Until fairly recently, CPP replaced a quarter of your average work earnings — but it’s already providing more. We asked experts what to do if CPP and OAS will make up most of your retirement income.
By Renee Sylvestre-WilliamsSpecial to the Star
Mon., May 8, 2023timer6 min. read
At 57, Betty McCabe, an administrative and accounting assistant in Hamilton, has been thinking a lot about retirement.
But she’s not thinking about how she’ll spend her free time. Instead, she’s figuring out how she can afford to live on just the Canada Pension Plan (CPP) and the Old Age Security pension (OAS).
McCabe (who requested that her name be changed to protect her privacy), earns $52,000 a year and has no debt.
And while she’s been responsible with her money, she has no registered retirement savings plan (RRSP) and no tax-free savings account (TFSA). The issue, she says, is that every time she gets ahead, a crisis hits and her savings vanish.
“I’ve been working since I was 16,” she says, explaining that her family didn’t have a lot of money, so she paid for everything from clothes and toiletries to her post-secondary education.
It’s unlikely most Canadians will be able to pay for their retirement on just CPP and OAS alone, say advisers and financial planners Cindy Marques and Elke Rubach. But the two programs are more generous than most people think, and CPP is about to become even more generous, providing as much as a full third of your pre-retirement income when you hit 65.
Understanding how CPP and OAS work is key to retirement planning and knowing how much you may get. The CPP — a mandatory pension plan financed by contributions from employees, employers and self-employed individuals — was always meant to provide some but not all retirement income to Canadians when it launched in 1965. Until fairly recently, CPP replaced a quarter of your average work earnings — that’s if you contributed the maximum throughout the lifetime of your working years.
But in 2019, the CPP enhancement was introduced, which means that in exchange for making higher CPP contributions, you could get up to 33 per cent of your pre-retirement income when you hit 65. The changes are being phased in slowly: the payouts are already increasing, but no one will receive the full increase until 2065.
Starting in 2024, there is a second phase of the enhancement with the introduction of a higher limit that allows you to invest an additional portion of your earnings into CPP. It’s called the year’s additional maximum pensionable earnings.
So if you earn more than the first earning ceiling, estimated to be $69,700 in 2025, you’ll automatically contribute more to CPP and so will your employer. Your employer will continue to deduct your contributions from your paycheques and if you’re self-employed you continue to make your CPP contributions when you file your taxes.
But not a lot of people know exactly how CPP works and how much they will get, says Marques, a certified financial planner and director at Open Access Ltd. in Toronto.
“Federal pensions are great as a supplemental layer, but a retirement it does not make,” she says. “I think people just hear about a pension plan and think, ‘I’m taken care of, all these deductions are coming off, I don’t need to worry.’ ” It’s that thinking, she adds, that’s preventing people from doing their due diligence and research.
If you’re like McCabe and staring down a short tunnel to retirement with only CPP and OAS, what are your options?
Maximize your benefits
If you can, work beyond 65. Marques says that if you can work until 70 years, you can get the maximum CPP and OAS. “Both will be augmented, which is quite helpful because the CPP will be augmented by 42 per cent by age 70, and OAS will be augmented by 36 per cent.”
That could add several thousands of dollars to your annual income, depending on your contributions. The maximum CPP payout in 2023 for those who are 65 is $1,306.57 per month and OAS is $691, for $23,970.84 a year.
Getting the maximum CPP amount depends on how much and for how long you contributed and when you decide to apply for it. Maximum OAS is decided by how long you lived in Canada after age 18.
It all depends on how much you make and how many years you contributed. If you’re curious about how much you’ll get, you can check your My Service Canada Account.
Look into the Guaranteed Income Supplement
If you’re single, divorced or widowed and your retirement income in 2023 is less than $20,952 a year, you could get a maximum of $1,032.10 a month or $12,385.20 yearly with the GIS.
Using your home for a reverse mortgage
Marques says to look at assets like a paid-off home. That can be used for a reverse mortgage where you could get up to 55 per cent of the value of the home, which is repaid when the home is sold.
“For individuals who are not as concerned about keeping that property in the family after they pass, then that’s a means of accessing equity,” she says. “It’s an option if you’re comfortable with doing a reverse mortgage and you don’t have to worry about interest while you’re taking the money.”
Another option, if you have a home, is to get creative, says Rubach, an adviser and president of Rubach Wealth in Toronto.
