In a recent article, I estimated the average Canada Pension Plan (CPP) benefit at age 60 in 2024. I came up with the estimate by taking the average amount for new recipients at age 65 and using the CPP formula to determine what that would translate to for new recipients at age 60. Both the data for 65-year-old recipients and the formula were publicly available on government sources when I wrote the article.
Using the government’s $831 per month average for new 65-year-old recipients, plus the “7.2% lower for each year before 65” formula, I worked out that the average Canadian taking benefits at 60 earns $531 per month. I figured that was close to the true average for a Canadian taking CPP at 60, but I also saw a potential flaw in my approach: it assumed that the average Canadian taking benefits at 60 was identical to the average Canadian taking benefits at 65. If the two groups were different in ways other than the age at which they first received benefits, then my estimate could be wrong.
So, I started looking for other ways to estimate the average CPP benefit at age 60 in 2024. Eventually, I found one: an online calculator published by The Globe and Mail. Using this calculator and some estimates that reflect Canadian population averages, I came up with the following estimate.
$532
The Globe and Mail‘s calculator showed a $6,383 annual estimate of newly taken CPP benefits at age 60. That’s $532 per month. Some inputs I entered into The Globe and Mail’s calculator included the following:
- The hypothetical beneficiary is 60 years old today.
- They take benefits this year.
- They earn 61% of the maximum pensionable amount.
- They face a 2.5% inflation rate.
- They plan to earn 8% per year.
I looked at various online data sources to determine that “61%” is about the average percentage of the maximum Canadians pay into CPP. Specifically, I got this from dividing the average CPP at age 65 ($831) by the maximum CPP at 65 ($1,364) and assuming the same percentage is paid by someone taking CPP at 60.
Another approach I took was the average Canadian salary ($63,000) as a percentage of the maximum pensionable amount ($68,500), or 92%. That produced an estimate of $828 per month, which seemed unlikely to be accurate, as it was nearly identical to the federal government’s estimate for someone taking CPP at age 65. So, I went with with the lower one.
How to supplement your CPP
As you can see, my estimate of average CPP at 60 using The Globe and Mail’s calculator is nearly identical to the one I worked out using my previous method. This strengthens my conviction that the average Canadian taking CPP at 60 earns somewhere between $530 and $535 per month. If you want more retirement income than that, you can consider investing your savings in a Registered Retirement Savings Plan (RRSP). Dividend stocks tend to be good assets for RRSPs because they pay regular cash income.
Royal Bank of Canada (TSX:RY) stock is a good example to work with here because it has both dividends and the potential for capital gains. RY’s yield is 4.05%, which means that a $100,000 position in the stock pays out $4,050 per year. You could pay up to a 48% tax on that if your tax rate is 50% (the dividend tax credit reduces the actual tax a little; there are provincial credits that reduce it further, but I’ll ignore those for the sake of simplicity).
By holding your RY stock in an RRSP, you pay no tax until you retire, nor will you pay a capital gains tax. So, let’s say you realize a 10% gain on your RY stock in addition to your 4.05% dividend. That’s a 14.5% total return, and none of it is taxable this year. If you’re 60, you can keep on deferring the withdrawal of funds for another 11 years! In the end, you can end up as a 71-year-old receiving a hefty Registered Retirement Income Fund pension that dwarfs your CPP income.
