owed. If your income is $114,815 or above, your entire OAS pension will be recovered.


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## peterk (May 16, 2010)

I had no idea that OAS was something that almost all people above age 65 get. I thought it was for the poor and the nearly homeless, but it turns out I was getting that confused with GIS.

Must be nice for a wealthy retired couple who make 140k/year in investment income to get an extra $1100/month from the government that they didn't pay for and is coming straight off their children's paycheques...

I wonder how this will work when the boomers are all retired and 95% of them are taking $550/month from the government while most of their children and grandchildren couldn't get a career launched and are only paying an average of $500/month in income taxes...


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## heyjude (May 16, 2009)

peterk said:


> Must be nice for a wealthy retired couple who make 140k/year in investment income to get an extra $1100/month from the government that they didn't pay for and is coming straight off their children's paycheques....


Two misconceptions here:
1. Yes, they paid for it already in taxes and
2. At that income, it will all be clawed back.

http://www.taxtips.ca/seniors/oas-clawback.htm


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## RBull (Jan 20, 2013)

peterk said:


> I had no idea that OAS was something that almost all people above age 65 get. I thought it was for the poor and the nearly homeless, but it turns out I was getting that confused with GIS.
> 
> Must be nice for a wealthy retired couple who make 140k/year in investment income to get an extra $1100/month from the government that they didn't pay for and is coming straight off their children's paycheques...
> 
> I wonder how this will work when the boomers are all retired and 95% of them are taking $550/month from the government while most of their children and grandchildren couldn't get a career launched and are only paying an average of $500/month in income taxes...


If you're in the younger age spectrum it's not surprising to not be familiar with OAS, GIC. For 25+ years I didn't consider it for my retirement planning. As I am about to retire (but am about 10 years from benefits) I'm more familiar. 

Can you explain the "they didn't pay for" part? Are you referring to people living here and paying taxes for shorter period of times?

I am concerned about longevity of programs like OAS that are paid from current general tax revenues, when considering demographics, future employment possibilities and government revenues. However it is worth noting many boomers will be paying some form of taxes from PT jobs, RSP withdrawals and other income to help funding. Many boomers will not be able to retire at recent typical retirement ages, given their debt levels and relative lack of savings.


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## RBull (Jan 20, 2013)

heyjude said:


> Two misconceptions here:
> 1. Yes, they paid for it already in taxes and
> 2. At that income, it will all be clawed back.
> 
> http://www.taxtips.ca/seniors/oas-clawback.htm


It is likely he means combined income of $140K as seems to be approx the threshold before claw back. 

I agree, these people would already have paid tax in their lives in Canada, so presumably each generation contributes for the next.


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## heyjude (May 16, 2009)

Well, if this was a single person with that income, the or she would have OAS clawback of 100%.


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## peterk (May 16, 2010)

I did clearly say retired couple, so I think the numbers are still correct?

And I am aware that those retired persons have paid taxes all their lives. Tax dollars that were spent (and then some) years or decades earlier.

I was referring to the distinction between OAS and the likes of CPP, which is specifically paid for in advance and funded by the contributor(s). Since OAS is paid out of general revenue I think my point still stands. As we get more and more boomers collecting and fewer and fewer young people with permanent, high paying jobs where exactly will all this OAS money come from?

Anyways my gripe is not with the fact that these programs are available to seniors. I don't want them out on the street or sent off to ice flows after all! My problem is which seniors they're available to.

I don't think that retired singles making 30-70k (only 25% of seniors live alone), or couples making 40k-140k should be given a nice big monthly cheque from general tax revenues while their children's job prospects dwindle and the government's debt bills climb each year from lacklustre revenues and higher payouts.

I pick 30-40k as a reasonable amount of money for someone to live quite comfortably on. Especially retirees who (presumably) own their homes outright. The 40-140k crowd who are collecting full OAS are doing so to the detriment of their children's futures to marginally increase their current level of extravagance.


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## OhGreatGuru (May 24, 2009)

Oh dear! Where to begin? How about this?

_The baby boomers have been paying (through their taxes) for OAS for your grandparents and great-grandparents all their working lives. All of three generations paid for your free public school education, your highly subsidized post-secondary education, and the medicare system that has enabled you to survive to such a selfish, ungrateful age. Now it's your turn to justify your existence you wretch!_

(- Exit stage left, in a huff)


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## Eclectic12 (Oct 20, 2010)

peterk said:


> .... I pick 30-40k as a reasonable amount of money for someone to live quite comfortably on. Especially retirees who (presumably) own their homes outright ...


 ... I'll have to run some numbers to check ... in my area, at this income (I'm assuming the income is before tax), property taxes are slicing off over 10%, before factoring in the projections of electricity rates going up 40% over the next several years.


Cheers


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## OhGreatGuru (May 24, 2009)

peterk said:


> ...
> I pick 30-40k as a reasonable amount of money for someone to live quite comfortably on. Especially retirees who (presumably) own their homes outright. ...


