Tag: CPP

“How Much do You Need to Retire”?

RobHLeave a comment

This was the title of a recent webinar I attended via PWL. You can watch it yourself over here: https://www.youtube.com/watch?v=pQl6n4zepys. I don’t think I learned a ton from it — the short answer? “It depends”. “On what?”, you may ask. Here’s some things that influence the answer to the question:

It depends on HOW you live.

Put another way, “what’s your budget in retirement1“? This is a question that many people don’t have an answer to. There’s a few buckets to think about, it’s not intended to be exhaustive:

  • Necessities: shelter (and associated maintenance) and utilities(heat, light, water, internet, streaming services, phone), food, clothing, exercise, transportation and associated insurance/maintenance2, taxes (municipal3, federal)
  • Medical expenses (drugs, dentists, optometrists, physiotherapy)
  • Entertainment (eating out, shows, memberships/user fees)
  • Travel (transport, housing, activities)
  • Charities

One thing you don’t have to worry about is setting aside money for an RRSP, since once you’re retired, that’s no longer a thing. But don’t neglect the need for a savings fund for unexpected larger expenses. We always keep a “house fund” that gets a monthly payment that we don’t touch for anything other than home renovations or repairs.

Your bank/credit card4 statements5 might be a good place to see what your typical spending looks like.

It depends on where you live

Live in Toronto? Vancouver? Yeah, that’s not cheap. But if you were willing to move to, say, Thailand or a low cost Canadian city, you might be able to spend a lot less on housing. But since most people aren’t willing to uproot, these costs are known, or can at least be reasonably estimated. And if you’re staying put, then will you downsize? When?

It depends on whether you have a pension outside of CPP/OAS

And I’d add, “and it depends if that pension is indexed to inflation”. (The CPP and OAS are, which is why they are great).

It depends on how long you’re going to live

Not predictable, obviously. The oft-cited “4% rule” of retirement assumes a 30 year retirement. That’s living until age 95 if you retire at the “usual” age of 65. When I engaged a financial advisor in the lead-up to retirement, the charts stopped at age 95 as well.

It depends on whether you want to leave an estate to your beneficiaries

Want to die with nothing6? Then you need less money than if you want to leave assets behind. It’s a pretty fundamental question. And if you want to leave assets behind, then how much? And to who? (You do have an up to date will, right?)

It depends on what your CPP and OAS payments are likely to look like

CPP is dependent on how long you’ve been contributing to the plan, up to a maximum that is published annually7. You can take CPP as early as age 60, and as late as age 70, with penalities/bonuses accumulating every month. CPP needs to be applied for before the cheques start rolling in.

OAS is dependent on how long you’ve lived in the country. If you’ve lived here for 40 years or more, then you qualify for the maximum payment of $742.31 at age 65 and automatically starts at age 658 (for most people) unless you specifically ask for it to be deferred.

It depends on how much income you’re intending to make in retirement

The CPP isn’t designed to pay a living wage9. For this reason, many people “ease” into retirement by working part-time or on short-term contracts. This income impacts the answer to the original question — obviously, if you are earning money, then the retirement nest egg can be smaller.

It depends on what your retirement assets are invested in

This, in my view, is frequently overlooked. The fact is that retirement can be quite long, and assets invested in a retirement portfolio still have growth potential. My retirement assets are 80% equities, 15% bonds, 5% cash. This provides me with more growth potential at the risk of having to weather periods of market volatility. I’m comfortable with that degree of risk, but others may not be. Having a lower exposure to equities means your nest egg needs to be bigger.

It depends on future inflation

Inflation can fluctuate a lot over the course of retirement. Take the last 30 years as an example:

CPI for last 30 years, courtesy StatsCan (https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpilg-ipcgl-eng.htm)

Inflation is really the biggest concern in my retirement since most of my current income is not inflation-protected10.

My approach? Knowledge and a willingness to be flexible

What kind of knowledge?

  • I had a sense of what my budget desires were
  • I knew my retirement portfolio was going to stay 80% equities
  • I knew I had no pensions outside of CPP/OAS. With advice from my advisor, this lead to the current plan to defer these pensions to age 70 so I can maximize my inflation-protected income.
  • My advisor advised me that I had enough saved up that I could retire

But I gained additional, non-data-driven knowledge:

  • no realistic plan lasts 30 years11
  • that market returns are highly variable12, that inflation is highly variable, that my personal spending budget is highly variable
  • that I have always, always, always, adapted to life changes (income, expenses) by either being looser or tighter with money.

