Financial Independence & Retiring Early – F.I.R.E.

Pension recovery tax

The CRA implements a pension recovery tax (15% OAS claw-back) on Old Age Security payments when net world income exceeds threshold (for the tax year 2020 this amount is $79,054). Full OAS would be wiped out at the maximum income recovery threshold of $128,137.

What iIs Added into the net world income Calculation?

Many retirees reach this $79,000 threshold easily, because they receive full CPP, OAS and defined-benefit employment pension. Also, if you are receiving RRIF payments (from their previous RRSP portfolios), income from any side gigs or investments held in taxable accounts.

TFSA solution

Pensioners can avoid OAS claw backs, by keeping income stocks inside a TFSA portfolio. The CRA does not tax income generated through TFSA investments and withdrawals do not count towards income. The TFSA contribution room is as high as $69,500 per person in 2020.

Which investments should you own?

Top-quality dividend stocks are cheap right now and provide attractive yield. Owning GICs carries less risk, but the Canadian banks are only offering GIC yields in the 1.5% range. That’s below current inflation.

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