Canada Revenue Agency

Understanding how the Canada Pension Plan (CPP) and Old Age Security (OAS) work together can help you plan effectively for your future. In this article, we’ll explain in detail how much you can expect to receive from these two programs combined and the various factors that can influence the total amount. This information will be essential for anyone planning for a secure retirement. Understanding CPP and OAS The Canada Pension Plan (CPP) is a contributory, earnings-related social insurance program. It provides a monthly benefit to eligible retirees based on the contributions they made during their working years. Contributions to CPP are mandatory for all workers aged 18 and above until they reach the age of 70, with both employees and employers contributing a percentage of the employee’s earnings. Self-employed individuals are required to contribute both portions, which effectively doubles their contribution amount compared to employees. The amount you receive from CPP depends largely on your earnings, contribution period, and the age at which you start collecting benefits. Old Age Security (OAS), on the other hand, is a non-contributory, government-funded pension plan. It provides a monthly benefit to eligible Canadians aged 65 and older, regardless of their work history or contributions. The amount you receive from OAS depends on how long you have lived in Canada after the age of 18. If you have lived in Canada for at least 40 years after turning 18, you may qualify for the full OAS benefit. For those who have not lived in Canada for the required number of years, a partial OAS benefit may be available, calculated based on the number of years of residency. CPP + OAS XXX: How Much Will You Get? When planning for retirement, one of the most common questions is how much you will receive from CPP and OAS combined. The combined amount varies significantly, and it depends on several factors such as your contributions to CPP, your age when you start receiving benefits, and your residency status in Canada for OAS. Below, we will explore each aspect in more depth. 1. CPP Benefits: Maximum CPP Benefit: As of 2024, the maximum monthly amount you can receive if you start your CPP at age 70 is $1,306.57. However, most new beneficiaries do not receive the maximum amount. The average monthly payment for new beneficiaries is approximately $772.71. The reason for this variance is that the amount you receive depends on your contributions, which in turn depend on your income and work history. If you earned less than the maximum pensionable earnings in some or all of your working years or if there were periods when you did not contribute at all, your benefits will be lower. Post-Retirement Benefits: If you continue to work while receiving CPP, you can contribute towards the CPP Post-Retirement Benefit (PRB), which will further increase your monthly income. The PRB is designed to help those who continue to work after beginning their CPP, with the added contributions translating to higher benefits. In 2023, the maximum post-retirement benefit was $40.25 per month, which means that every year of contributions can provide an extra boost to your retirement income. 2. OAS Benefits: Maximum OAS Benefit: The maximum monthly amount you can receive from OAS if you start at age 65 is $707.68. If you decide to delay the start of your OAS until after age 65, the amount will increase by 0.6% for each month you delay, up to age 70. This means that by waiting until age 70, the maximum monthly OAS amount increases to $778.45. Unlike CPP, OAS does not require contributions, but the benefit amount is influenced by how long you have lived in Canada as an adult. Guaranteed Income Supplement (GIS): In addition to OAS, lower-income retirees may qualify for the Guaranteed Income Supplement (GIS). The GIS provides additional financial support to those whose income is below a certain threshold. However, since GIS is income-tested, any income you receive from CPP, OAS, or other sources could reduce or even eliminate your GIS eligibility. This supplement can make a significant difference in the overall income of retirees with limited savings or pension income. 3. Combined CPP and OAS: If you are eligible for both the maximum CPP and maximum OAS, and you start receiving CPP at age 70 and OAS at age 65, your combined monthly income would be $2,084.25 (CPP $1,306.57 + OAS $778.45). This figure represents the ideal situation for someone who has made maximum CPP contributions throughout their working life and has lived in Canada for at least 40 years. For the average Canadian, who may not have reached the maximum contribution levels, the combined monthly income is more likely to be around $1,480.39, which consists of the average CPP benefit of $772.71 and the maximum OAS benefit of $707.68. This estimate highlights the importance of understanding your individual circumstances when planning for retirement. Factors Affecting Your CPP and OAS Payments Several factors can influence the total amount you receive from CPP and OAS, including: Age of Commencement: The age at which you choose to start receiving CPP benefits can significantly impact the amount you receive. For every month you delay taking CPP after age 65, your payment increases by 0.7%, up to a maximum of 42% at age 70. Conversely, if you start taking CPP before age 65, your payment will be reduced by 0.6% per month for each month you start early, up to a 36% reduction if you start at age 60. Delaying your OAS benefits beyond age 65 also results in higher payments, increasing by 0.6% for each month you delay. Contributions: Your CPP benefits depend directly on the amount and duration of your contributions. If you have consistently contributed the maximum allowed amount over your working life, you will receive a higher benefit. Factors like periods of unemployment or reduced earnings can lower your overall contributions, resulting in reduced benefits. Residency in Canada: For OAS, the number of years you have lived in Canada after age 18 impacts your benefit amount. To qualify for the full OAS benefit, you need to have lived in Canada for at least 40 years after turning 18. If you have lived in Canada for less than 40 years, you may still be eligible for a partial benefit, calculated at 1/40th of the full benefit for each year of residency. Income Level: If your annual income exceeds a certain threshold, your OAS benefits may be subject to a recovery tax, also known as the OAS clawback. This means that higher-income earners may have to repay part or all of their OAS benefits. The clawback threshold changes each year, so it’s important to monitor your income and plan accordingly. Maximizing Your CPP and OAS Benefits To maximize the amount you receive from CPP and OAS, consider the following strategies: Delaying Benefits: If you have other sources of income and can afford to delay taking CPP and OAS until age 70, doing so will significantly increase your monthly payments. This strategy provides you with a larger, inflation-adjusted income for the rest of your life, which can be especially beneficial if you live longer. Post-Retirement Contributions: Continuing to work and contribute to CPP after you start receiving your retirement pension can provide additional income through the CPP Post-Retirement Benefit (PRB). This can help supplement your retirement income, particularly if you enjoy working or need to continue working for financial reasons. Splitting Income: If you have a spouse or common-law partner, consider pension income splitting to reduce your taxable income. By splitting eligible pension income, including CPP and OAS, you may be able to reduce your overall tax burden, which can help you retain more of your OAS benefits and avoid the clawback. Planning for GIS: If you expect your retirement income to be low, planning to qualify for the GIS can help you maximize your overall retirement income. To do this, carefully manage your taxable income to stay below the GIS threshold. This can include strategies like deferring RRSP withdrawals or splitting pension income with your spouse. Conclusion Understanding how CPP and OAS work together is crucial for effective retirement planning. By knowing the potential combined amount you can receive and the factors that influence these benefits, you can make informed decisions about when to start your benefits and how to maximize your retirement income. Whether you’re approaching retirement or still in your working years, it’s never too early to plan for a financially secure future. With careful planning and a thorough understanding of these two programs, you can create a retirement strategy that ensures stability and comfort in your later years.