What to Expect from CPP and OAS

Many Canadians won't have a workplace pension plan to rely on when they retire. That’s why it’s critically important to understand what other sources of income you'll be able to depend on in retirement and how you can supplement those funds.

Learning about government income is a good place to start. One of the most common questions from members is, “How much will I get from the government when I retire?” We've outlined the basics of the Canada Pension Plan (CPP) and Old Age Security (OAS) below.

Canada Pension Plan (CPP)

Almost all individuals who work in Canada contribute to the Canada Pension Plan (CPP). Many people don't know how much they can receive from government pensions and many more are concerned that the funds will not be there when they retire.

The fact is, there's no cause for alarm. The CPP is funded by employees and employers based on employment income. Though the funds are collected by the government, it is not government-funded. In 2010, the government’s chief actuary confirmed that the CPP is sustainable for the next 75 years, despite bumpy investment returns and millions of baby-boomers retiring.

Old Age Security is funded through general tax revenues and with recently announced changes increasing the start age to 67, should allow it to be well funded for the foreseeable future.

CPP: how much is it worth?

You can apply for and receive a full CPP retirement pension at age 65, but you could also receive it as early as age 60 with a reduction, or as late as age 70 with an increase. The amount of your Canada Pension Plan (CPP) retirement pension is based on how much you have contributed and how long you have been making contributions to the CPP at the time you become eligible.

For up to date facts and figures, please check with https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html

Collecting before age 65

CPP allows you to start receiving payments as early as 60, however there is a significant permanent reduction to your monthly payments. The reduction for 2014 is .56% per month up until age 65, totaling a reduction of 33.6%.

Collecting after age 65

If you don’t yet need your government pension, you can defer up to age 70. This will significantly raise your monthly payments. Choosing to delay past age 65 means you will receive a monthly increase of .7% for every month up to age 70. So if you don’t start receiving your CPP until 70, you will receive 42% more than if you started taking it at 65.

What's your contribution level?

Find out on your CPP statement of contributions, by visiting a Service Canada office, making a request by mail, or online through the Service Canada portal.

Old Age Security (OAS)

Canada’s Old Age Security (OAS) pension is a monthly payment available to most people 65 years of age and older who meet the Canadian legal status and residence requirements. Your employment history isn't a factor in determining eligibility: you can receive the OAS pension even if you have never worked or are still working. If you were resident of Canada for less than 40 years after the age of 18, you will get a reduced amount of OAS.

OAS: how much is it worth?

Payment amounts are based on your marital status and level of income. They are not considered taxable income. Consult this page from the Government of Canada for the most up to date maximum monthly payment amounts you could receive for the Old Age Security pension and benefits and the maximum annual income allowed to be eligible for the pension and benefits.

For up to date facts and figures, please check with https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/benefit-amount.html

Final thoughts

Between CPP and OAS, the average Canadian can expect an annual income somewhat less than $15,000. Is that enough for you to have a comfortable retirement? Probably not, but it’s a strong base of funds to build a financial plan upon. If you expect to need more, RRSPs and TFSAs can help you build a larger base of income for your retirement. Talk to one of our financial advisors, today. We can help.


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