How Canada Pension Plan and Old Age Security Fit Into Your Retirement Savings

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Canada Pension Plan

If you work in Canada, you are already contributing to your retirement savings through the Canada Pension Plan. The government of Canada takes 4.95% of your pay and your employer matches this amount. The money is invested for you. When you retire, you are entitled to receive a monthly payment from the plan, indexed for inflation until you die.

The amount of your Canada pension will depend on how many years you worked between the ages of 18 and 65 and what your yearly income was during this 47 year period. As an example, if you earned at least $53,000 in 39 of the 47 years between your 18th and 65th birthday, you will earn the maximum pension payment of roughly $12,000/year.

If you earn less than $53,000 or work less than 39 years between your 18th and 65th birthdays, your pension will be smaller. You can contact Service Canada to get an idea of what you will be entitled to when you reach 65. You can increase your pension if you wait until 67 or 70 years old to receive it, or conversely, you can start collecting a reduced pension at age 60.

Old Age Security

Every Canadian is entitled to Old Age Security, whether or not you have ever worked in Canada. The yearly payment is roughly $6500/year indexed for inflation. Currently, you can start collecting OAS at age 65. In the next few years, the age of eligibility may increase to age 67. For high income seniors, there are OAS claw backs if they earn more than $72,000 a year.

So combined, CPP and OAS can mean a retirement pension of up to $18,500 per person or $37,000 for a couple who earned $110,000/year in 39 of their working years.

This is a considerable amount of money and goes a long way in explaining why many Canadians can enjoy a good retirement by saving 6-10% of their income instead of the conventional 15% advocated by the financial services industry.

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