“If you own a house, get creative and rent a room, rent the garage, rent something,” she says. “It’s getting creative and proactive before catastrophe hits.”
If you don’t have a house, both Marques and Rubach say it can be harder to live off of CPP and OAS, especially in places with very high rent. An option is to move somewhere cheaper.
Leveraging a whole life insurance policy
Marques says a whole life insurance policy could provide additional retirement income. Permanent life insurance policies, which provide a death benefit to beneficiaries, can also build up cash values within them that you can borrow. That means you’ll have money during your lifetime that will be repaid when the policy is paid out on your death.
Moving back in with the kids
Marques has been seeing elderly parents moving in with their kids upon retirement, pitching in with the rent or other living expenses. All of this depends on whether everyone gets along.
When asked about public long-term care homes where the fees are lower than for-profit homes, both experts say it’s an option, though Rubach says government cuts could affect the services offered.
McCabe has run her numbers and feels confident she can live off CPP and OAS, having seen her parents do it. Her apartment is rent-controlled and she’s hoping to save up enough to put a down payment on a condo for $250,000 in the next year or two. She expects to pay it off before she retires at age 70.
“I’m hearing impaired, and hearing aids are expensive,” says McCabe. They cost anywhere from $1,000 to $4,000 per device, according to House of Hearing and AudioSense Canada. The majority of that cost is out-of-pocket.
“So you’re always behind an eight ball financially speaking, because there’s a lot of output for whatever disposable income you may have and were saving. So since I was 16, all I’ve been doing is essentially saving until the next crisis occurs.
“I am lucky to live in a city though,” she adds. “This is one of the reasons I don’t want to move if I don’t have to, because there are a lot of social services and community services for low-income people, including low-income seniors.”
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Is Canada Pension Plan enough? ›
Not everyone realizes CPP was not designed to replace all of your income when you retire. But that's the reality. So it's safer to think of CPP as a supplement that will pay for some basic needs, while your other retirement savings cover the rest.What is a good monthly retirement income Canada? ›
What is a good retirement income? A general rule of thumb is to replace 70-80% of your annual pre-retirement income. This means if you currently make $100,000 a year, you should aim for at least $70,000 of annual income in retirement.Can I collect Canada pension and Social Security? ›
A CPP/QPP pension may affect your U.S. benefit
If you qualify for Social Security benefits from the United States based only on U.S. credits and a CPP/QPP benefit from Canada, the amount of your U.S. benefit will be reduced.
If you have lived or worked in Canada and in another country, or you are the survivor of someone who has lived or worked in Canada and in another country, you may be eligible for pensions and benefits from Canada and/or from the other country because of a social security agreement.Can I collect CPP if I live in the US? ›
Because CPP is a "member contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit.How long do you have to live in Canada to get old age pension? ›
Generally, you can qualify for a full OAS pension (the maximum benefit amount) if you have lived in Canada for at least 40 years after the age of 18. In some situations you may qualify for a full OAS pension without having 40 years of residence.How long will $500 000 last in retirement in Canada? ›
The average retirement age in Canada is 65, estimating the $500,000 is to last you 25 years your yearly retirement income would be $20,000.How much do you need to live comfortably in Canada? ›
Cost of living in Canada for an individual
If you factor in common luxuries and the ability to save money after making each month's rent, you will probably need to pay at least an average of $2,771 monthly costs.
After running some math, I can conclude that the following, if achieved by most Canadians at or around age 50 is “enough” to spend $5,000 per month in retirement until age 95: x2 TFSAs = $150,000 each. x2 RRSPs = $400,000 each.Can a US citizen living in Canada collect Social Security? ›
If you are a U.S. citizen and qualify for Social Security retirement, family, survivor or disability benefits, you can receive your payments while living in most other countries. Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP The Magazine.