The decumulation strategy I use (VPW, Variable Percentage Withdrawal, talked about here) is deceptively simple, but requires you to be flexible, as your monthly calculated salary is based on your net worth. My salary has generally ticked upwards in the past 12 months, but it could just as easily turn in the other direction in the event of a sustained market downturn. I’ve decided I can live with that. And if you want to see a much longer test in action, check out longinvest’s VPW forward test at https://tinyurl.com/vpwForwardTest.

My final thoughts: be suspicious of a specific answer to “how much do you need to retire”? It depends on so many factors, including your own propensity to adapt to changing conditions, that a simple answer doesn’t seem possible — or reasonable.

  1. And does it change over time? I expect my budget needs are higher now than they will be in the future, when presumably I’m less able/willing to travel. ↩︎
  2. If you own a car ↩︎
  3. If you own a house ↩︎
  4. A lot of my spending takes place using my credit card so I can collect the free money offered. ↩︎
  5. A bit crude, but once in a while it flags something for me: https://www.cibc.com/en/personal-banking/ways-to-bank/mobile-services/insights.html ↩︎
  6. Doing this with 100% accuracy would imply you know the date of your own demise, so probably not a realistic objective ↩︎
  7. And is currently $1507.65/month if you’re 65 this year. ↩︎
  8. This one thing I did learn from the PWL webinar: that for most of us, unless you take action, the OAS will start when you turn 65. ↩︎
  9. Per the CPP website (emphasis mine): “The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of your income when you retire” ↩︎
  10. Owning equities is a sort of imperfect inflation hedge since equity prices, like all prices, are influenced by it. ↩︎
  11. I’m reminded of the famous quote by Mike Tyson: “Everyone has a plan until they get punched in the mouth” ↩︎
  12. One year after paying for my retirement plan that informed me I was still three years from retirement, I retired. Why? My retirement savings had blown past “the number” I was advised to hit. And, after a year of retirement, my net worth is 10% higher than when I started retirement. The market sometimes works in your favour. ↩︎

CPP and OAS as part of a retirement plan

RobHLeave a comment

One of the confusing questions I got from my international colleagues when I announced my retirement was “what’s the retirement age in Canada”? And, after thinking about it, said, “There isn’t one that I know of”, which is, strictly speaking, correct.

However, for many Canadians (and, I suppose, for many people around the world), “retirement age” equates to “the age where I can collect my pension”. For me, the equivalent statement was “the time when my retirement savings were sufficient1” (you can read about the steps I took here). I don’t have a private pension through my employer, so CPP, OAS and my own savings are all I have to sustain my needs throughout retirement.

CPP (Canadian Pension Plan) and (possibly2) OAS (Old Age Supplement) are two sources of income that will eventually make up part of my retirement income, but not for a while. For the time being, my retirement income comes from a mix of non-registered asset sales (about 2/3 of my 2025 household income) and RRIF payments (about 1/3 of my 2025 household income)3. My advisor suggested waiting as long as possible to collect on CPP/OAS, which is age 70 for both.

But maybe, if you haven’t retired yet, you haven’t really thought too much about these things4? Here’s a quick primer.

What’s CPP and what’s it worth to me?

CPP applies to anybody who has contributed to the plan; how much you contribute annually is captured on your T4 slips. You can see your lifetime contributions5 by logging into your My Service Canada Account. It is the history of these contributions6 that ultimately determine what your annual pension will be in the year you first start taking it.

The first year you are eligible to receive CPP is the year you turn 607; every month you wait after turning 60 increases your monthly payment. The absolute maximum CPP you could collect would be waiting until you turn 708. The Feds lay it all out here.

The absolute maximum monthly CPP you could possibly get as a 65 year old is $1507.65 in January 2026 per the Feds9. Since I retired early, and 18 year-old me worked a part-time minimum wage job, my CPP will be less than that. (The CPP calculation takes your best 32 years of earnings into account).

What’s OAS and what is it worth to me?

OAS (“Old Age Security”) applies to anybody who has lived in the country long enough10. OAS can start at age 65, and be delayed until as late as age 70. Like CPP, OAS rewards those who start payments later than age 6511. You get an OAS supplement of 10% when you hit 75.

The absolute maximum monthly OAS payment in the first quarter of 2026 is $742.31 if you’re under 75 and $816.5412 if you’re over per the Feds. (These amounts are adjusted every quarter in accordance with inflation rates.)

