For a lot of older Canadians retirement starts with a simple hope that the Canada Pension Plan (CPP) and Old Age Security (OAS) will be enough to pay for their basic needs. But as the costs of housing, food, utilities, and health care keep going up, thousands are finding that these two pillars alone may not be enough.
This guide will show you how to safely and strategically fill the gap if you are mostly relying on CPP and OAS or are nearing retirement and are worried that those payments won’t be enough. We will explain who is eligible, how payments work, what the income limits are, and how to boost or add to your retirement income in real life.
What You Actually Get from CPP and OAS
Before talking about the income gap, it’s important to know how CPP and OAS work.
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The Canada Pension Plan (CPP)
People can pay into the Canada Pension Plan. The amount you get depends on:
- How long you worked
- How much money you made while you were working
- The age at which you start to collect
You can start CPP as early as 60 or as late as 70. If you take it early, your monthly amount will always be lower. If you wait, it will be higher.
You have to pay taxes on your CPP payments, which are made every month. The maximum benefit is higher than what most retirees get because it assumes that they will make the same maximum contributions throughout their entire career.
Old Age Security (OAS)
The Old Age Security is not the same as the CPP. It doesn’t depend on how much work you do, but on your age and where you live in Canada.
You must meet the following requirements to get OAS:
- Be at least 65 years old
- Have been a resident of Canada for at least 10 years after turning 18
To get full OAS, you usually have to live in Canada for 40 years. If you live there for less time, you only get partial benefits.
If your income is above a certain level, you will also have to pay taxes on your OAS and a recovery tax, which is also known as the clawback.
Why CPP and OAS Might Not Be Enough
Even when you put them together, CPP and OAS don’t always cover:
- Payments for rent or a mortgage
- Prices of groceries going up
- Taxes on property
- Medications that are prescribed
- Taking care of your home
- Payments for insurance
- Getting around
For many retirees, the average monthly income from CPP and OAS is much lower than what they need to live comfortably, especially in cities.
The problem gets worse with inflation. Both the CPP and the OAS are tied to inflation, but the cost of living can go up faster than changes in real-world spending categories like housing and health care.
Check to see if you qualify for more federal help.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement gives seniors with low incomes who get OAS extra money every month.
Who can apply depends on:
- Your yearly income
- If you are single, married, or widowed
If your spouse makes money, GIS is not taxable, which makes it especially useful for seniors who don’t have a lot of money.
You might be able to get GIS or a bigger amount if your income suddenly goes down, like when you lose a part-time job. Always file your tax return every year, because your eligibility is automatically checked based on how much money you report.
Survivor Benefits and Allowance
You may be able to get the Allowance if you are between 60 and 64 and your spouse gets GIS. People in that age group who are widowed may be able to get the Allowance for the Survivor.
These bridge benefits can help you make money until you turn 65 and can get full OAS benefits.
Find the best time to start CPP and OAS
Choosing the right start date is one of the most important but often overlooked ways to boost your retirement income over time.
Putting off CPP
If you can afford it, putting off CPP until age 70 will permanently raise your monthly payment. Every year you wait after 65 adds a big percentage to the amount.
For healthy people who have other savings, this can give them more money for the rest of their lives and better protection against the risk of living too long.
Delaying OAS
You can also wait until you’re 70 to get OAS. Your payment will go up permanently for every month you wait past 65.
If you keep working after 65 or have other sources of income, delaying may improve your long-term financial situation.
Working Part-Time After Retirement
For many older people, working part-time is not only a way to make money, but it also helps their mental and social health.
Even small amounts of money can:
- Cut down on your dependence on savings
- Postpone withdrawal from CPP
- Help keep people from taking money out of investments too soon.
But extra money can change whether or not you qualify for GIS. Before you take a job, figure out if the extra money will lower your other benefits.
Take money out of RRSPs and RRIFs in a smart way.
Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) can help fill in the gaps in your income.
Think about:
- Taking money out over several years
- Coordinating withdrawals to avoid OAS clawback
- Carefully planning the least amount of RRIF withdrawals
Planning tax-efficient withdrawals helps keep income and avoid cuts to benefits that aren’t necessary.
Downsize or unlock the value of your home
For people who own their own homes, their house is often their most valuable asset.
Some choices are:
- Moving to a smaller place
- Letting someone else live in part of your home
- Thinking about getting a reverse mortgage
- Selling and moving to a place where living is cheaper
You should think carefully about these choices because they are personal, but having equity in your home can give you a lot of financial freedom.
Cut Fixed Costs Smartly
Before you assume that your income isn’t enough, take a close look at your expenses.
Focus on:
- Getting a new loan to pay off high-interest debt
- Talking about insurance rates
- Looking over subscription services
- Filling out applications for property tax rebates
- Getting senior discounts
A lot of small cuts in different areas can make the income gap much smaller.
Learn about the OAS Clawback
Seniors with higher incomes should know about the OAS recovery tax.
OAS payments start to go down slowly if your net income for the year is higher than a certain amount. This can be handled by making smart tax plans, such as splitting income with a spouse.
Don’t make big RRSP withdrawals or investment gains in one year that would cause you to have to pay back money you don’t owe.
Look into programs at the provincial and local levels.
In addition to federal programs, provinces also offer:
- Grants for property taxes
- Rebates for energy
- Help with prescription drugs
- Help with transport costs
- Rent help
These programs are different in each province, but they can make a big difference in retirement income.
Think about how much money you make from investments.
For people who have savings in accounts that aren’t registered:
- Stocks that pay dividends
- Funds for conservative income
- GIC steps
- Annuities
These tools can help you predict your cash flow. You need to think carefully about your risk tolerance and investment timeline.
Don’t try to get high returns in retirement; it’s more important to protect your money than to grow it quickly.
Plan your money for health care and long-term care.
As people get older, their healthcare costs often go up.
Plan for:
- Costs of dental care
- Care for your vision
- Medications that need a prescription
- Services to help at home
- Choices for assisted living
Including healthcare in your retirement income plan lowers the chance of having to deal with sudden financial problems later.
An emergency fund is important even when you’re retired.
An emergency fund protects you from:
- Big repairs on the house
- Medical bills that you didn’t expect
- Emergencies in the family
Having easy-to-get savings means you don’t have to take on high-interest debt.
If you’re already having trouble
If you can’t pay your basic bills right now:
- Right away, check to see if you are eligible for GIS
- Call Service Canada to go over your benefits.
- Look into provincial help programs
- Talk to a financial planner who is certified.
- Get in touch with local groups that help people in need.
Not dealing with the problem lets debt build up. Taking action early keeps options open.
Planning for retirement ahead of time
If you’re getting close to retirement, figure out:
- Expected amount of CPP
- Expected amount of OAS
- Possible GIS eligibility
- Monthly costs that must be paid
Look at the difference between your guaranteed income and your required spending. If there is a gap, make changes early by:
- Putting more money away
- Longer work hours
- Cutting down on planned costs
- Paying off debt before you retire
It’s easier to deal with the gap the sooner you find it.
Key Points: CPP and OAS are the main sources of retirement income, but they were never meant to replace the full-time work earnings of most Canadians.
To bridge the gap, you need a mix of
- Making the most of government benefits
- Smart ways to take money out
- Managing expenses
- Extra money
- Planning for the long term
Retirement security doesn’t mean depending on just one payment. It’s about putting together different sources of income that work together.
If you’re worried that your CPP and OAS payments won’t be enough, you should start looking into your options right away. Making small changes today can help you avoid money problems in the future.