Can you collect old age pension if you live outside of Canada? ›
You can qualify to receive Old Age Security pension payments while living outside of Canada if one if these reasons applies to you: you lived in Canada for at least 20 years after turning 18. you lived and worked in a country that has a social security agreement with Canada.Is the Canada Pension Plan the same as U.S. Social Security? ›
The Canada Pension Plan (CPP) and the U.S. Social Security system are publicly provided mandatory old-age pension systems. They both provide retirement, disability, and survivor benefits. But the amount you pay in and the benefits you receive differ between the two.Do you lose Social Security benefits if you move to another country? ›
If you leave the U.S., we will stop your benefits the month after the sixth calendar month in a row that you are outside the country. You can make visits to the United States for specific periods of time, depending on how long you've been outside, to continue receiving your benefits.How long can you stay outside of Canada without losing benefits? ›
Your provincial or territorial health plan will cover only part, if any, of medical expenses outside Canada and will not pay up front. Furthermore, it will become invalid if you live elsewhere beyond a certain length of time – generally six to eight months, depending on your province or territory.Do you lose your pension if you move abroad? ›
As long as you've paid enough National Insurance, you can claim your State Pension while living abroad. The main difference is that if the State Pension increases, you may not benefit from the extra amount if you're living in certain countries.Is Canadian pension taxable for U.S. citizen? ›
By provision of the income tax treaty between the U.S. and Canada, benefits paid under the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) program to a U.S. resident are taxable, if at all, only in the United States.Does Canada accept American retirees? ›
Canada does not have a provision to issue a retirement visa to anyone. Canada is more affordable to live in than the US, where real estate and healthcare are costly. You don't have to apply for a visa to cross the border from the US to Canada.How long can Canadian citizens stay out of Canada? ›
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A pension you can receive if you are 65 years of age or older and have lived in Canada for at least 10 years - even if you have never worked.What benefits do seniors get in Canada? ›
- Canada Pension Plan. Monthly, taxable benefit that replaces part of your income when you retire.
- Guaranteed Income Supplement. Monthly payment available to low-income Old Age Security pensioners.
- Old Age Security. Monthly payment you can get if you are 65 and older.
Is 70 retirement age in Canada? ›
The standard age to start the pension is 65. However, you can start receiving it as early as age 60 or as late as age 70. If you start receiving your pension earlier, the monthly amount you'll receive will be smaller. If you decide to start later, you'll receive a larger monthly amount.How much does the average Canadian retire on? ›
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What is the average retirement income in Canada? The average retirement income in Canada currently sits at $65,300 per year, per household (before tax). That works out at $32,650 per person, if the household includes a couple.How much money does average Canadian have in the bank? ›
According to a report from Statistics Canada in 2018, the average net savings of a Canadian household is around $852. However, the topmost 20% of earners save around $41,393 per household.Is it cheaper to live in Canada or the US? ›
Overall, both Canada and the US are fairly expensive to live in. Canada has much higher housing costs but healthcare costs are much more expensive in the US. While US salaries are slightly higher, Canadians have a much easier time making a higher salary with less education.Is Health Care Free in Canada? ›
Canadian citizens and permanent residents are entitled to free public healthcare, while tourists and visitors are not. However, anyone in Canada can seek private healthcare.What is the cost of living in Canada vs US? ›
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Average Monthly Retirement Income
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
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Most visitors can stay for up to 6 months in Canada. If you're allowed to enter Canada, the border services officer may allow you to stay for less or more than 6 months.How many American citizens live in Canada? ›
US Citizens Living. in Canada. Over one million US citizens live in Canada. Canada's peaceful, liberal culture, coupled with the country's close physical proximity to the US, makes it an appealing home for US citizens.How long can you stay out of the country as a U.S. citizen? ›
Absences of more than 365 consecutive days
You must apply for a re-entry permit (Form I-131) before you leave the United States, or your permanent residence status will be considered abandoned. A re-entry permit enables you to be abroad for up to two years. Apply for a re-entry permit.
In actual fact, you can be absent from Canada as long as you want. The Canadian government recognizes that citizens may travel extensively, work or study abroad. You will always maintain your Canadian citizenship. What absentia may affect is your Canadian health care coverage and income tax.Can you live in another country and collect pension? ›
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|Type of pension or benefit||Average amount for new beneficiaries (January 2023)|
|Survivor's pension – younger than 65||$510.54|
|Survivor's pension – 65 and older||$331.34|
|Children of disabled CPP contributors||$281.72|
|Children of deceased CPP contributors||$281.72|
If you have Social Security credits in both the United States and Canada, you may be eligible for benefits from one or both countries. If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.Are U.S. citizens living abroad eligible for Social Security? ›
Most U.S. citizens can get Social Security benefits while visiting or living outside the U.S. Find out if you qualify.How do I get the $16728 Social Security bonus? ›
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Canadians can usually stay in the United States for a maximum of six months (about 182 days), during a 12-month period. The allowed time spent in the USA can occur during one trip or it could be the sum of several trips.