The wrinkle with OAS is that it’s income-tested. If you make too much money, you’re going to have to pay some of it back. If you really make too much money, you’ll have to give it all back. This is commonly known as “OAS Clawback”13.

The magic of CPP and OAS

CPP and OAS payments are both indexed to inflation, for as long as you collect it. This is key for me personally — none of my other income sources are inflation-proof, so the more I can get that is inflation-protected, the better. That’s part of the reason I’m planning on delaying collecting CPP and OAS until I’m 70 — that way, I can maximize the inflation-protected income. The other reason I’m delaying these payments is to try to avoid OAS clawback. The earlier I take RRIF money out, the lower my RRIF income will be later in retirement, when I have to start adding CPP to my income. I have no idea if I will avoid the clawback because it depends on the performance of specific elements of my portfolio. But try I will.

Estimating CPP and OAS for VPW

My decumulation strategy is based on VPW (Variable Percentage Withdrawal). I’ve talked about it previously over here and here. VPW requires, as an input, the value of a future pension. So how do I go about estimating that? Any reasonable estimate might want to ignore what the feds put on the periodic CPP summaries they send out because those estimates are assuming you’re retiring at 65, and working at a similar salary level (of course, if that’s your plan, then it’s perfectly fine — but it wasn’t mine :-))

All good estimates start from the lifetime contributions table you can find at My Service Canada. From there I’ve given a few tools a spin:

PWL Capital Tool

https://research-tools.pwlcapital.com/research/cpp

This tool has a lot of neat features, but be careful. The model bakes in both inflation estimates and wage inflation estimates that are changeable, but not immediately obvious.

CPP Calculator

https://www.cppcalculator.com/

This is one I recommended previously in Tools I Use, but the upload feature has been broken for a while now. It still works by entering it manually, but I now prefer the tool below….

Finiki CPP and QPP Calculator

https://www.finiki.org/wiki/CPP_and_QPP_calculator

The Finiki tool is now my favourite because it’s available as a worksheet (Google Sheets, Excel and Libre Office all supported), and all you need to do is enter in your pension contributions. The current version (2.3) hasn’t been updated with the latest YMPE values, but it’s a trivial exercise to update them.

  1. “sufficient” means different things for different people. You have to have a budget, and you have to have an idea what sort of estate, if any, you’re intending to leave behind. ↩︎
  2. I figure my odds are 50/50 that my combined CPP+RRIF income when I hit 70 will render me ineligible for OAS. ↩︎
  3. I am not planning on actually working for a living anymore; there are all kinds of rules concerning the interplay of CPP and employment income, but I’m not talking about them here because that scenario doesn’t apply to me. ↩︎
  4. Or, if you were a cynic like me, figured that it wouldn’t exist by the time I got to an age where I’d be collecting it. Seems like the pension plan is currently in pretty good shape. ↩︎
  5. Starting at age 18. ↩︎
  6. Mostly. If you took a leave from employment to raise a family, there is special treatment which could increase your pension. ↩︎
  7. You get 36% less of a monthly payout by starting at age 60 compared to age 65. ↩︎
  8. You get 42% more monthly compared to age 65. ↩︎
  9. You would have to be at maximum pensionable earnings for 39 years between the ages of 18 and 65 to get this amount. (47 years less the 8 worst years of earnings). ↩︎
  10. OAS can be estimated by using the Canada.ca calculator which is down at the moment: ↩︎
  11. Details at https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/when-start.html ↩︎
  12. Which, if you’ve been paying attention, is 10% more than the benefit for someone under age 75. ↩︎
  13. OAS is progressively reduced if you make more than $95k in 2026. You get no OAS at all if you make more than ~$155k at ages 65-74, $160.5k for ages 75+. These numbers are modified 4 times a year based on inflation. ↩︎

Significant birthdays for the DIY Investor

RobHLeave a comment

There are significant birthdays every DIY investor should be aware of. Did you know about all of them?

The list below is a gross simplification — like all things in the Canadian Tax code, the exceptions and caveats fill many pages, but this is roughly correct. I’ve included links so you can read the relevant sections yourself and see if you agree with my simplifications!