Wake up and smell the coffee! The median family income in Canada in 2011 was $76K. The Low Income Cut Off (LICO) for a 2-person family was $20-27K, depending on the size of community you lived in. So you are suggesting half the median family income, and slightly above the "poverty line" would make for a "comfortable living"!


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## Butters (Apr 20, 2012)

AltaRed said:


> Any income earned within the TFSA is growth and is tax free. It does not affect contribution room.


This is true... So if you pulled that growth out in December... You would have extra room in Jan with said growth

Definitely keep up that 5%
and pay off all debt!

Do you have any other goals? Buy a house?
You can take out 25k from RRSP with Home Buyers, and pay in back over the next 16 years
Also TFSA would be a better vehicle to hold money after the 25k of RRSP to buy a house

I almost want to lean more towards TFSA than RRSP with my extra money


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## heyjude (May 16, 2009)

SheaButters said:


> This is true... So if you pulled that growth out in December... You would have extra room in Jan with said growth
> 
> Definitely keep up that 5%
> and pay off all debt!
> ...


Almost? No, definitely! 

Now that we are in the 6th year of the TFSA, the money is meaningful and can be used strategically. 

Last November I withdrew three years' worth of TFSA contributions that I had in an index fund, which of course had done very well. I used it to pay off the last mortgage on a rental property, thereby generating cash flow two years early. This month I had a small windfall and put it back into the TFSA, using up the contribution room generated by the November withdrawal, plus some of the 2014 contribution room. I've put half that money into an index fund and half into a 6 month GIC, which means that it, plus the tax free interest, will be available to me in August if I am running low. If not, I can reinvest it within the TFSA. 

I am liking the TFSA more and more as a tool to help me achieve both short and long term financial objectives.


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## alingva (Aug 17, 2013)

peterk said:


> I had no idea that OAS was something that almost all people above age 65 get. I thought it was for the poor and the nearly homeless, but it turns out I was getting that confused with GIS.


 You have to live in Canada for 40 years after you turn 18 to be eligible for full OAS.


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## peterk (May 16, 2010)

OhGreatGuru said:


> Wake up and smell the coffee! The median family income in Canada in 2011 was $76K. The Low Income Cut Off (LICO) for a 2-person family was $20-27K, depending on the size of community you lived in. So you are suggesting half the median family income, and slightly above the "poverty line" would make for a "comfortable living"!


I am suggesting precicely that. Are you suggesting that a family with the median income (and a whole lot richer) should be taking free money from the pockets of their children by virtue of their advanced age? 

Saying that the boomers paid for my grandparents or my education isn't new news or a groundbreaking statement. We're all aware of that. Are you aware that the current ratio of workers to retirees is 4.4 and that in only 20 short years it will be 2.2?

I appreciate your contribution to my cheap education and high standard of living in my youth, Oh Great Guru, as I do to all the older members of society who have paid for it. I truly do, so don't presume I'm ungrateful.

I would *love* the opportunity to spend the next 30 years paying for _MY_ children and grand children's education and higher standard of living, as well as intrastructure for the future. The question is: *Will you let me?* Or will you take a huge chunk of it away to give yourself a 1500 square foot instead of a 1000 suare foot house and the fancy cable package instead of basic? Or another huge chunk to pay for all the _extremely expensive_ medical treatments that you'll need even though the majority of them were caused by poor health choices for the last 50 years?

I'm not trying to stir ****, honestly. But I see a looming demographic crisis, a looming employment crisis, a looming healthcare crisis, and a looming debt crisis. I also see an _obvious_ expense that can be cut back _significantly_ without causing _anyone_ to suffer in the slightest. (By reducing OAS from 70k to 30k for singles and 140k to 40k for couples). Did you know that OAS payments will grow from 36 billion to 108 billion by 2030? That's *well over 1/3 of the entire federal tax revenue!*

So again, will you make me pay for all that? Or will you let me raise my children (your grandchildren) like you did for me?


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## peterk (May 16, 2010)

Delete


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## pwm (Jan 19, 2012)

_I'm not trying to stir ****, honestly._

Really? In any case you've done so quite well.


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## RBull (Jan 20, 2013)

I'm inclined to agree.


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## My Own Advisor (Sep 24, 2012)

OAS is a testy topic. Does anyone think it could and should be restructured?


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## OhGreatGuru (May 24, 2009)

Harper's Government has raised the qualification age for OAS to 67 by manufacturing a future crisis in funding it. The PBO says there is no crisis. I'm inclined to believe the PBO over anything Harper says. http://pbo-dpb.gc.ca/files/files/Publications/Sustainability_OAS.pdf

If you drop the clawback limit to 30-40K, you will simply increase the number of people who qualify for GIS, not to mention other income supports (subsidized housing, welfare, etc.) 

If you want to phase out OAS, then you need to expand CPP and GIS, and phase it in over 40-45 years.


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