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Understanding CPP and OAS: Maximizing benefits for retirees

Should you take CPP early? OAS late? And what about RRSPs? Here’s what you need to know
Aquiles Rosales, Investment Advisor, Credential Securities, Prospera Insurance Agencies in Agassiz. Prospera Credit Union photo

You’ve likely heard about CPP and OAS throughout your adult life, but what are they? And more importantly, what do they mean to your retirement planning?

While both offer opportunities for retirement income, they behave very differently depending on your unique situation, explains Aquiles Rosales, Investment Advisor, Credential Securities, Prospera Insurance Agencies Inc. in Agassiz.

CPP, or the Canadian Pension Plan, is a benefit people receive after paying into it during their years working in Canada. How much you receive in retirement will be determined by how much you paid into it, and when you begin taking the pension. The maximum is currently $1,300 monthly, but few people qualify for the maximum, Rosales says, noting that $811.12 is the average monthly payment across Canada.

OAS, or Old Age Security, is a guaranteed income supplement for those age 65 and older. To qualify, you simply need to have lived in Canada for 40 years since the age of majority (18 years old).

While the amount you receive for CPP isn’t tied to your retirement income, OAS is: If you earn more than the threshold amount (currently $86,912/year), your OAS payments are reduced. The maximum is currently $698.60 monthly. One important note for planning purposes is that money removed from a Tax-Free Savings Account is not considered income, so will not affect OAS.

READ MORE: 3 ways to use a TFSA in retirement

What happens if you take the pensions early? Or late?

  • CPP – As you near retirement age, it can be tempting to dip into CPP earnings (as early as age 60), but doing so will have longiterm implications. For every month early you draw CPP, the amount is reduced by o.6 per cent. That means that drawing CPP one year early will drop your monthly pension by 7.2 per cent through the course of your retirement; if you begin taking it at age 60 – five years early – it drops by 36 per cent. Put another way, if you would receive the Canadian average of $811.21 monthly at age 65, drawing CPP at age 60 would reduce that to $519. “And that’s a decrease that will affect you the rest of your life,” Rosales notes.

    Conversely, every month you delay collecting CPP nets you 0.7 per cent more to a maximum of 42 per cent by age 70, at which point (based on the Canadian average) you’d receive $1,151.91.

  • OAS – The earliest you can begin collecting OAS is at age 65, but you can defer it to age 70, which can have benefits, depending on your situation, especially if you’re still working part-time or have other investments to draw upon first.

With all these variables in mind, it’s essential to work with your financial advisor to create a strategy unique to your situation, taking into consideration factors like additional pensions, RRSPs, Tax-Free Savings Accounts and other sources of income, in addition to retirement plans, family situation and health, for example.

For those wanting to minimize their tax burden, it could make sense to defer CPP and OAS, and instead access RRSPs – taxable when you withdraw, based on your income. And, because most people have RRSPs invested in mutual funds, which can be a risker investment at a time when most people reduce risk, it can make sense to reduce the riskier option and increase what you’ll receive later in guaranteed government earnings.

“Having that conversation with your financial advisor is so important,” Rosales says. “So many things can affect your retirement and you don’t want to make a decision without being duly informed.”

For a free, one-on-one investment review, Rosales invites you to drop by the Agassiz Prospera branch from 9:30 a.m. to 5 p.m. weekdays, or Saturdays until 3 p.m., or email

Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Prospera Insurance Agencies Ltd. provides life, disability, and critical illness insurance, annuities, and full business solutions such as group benefit plans, succession planning, and business owner insurance.