Tag Archives: OAS

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An OAS and CPP Primer, understanding sources of government retirement income

An OAS and CPP Primer

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Understanding Government Sources of Retirement Income in Canada

The majority of Canadians spend their lives drawing income from one main source or employer during employment years. Retirement income, however, requires careful planning since we can no longer depend on one main source for our income.

Old Age Security (OAS) and Canada Pension Plan (CPP) are the two sources of retirement benefits that come from the Government of Canada. Both are significant components of your retirement income plan.

Old Age Security

  • Your monthly OAS benefit payment is based on your individual income (not household income), and you do not pay into it directly
  • You may still collect this benefit even if you’ve never worked or are still working
  • Monthly benefit payments are available to seniors age 65 and up
  • You can apply for OAS as early as 11 months before you want your benefits to commence
  • If you don’t meet the full criteria, you may still be eligible to receive a partial pension
  • You may defer receiving OAS benefits up to 5 years after you become eligible to get a higher monthly amount
  • There are no survivor benefits
  • Eligible seniors are automatically enrolled and do not need to apply for this benefit
  • This benefit is fully taxable
  • Visit https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html for more information on OAS Payment Amounts

Canada Pension Plan

  • Your monthly CPP benefit payment depends on the level of contributions made by you and your employer during your employment
  • You may choose to receive your full benefit at age 65
  • You may receive your benefit as early as age 60 with a deduction
  • You may postpone your benefit payments until the age of 70 to receive an increase in your monthly payment
  • Upon death, a lump sum is paid to your estate, up to a maximum of $2500
  • You must apply for this benefit, it does not commence automatically
  • This benefit is taxable income
  • Visit https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html for more information on Canada Pension Payment Amounts

Old Age Security and Canada Pension Plan are just two of several possible retirement income sources. Contact Brooks Financial today to get started on creating a retirement income plan that will minimize your tax payments and maximize your income during your retirement.

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Phil’s Learning Curve – Canada Pension Plan

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– Our national public pension plan is the Canada Pension Plan (CPP) which covers everyone except residents in Quebec which, when the CPP was created in 1966 fought and won the right to create it’s own program.

– Thinking about retirement, in a couple years or more? Everyone should know a few basics about pension plans. Public or private they’re important to understand when planning for retirement. I’ll share what I’ve found out about public plans here then go over private pensions in a following blog.

– We also have two national income support programs “Old Age Security” and Guaranteed Income Supplement”. These by definition are not pensions and I’ll talk about them in another post.

– When the CPP was created the contribution rate was set at 1.8% of our “pensionable earnings” shared equally between employees and employers. Today that contribution rate is 9.9% so in 2011 for example, pensionable earnings were between $3500 and $48,300 a year. At the maximum rate you and your employer each paid $2,217.60 to the plan. (If you were self-employed you paid both employer and employee shares –  $4,435.20) This contribution amount increases every year because of indexing.

– You can start drawing benefits on the CPP at age 60 or as late as 70 years of age. The longer you delay taking payments the higher the month payment. Indexed to inflation your payments will increase every year.

– In 2011 the maximum benefit for a 65 yr old was $960/month ($11,520/yr). Most Canadians though don’t qualify for the maximum benefit as for some or all of their working lives their income was below the “pensionable earning” ceiling or they didn’t contribute for enough years. (Stay at home parents often don’t contribute while raising families for example.) The average monthly payment in 2011 was $512.38 ($6,148.56/yr). So CPP will replace only a small portion of a working person’s income on retirement, about 24% of the Maximum pensionable earning. If you earned more say $70,000 CPP would only replace 16% of the income lost on retirement.

– While your CPP benefits can begin at age 60 they are “penalized”, in 2012 it was a 31% reduction. (.52%/month prior to reaching age 65) Conversely if you postpone taking benefits your months benefit increases, in 2012 it was by .64% for every month you delay after reaching 65. So if you waited to age seventy (60 months) your CPP income would be increased by 38.4%.

– Apply those numbers to a 2011 retirees at age 60 would receive $614.40 a month ($7,372.80/yr), a 70 yr old retiree applying would receive $1,363.20 a month ($16,358.40/yr) double the benefits by waiting.

– There’s lots of other “wrinkles” built into the CPP and ways in which it can affect your retirement income, both good and bad depending on your individual and family circumstances.  See a Certified Financial Planner, start sooner than later and monitor your plan’s progress regularly. Your most important asset is good retirement income planning.

  My name is Phil and I’m a 59 year old professional who represents a pretty average Canadian worker thinking about retirement. I’ll be the first to say that “I don’t know much, but I am willing to learn”. Follow my posts here as I start the process of becoming “financially literate!”



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