The day of your child’s birth

Per the feds, a birth certificate for your child is all you need to apply for a Social Insurance Number. And although their working days are far into the future, their RESP eligibility starts right away — but you can’t open an RESP for a child unless that child has a SIN. The lifetime limit for donations to an RESP is currently set at $50k/child. The sooner those contributions start, the sooner you can collect free money (the CESG, $500/year, $7200 per child lifetime), and the longer your contributions can benefit from the power of compounding.

Your 18th birthday

This is significant one for a number of reasons!

TFSA

Once you turn 181, you can open a TFSA and begin contributing. Even if you don’t start contributing, your TFSA limit starts to accumulate the year you turn 18. In 2025, that annual limit is $7000 per year, and it grows at the rate of inflation2. It’s cumulative, so it’s not a “use it now or lose it forever” kind of proposition. At the start of every calendar year, there are a flurry of announcements indicating the new annual limit.

You can contribute to your TFSA forever, even in retirement. I am!

CPP contributions kick in

If you’re over 18 and earn more than $3500 a year, you’ll have to pay CPP contributions. While current you may balk at this sort of reduction in your take-home pay, future you will appreciate the inflation-index adjusted salary you can collect later in life.

FHSA

You can open a First Home Savings Account on your 18th birthday…or maybe your 19th birthday3. And the year you open it, you add $8000 in eligible contribution room…which continues every year, to a maximum of $40000.

Your 19th birthday

The so-called “age of majority4” in Ontario allows you to roll in free money in the forms of GST credits, Trillium benefits5 (in Ontario) and carbon tax credits6 . The cost of admission is filing a tax return. No excuses — plenty of online providers offer free returns for “simple” returns and my friends at Wealthsimple offer “pay what you want” tax filing.

This is also a time you are eligible to open an RRSP7, which may make sense if you’re already maxing out your TFSA contributions.

Your 35th birthday (or later)

An RESP can only be open for 35 years.

Your 60th birthday

This is the first year you can choose to collect CPP; generally speaking, most experts recommend that you delay collecting CPP for as long as possible, for two reasons:

  • It may be the only inflation-protected income you have (this applies to me, I have no other pension)
  • You get more money the longer you wait. (you lose 0.6% of payment for every month you start before your 65th birthday. That adds up to a reduction of 36% if you start on the day you turn 60).

My tools page includes the very helpful CPP calculator, which can help you make a decision concerning your CPP start date.

Your 65th birthday

This is the first year you can choose to collect OAS. Experts are a little more split on whether or not to delay this one — the benefits to delaying to age 70 are not as strong as for CPP8. My plan is to delay, as it’s another inflation-adjusted benefit.

If you’re collecting any sort of pension (RRIF payments, CPP, employer pension) this is the first age at which you can split that income with your spouse. This can reduce your tax bill.

Your 70th birthday

You have to start taking CPP and OAS by this time.

Your 71st birthday

You can no longer contribute to an RRSP and you have to open a RRIF. Lots of the literature out there seems to imply that this is the ONLY time you can open a RRIF, but rest assured, there’s no minimum age for opening a RRIF — I’ve been collecting from mine since the start of the year 🙂

Your 85th birthday

This is the last year you can start collecting from an ALDA (advanced life deferred annuity) you have set up. The ALDA is a vehicle I just learned about, and need to do a bit more research. It may be a way to fund income in your later years when the complexity of managing withdrawals in a DIY fashion may be too cognitively overwhelming.

What birthdays are you thinking about? Let me know at comments@moneyengineer.ca.

  1. Or possibly 19, depending on where you live. ↩︎
  2. But only in increments of $500. Even though inflation is drifting back down to more usual levels, doing the math indicates that we should expect more frequent increases in the TFSA limits in the years to come. Adding $500 to a $7000 limit (a 7% bump)is a lot easier than adding $500 to a $5000 limit (a 10% bump) ↩︎
  3. Per https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/opening-your-fhsas.html “certain provinces and territories, the legal age at which an individual can enter into a contract (which includes opening an FHSA) is 19 years old” ↩︎
  4. This language is so opaque, it’s like a parody of government speak. Or maybe it’s a commentary on the aging demographic of Ontario? ↩︎
  5. Some of the benefits even kick in earlier ↩︎
  6. A limited time offer, presumably ↩︎
  7. Per CRA, there is NO minimum age at which you can open an RRSP. Contributing to an RRSP requires that you enter into a contract (meaning you have to be of an age that permits this, either 18 or 19) and you have to earn money. ↩︎
  8. It’s still 0.6% per month of delay, or 36% over 5 years. That’s pretty good RoI, in my view. ↩︎