Walter had more than $2.2 million saved for retirement, and his plan was working. He was spending $7,000 a month, staying below the Old Age Security (OAS) clawback threshold and was projected to leave an after-tax estate of $2.6 million at age 90.
Then he looked at me and asked, “What the hell am I trying to do here?”
It was a fair question. Walter had built his retirement around protecting a government benefit. But was that still the right thing to optimize for?
How Walter ended up with a plan built around the OAS clawback
Walter is 61, lives in Ontario and retired after a career in engineering. He and his wife, Diane, were meticulous planners. They made decisions carefully, especially when it came to splitting income and protecting their OAS.
When Diane passed away, the plan changed in a way neither of them had expected. Walter no longer had a spouse to split retirement income with, but he continued following the same strategy.
Then two close friends received serious health diagnoses. That prompted Walter to ask whether the plan still reflected what mattered to him.
Here’s where he stood: $1.8 million in his RRSP, $425,000 in his TFSA and a mortgage-free home worth about $600,000. Part of the RRSP balance came from Diane’s RRSP through a spousal rollover. Walter was also named successor holder of her TFSA. He was receiving approximately $400 per month in CPP survivor benefits and planned to start his own CPP and OAS at 65.
For these illustrations, I used 5% annual investment growth, 2.5% inflation, Ontario tax assumptions and a planning horizon to age 90. These are projections, not guaranteed results.
The original plan: $7,000 a month and no OAS clawback
Walter had settled on $7,000 a month in spending because it fit the tax plan. From age 61 to 65, we projected RRSP withdrawals that would bring his taxable income to about $111,000 a year. In the 2026 illustration, that included approximately $4,800 in CPP survivor benefits and just over $106,000 withdrawn from his RRSP.
When his own CPP and OAS began at 65, the planned RRSP withdrawals fell. By 2031, they were projected at about $78,000 annually. The model also assumed the OAS recovery threshold would rise over time.
Under those assumptions, Walter never ran out of money, never triggered an OAS clawback and reached age 90 with an estimated $2.6 million after-tax estate.
On paper, that looks excellent. But Walter didn’t have children expecting an inheritance. What he had was a growing list of things he still wanted to do, and a reminder that the time to do them wasn’t unlimited.
The revised plan: spend more while he can enjoy it
We rebuilt the plan around Walter’s life instead of treating the OAS clawback as the main objective.
From age 61 through 76, he would spend $9,000 per month rather than $7,000. Starting at 77, spending would return to $7,000 per month. This wasn’t a forced cut. It reflected his expectation that travel and other discretionary spending would slow later in retirement.
The withdrawal strategy changed too. Before age 65, when he wasn’t receiving OAS yet, the model targeted about $150,000 of taxable income. Once OAS started, the target fell to $111,000 and increased with inflation in later years.
That approach produced some OAS recovery tax. Over the full projection, the total missed OAS was about $70,000. But it also gave Walter room to spend an additional $2,000 a month during 16 years when that spending mattered most to him.
At age 90, the revised projection showed an estimated $1.25 million after-tax estate, compared with $2.6 million under the original plan. That’s not $1.35 million lost to the government. Much of the difference reflects money Walter chose to spend on his life, along with the investment growth that money would otherwise have earned.
What the two retirement plans actually changed
| Measure | Original plan | Revised plan |
|---|---|---|
| Monthly spending, ages 61–76 | $7,000 | $9,000 |
| Monthly spending, age 77 onward | $7,000 | $7,000 |
| Taxable income target before age 65 | $111,000 | $150,000 |
| Projected lifetime OAS clawback | $0 | About $70,000 |
| Projected after-tax estate at age 90 | $2.6 million | $1.25 million |
The comparison is not an argument for ignoring taxes. It’s an argument for knowing what you’re getting in return for the tax you’re trying to save.
What if Walter doesn’t live to 90?
We planned to age 90 because we need a reasonable horizon to test the numbers. But Walter’s friends had reminded him that nobody knows how many years they’ll get.
If he only lives to 80, the original plan means he spent $7,000 a month throughout retirement and left more money unspent. With the revised plan, most of his higher-spending years would already be behind him. He would have taken the trips and done the things he wanted to do while he could.
That was the point of the change. He didn’t need to wait until 90 to find out whether he could afford to enjoy retirement.
Should you try to avoid the OAS clawback?
Sometimes, absolutely. If avoiding the clawback doesn’t prevent you from doing anything important, there’s no reason to pay it unnecessarily. And if you have children or others who depend on an inheritance, your priorities may be very different from Walter’s.
But if you’re holding back spending solely to preserve OAS, it’s worth asking what that choice is costing you in the years you can actually use the money.
For reference, OAS recovery tax is generally 15% of income above the applicable threshold, up to the amount of OAS received. The threshold is indexed and the calculation depends on the income year. You can review the official OAS recovery tax rules or consult our 2026 Canadian income tax brackets when comparing taxable income strategies.
In Walter’s case, we also kept his $600,000 home outside the retirement spending model. That was an important backstop, alongside his TFSA. Someone with less accessible savings may need a different approach.
The question isn’t simply, “How do I avoid the OAS clawback?” It’s “Does my retirement plan let me do what’s important to me?” For Walter, those were two very different questions.