What happens to CPP if you leave Canada? ›
Because CPP is a "member contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit. OAS, on the other hand, comes out of the general tax revenues.How many months can a Canadian stay in the US? ›
Canadian visitors are generally granted a stay in the U.S. for up to six months at the time of entry. Requests to extend or adjust a stay must be made prior to expiry to the U.S. Citizenship and Immigration Service.Will my pension be frozen if I move abroad? ›
If you're in a personal or workplace pension scheme, moving abroad shouldn't have any effect: your pension should continue to be paid in full. you're normally entitled to any rises regardless of where you live in the world.How long can you go abroad on pension? ›
This may be extended up to eight weeks if the absence is caused by the death of your partner or child who is with you. If you're going abroad for medical treatment, you may be able to receive Pension Credit for up to 26 weeks. You can't keep receiving Pension Credit if you move abroad permanently.
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- Get Your Documents Ready. ...
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The average monthly amount paid for a new retirement pension (at age 65) in January 2023 is $811.21. Your situation will determine how much you'll receive up to the maximum. You can get an estimate of your monthly CPP retirement pension payments by signing in to your My Service Canada Account.Is it worth contributing to CPP after 65? ›
If you are 60 to 65 and working, you must continue making contributions. If you are 65 to 70 and working, you can choose whether you want to continue making contributions. If you do choose to continue contributing, you will receive a greater amount of CPP every month until you pass away.Why is CPP so high? ›
For next year, the earnings ceiling, known as the yearly maximum pensionable earnings or YMPE, was supposed to be $60,200, an increase of $1,500 from the 2020 limit. But the actual amount is going to be higher at $61,600. The reason is due to the pandemic's effects on the labour market and how the YMPE is calculated.Is pension enough for retirement? ›
A pension can supplement your retirement income, but it likely won't be enough to pay for all of your expenses. This means you'll probably want or need to supplement your pension with contributions to an IRA. A 401(k) could give you more money in retirement.What is the average pension payout per month? ›
Average Monthly Retirement Income
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month.
Are Canadian seniors getting extra money in 2023? ›
The Old Age Security (OAS) program—consisting of the OAS pension, the Guaranteed Income Supplement (GIS), and the Allowances—is Canada's largest federal program, forecasted to provide $75.9 billion in support to seniors in 2023-24.Is it better to retire in December or January in Canada? ›
Employees therefore often choose an early-January retirement date to ensure the payments are taxed in the lower income year. However, with a retirement date of Dec 30th, there is little (if any) chance that your various lump sum payments will be paid in the current year, when you think about it.Is taking CPP at 64 better than 65? ›
If you start before age 65, payments will decrease by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36% if you start at age 60. If you start after age 65, payments will increase by 0.7% each month (or by 8.4% per year), up to a maximum increase of 42% if you start at age 70 (or after).What benefits do you get when you turn 65 in Canada? ›
The Old Age Security (OAS) pension is a monthly payment you can get if you are 65 and older. In some cases, Service Canada will be able to automatically enroll you for the OAS pension. In other cases, you will have to apply for the Old Age Security pension.How much will CPP increase in 2023? ›
The maximum CPP payment in 2023 is $1,306.57 per month or $15,679 per year. This includes the maximum base CPP payment of $1,288.33 per month plus a maximum enhanced CPP payment of $18.24 per month. This maximum amount is payable at age 65 but most people will never reach this maximum.How do I maximize my CPP? ›
How much CPP will I get?
- How long you contributed.
- How much you contributed, based on your income.
- The age you decide to start receiving benefits.
- If you continue working after you start collecting CPP.
Indeed, the Office of the Chief Actuary of Canada projects the CPP Fund is sustainable for the next 75 years.Does CPP keep up with inflation? ›
2023 CPP rate increase
Line 3: In numeric terms, the average CPI for November 2021 to October 2022 is 149.7. This amount is then divided by the average CPI for November 2020 to October 2021, which equals 140.5.
The 50 – 70 rule is a quick estimate of how much you could spend during your retirement. It suggests that you should aim for an annual income that is between 50% and 70% of your working income.What is a decent retirement pension? ›
Generally, a good retirement income is about 75% to 85% of the pre-tax income earned in your last working year.
How much do most people retire with? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.