Old Age Security (OAS) rules incentivize affluent retirees to work in cahoots with wealth managers determined to squeeze out every last drop of government assistance for individuals who have no need for cash subsidies in retirement.
That message flooded my inbox after my last column.
Readers responded to the juxtaposition of my column, and The Globe and Mail’s popular “Financial Facelift” series in which financial advisers regularly coach wealthy seniors to maximize the value of OAS subsidies. Many noted the stark contrast with my column, where I’d just shown that millennials pay considerably more in income taxes for boomers’ OAS and medical care than boomers paid as young people to support the smaller number of seniors in their day.
Financial advisers aren’t the problem. They have an obligation to help their clients get the best value for their money. Nor are individuals when they take advantage of available benefits. The problem is the policy incentives that invite people to game the OAS system.
Public support is on the rise to reduce OAS benefits for affluent seniors, because there are so many better ways to spend tax dollars. My recommendation is to reduce OAS for retirees with six-figure incomes so that the savings are repurposed to eliminate seniors’ poverty, help younger generations and reduce the federal deficit – a shift supported by a large majority of Canadians.
Mary Cabena, a boomer from Guelph, made just this point in her email: “I read the Financial Facelift in The Globe on Saturdays which frequently focuses on retirement planning. All planning is geared towards maximizing government benefits. … It is clearly evident these high net worth individuals have zero need for OAS.”
James, a millennial from Toronto, made the same point and suggested I use some Financial Facelift cases to illustrate how the tax system funds affluent seniors and aids them in passing large inheritances to their children. I couldn’t refuse, because Financial Facelift had just advised an 81-year-old widow to retain as much OAS as possible to stay on track to leave $4.3-million to her heirs, on top of her $104,000 in annual cash flow.
Such advice is routine.
My favourite Financial Facelift features a successful couple in their 80s who started their own business, passed it on to their kids, and currently enjoy a six-figure income in retirement. In 2025, their combined cash inflow is projected to be $223,000, including $21,000 from Canada Pension Plan (CPP) benefits and $19,000 from OAS.
Their receipt of CPP is perfectly reasonable, because governments adapted that program decades ago so Canadians prepay into CPP in proportion to what they will receive in retirement.
But OAS is not a prepay system. It’s a government subsidy paid to whomever is eligible, which presently includes individuals with incomes over $140,000, and couples who have nearly $300,000.
This might not matter if there remained “many hands to make light work” of the job to pay for OAS. Only 8 per cent of the population was over the age of 65 in 1976 compared with 19 per cent today. Seven young boomers shared the load to pay for every retiree. Now, there are just three working-age people to pay for every OAS recipient.
Since governments knowingly failed to plan for this demographic shift, younger Canadians now pay 20 per cent to 40 per cent more in income taxes for boomers’ healthy retirements. This tax bill will only grow as Canada approaches peak population aging between 2031 and 2050.
So we should sympathize when younger Canadians who already pay more for housing and postsecondary education wonder why they are also obliged to pay higher taxes for wealthy seniors.
Like James, who recommends narrowing the OAS entitlement, calculating eligibility based on asset levels – including homes – not just income.
James will need to be patient, because it will take big administrative changes to measure people’s assets for the sake of calculating OAS eligibility.
But changing the income threshold at which OAS is clawed back could be done with the stroke of a pen.
Shifting the threshold from $90,000 of individual income to $100,000 of household income would be a good first step. It would reduce opportunities for affluent retirees to split income, or tweak RRSPs, RRIFs and TFSAs – all to extract larger OAS payments from younger taxpayers.
This change would free enough federal funding to add $5,000 annually to lift every poor senior out of poverty; accelerate Ottawa’s investments in housing, child care and postsecondary education; and cut the deficit by billions. That’s a win-win-win for all generations.