When do I start CPP & OAS, and how much will I get?
Before anyone begins collecting CPP or OAS, we strongly recommend they have a discussion with their financial advisor on the integration and impact it has to their retirement income, taxes, investment allocation, and estate plans. We’re happy to initiate that discussion.
Integrated effectively, both CPP and OAS can reduce risks of longevity, inflation, and investment returns that persist throughout retirement, while maximizing your net worth. With that said, let’s start with CPP.
Canada Pension Plan
CPP is a government administrated pension, funded by individuals and employers throughout your working years. Your CPP benefits will depend on how much you and your employer have contributed over the years. However, come retirement much of that is now out of your control, but one large decision remains…
It is your decision as to when you plan to begin receiving CPP payments between age 60 and 70. This could be one of the most important decisions you make in retirement and should be fully understood. We encourage clients to view CPP as an additional RRSP (of significant value), and give it the thought it deserves.
Remember, CPP is fully taxable income and indexed to the cost of living. Make sure you have a plan to integrate government benefits into your retirement income. For more details on this, check out our retirement income guide here.
The withdrawal options are:
Early Withdrawal: You can elect to take CPP anytime after turning 60. CPP payment is reduced by 0.6% per month (7.2% per year) before 65, meaning payments could be reduced by up to 36% for the remainder of your life.
Late Withdrawal: You can elect to defer your CPP payments to a later date (up to age 70). Your CPP payment will be increased by 0.7% per month (8.4% per year) after age 65, meaning payments could be increased by up to 42% for the remainder of your life.
In 2023 the maximum CPP benefit at age 65 is $15,679 per year In order to receive this, you must have:
- Contributed to CPP for 39 of the 47 years from age 18 to 65 (8 non contributory years permitted, additional years can be forgiven for factors like staying home to care for young children)
- You must contribute the maximum amount up to CPPs yearly annual pensionable earnings (YMPE) set by the CRA. The YMPE for 2023 is $66,000.
- Essentially, calculating an individuals CPP is a complex process, however, you can request a Statement of Contributions from CRA which will provide the amounts for you.
- Actual pension received depends on the age you start your pension, see example below as to how different ages will affect a maximum plan.
|Maximum CPP Benefit||$10,034||$15,679||$22,264|
|Monthly Reduction or Enhancement||– 0.6%||n/a||+ 0.7%|
|Reduction or Enhancement||– 36%||0%||+ 42%|
|Breakeven Age*||74.9 years||83.9 years|
*Based on benefit received, excluding income tax levels.
Old Age Security (OAS)
The second form of government pension for retirees is Old Age Security (OAS). This is a universal retirement pension available to all Canadians. Similar to CPP, OAS income is fully taxable. Where CPP benefits are derived by the amount you’ve contributed in your working years, the OAS benefit is determined by years of residency in Canada. The requirements of OAS are as follows:
- You are age 65 or older
- You are a Canadian citizen or legal resident
- You have lived in Canada a minimum number of years since Age 18 (10 years for partial benefits, 40 years for full benefit).
While there is no early withdrawal option for OAS, it may be delayed similar to CPP. For each month past age 65 that you delay your OAS payments, benefits will increase by 0.6% up to a maximum of 36% at age 70. However, OAS payments are clawed back for each dollar of taxable income over $86,912 in 2023.
Like CPP, OAS payments are indexed to the cost of inflation and together can form a solid base to many retirement plans if integrated effectively.
|Yearly OAS Benefit*||n/a||$8,250||$11,220|
|Monthly Reduction or Enhancement||n/a||n/a||+ 0.6%|
|Reduction or Enhancement||n/a||0%||+ 36%|
Q: Why wouldn’t I take CPP at 60? I’ve been paying into it my whole life and I want something back.
A: In most circumstances, you would only be doing the government a favour. Taking it early will reduce your benefit substantially for the rest of your life and often is a short-sighted decision. Also, it is fully taxable income so if you are still working, a large amount will be lost in income taxes on top of the reduction.
Q: Should I take CPP early and invest it?
A: Remember, CPP is taxable income so you won’t be able to invest the full amount. Also, take into account how much volatility it requires to beat the guaranteed 7.2% added benefit (after fees) that comes with delaying CPP each year? It becomes very tough to do, and not recommended for the majority of people. All else equal, it’s better to defer CPP.
Q: Are there any scenarios where taking CPP early makes sense?
A: The decision depends on personal circumstances. For example, perhaps you have a medical condition which makes living to 70 very unlikely – In this case you would take CPP at age 60.
Q: What happens if I die?
A: The deceased person does not have to begin receiving CPP payments for their spouse to be eligible for the survivor pension amounts. This is important to consider in any family situation and how it will effect your income.