Imagine wanting to spend more in retirement—whether it’s traveling, renovating your home, or enjoying life—only to see your Old Age Security (OAS) benefits shrink with every extra dollar you spend. Many Canadian retirees face this dilemma, struggling to balance their lifestyle desires with the risk of triggering OAS clawbacks. 

The good news? By strategically tapping into your home equity through traditional mortgages, Home Equity Lines of Credit (HELOCs), or reverse mortgages, you can boost your spending without losing your OAS benefits. 

This article reveals three ways to spend more in retirement, detailing the pros and cons of each method to help you make informed financial decisions. These strategies are not for everyone, it highly depends on your personal situation.

Understanding OAS Clawbacks 

The Old Age Security (OAS) pension is a crucial source of income for many Canadian retirees. However, if your net income exceeds a certain threshold, the government reduces your OAS benefits through a recovery tax, commonly known as the “clawback.” 

For the 2025 income year, this threshold begins at $93,454. Once your net income surpasses this amount, you’ll lose 15 cents of your OAS for every additional dollar earned. OAS clawbacks continue until the entire amount is clawbacked at higher income levels. 

Leveraging Home Equity: An Overview 

For homeowners, your property isn’t just a place to live; it’s a significant financial asset. By tapping into your home’s equity, you can access funds to enhance your retirement lifestyle without increasing your taxable income, thereby avoiding OAS clawbacks.

The primary methods to access home equity include: 

• Traditional Mortgages 
• Home Equity Lines of Credit (HELOCs) 
• Reverse Mortgages 

Option 1: Traditional Mortgage

How It Works

A traditional mortgage allows you to borrow a lump sum against your home’s value, which you repay over time with interest. This option provides immediate access to funds for significant expenses, such as travel or home renovations. 

Pros

• Lower Interest Rates: Traditional mortgages often offer lower interest rates compared to other loan types. 
• Tax-Free Funds: The borrowed amount is not considered taxable income, so it doesn’t affect your OAS benefits. 

Cons

• Monthly Payments: Regular repayments can impact your retirement cash flow. 
• Challenges with Smaller Amounts: It can be difficult to secure a mortgage for smaller amounts, like $20,000 annually, as many banks prefer larger loans. Additionally, you may have to reapply every year, which can be time-consuming and inconvenient. 

Example Scenario

Consider Mary, a retiree with a home valued at $900,000. She wishes to access $200,000 to fund her travels over the next decade. By obtaining a traditional mortgage for this amount, she secures the funds upfront. Assuming a fixed interest rate, Mary will have predictable monthly payments, allowing her to budget accordingly.

Option 2: Home Equity Line of Credit (HELOC)

How It Works

A HELOC provides a revolving line of credit based on a percentage of your home’s appraised value. You can borrow as needed up to the approved limit and pay interest only on the amount utilized. 

Pros

• Flexibility: Borrow funds as required, which is ideal for managing unexpected expenses. 
• Interest-Only Payments: Initially, you can choose to pay only the interest on the borrowed amount, reducing immediate financial strain. 

Cons

• Variable Interest Rates: HELOCs often come with variable rates, leading to potential payment increases over time. 
• Risk of Increased Debt: Without disciplined repayment, there’s a risk of accumulating significant debt. 

Example Scenario 

Mary opts for a HELOC with a $200,000 limit. In the first year, she withdraws $20,000 for a European vacation, paying interest only on this amount. The following year, she takes out another $20,000 for a cruise, with her interest payments adjusting based on the total borrowed. This approach offers Mary flexibility, allowing her to access funds as needed without a large initial loan. 

Option 3: Reverse Mortgage

How It Works 

A reverse mortgage enables homeowners aged 55 and older to borrow against their home’s equity without requiring monthly mortgage payments. The loan, plus interest, is repaid when the property is sold or the homeowner passes away. 

Pros

• No Monthly Payments: Repayment is deferred, preserving your monthly cash flow. 
• Tax-Free Proceeds: Funds received do not count as taxable income, safeguarding your OAS benefits. 

Cons

• Higher Interest Rates: Reverse mortgages typically have higher rates than traditional mortgages or HELOCs. 
• Equity Reduction: Over time, accumulating interest reduces the equity in your home, affecting the inheritance left to heirs. 

Example Scenario 

Mary decides on a reverse mortgage and borrows $20,000 per year for 10 years. Her home, currently valued at $900,000, appreciates at 3% annually, reaching $1.2 million in a decade. By then, she owes $300,000, leaving her with $900,000 in home equity, preserving her wealth while funding her retirement lifestyle. 

Comparative Analysis of the Three Options 

Option	Interest Rate	Payment Requirements	Flexibility	Risk Level
Traditional	Lowest	Monthly	Low	Low
HELOC	Variable	Interest-only option	High	Moderate
Reverse	Highest	No monthly paymetns	High	No monthly payments

Frequently Asked Questions (FAQs) 

Can I use a reverse mortgage without affecting my OAS? 

Yes, the funds received from a reverse mortgage are tax-free and do not count as income, thus avoiding OAS clawbacks. 

Which option is best for minimizing interest costs? 

A traditional mortgage generally offers the lowest interest rates, but it requires monthly payments, affecting your cash flow. It may also be difficult to find a borrower who is willing to loan smaller amounts.

Is a HELOC risky during retirement? 

One of the biggest risks is the variable interest rate. Unlike a fixed-rate loan, HELOC interest rates fluctuate with market conditions, which means your payments could increase unexpectedly if rates rise.

Additionally, lenders can lower your credit limit or demand repayment under certain circumstances, such as changes in your financial situation or a decline in your home’s value. This unpredictability can pose risks for retirees who rely on a HELOC as a primary source of funding.

A HELOC can be a valuable tool for strategic retirement spending when used responsibly and as part of a well-thought-out financial plan.

Conclusion

Spending more in retirement doesn’t have to come at the cost of OAS clawbacks. By strategically tapping into your home equity, you can fund your desired lifestyle while safeguarding your financial future.

These strategies require careful planning and depend heavily on your unique financial situation, lifestyle goals, and comfort with debt. While they can offer significant benefits—like preserving your OAS benefits and enhancing your spending power—they also come with risks and long-term implications.

It’s crucial to evaluate these options within the context of your overall retirement plan. They require strategic decision-making to ensure they align with your long-term financial goals.

Before making any decisions, consider consulting with a financial planner to see if leveraging your home equity is the right fit for you.

Here To Help

At TransCanada Wealth Management, we specialize in helping Canadians navigate retirement planning complexities, ensuring you make the most of your hard-earned savings. 

If you’re considering this approach or exploring other retirement planning strategies, contact us today for a free consultation.