CPP vs. OAS: Which Should You Prioritize in 2024?

OAS and CPP payments can be enormously helpful in retirement, but which should Canadians prioritize in 2024? Let’s take a deep dive.

| More on:
retirees and finances

Image source: Getty Images

The Canada Pension Plan (CPP) and Old Age Security (OAS) are both strong programs for retirees. Yet we all only have so much cash on hand. So, when it comes to these programs, there are certainly benefits and pitfalls for each. That’s why today we’re going to consider both for Canadian investors who can then use the information and base it on their own scenario.

CPP

First, let’s go over the upsides and downsides of CPP by getting into the nitty-gritty details. To qualify for CPP, you must have worked and made contributions to the plan. Both employees and employers contribute to CPP, with self-employed individuals paying both portions. For 2023, the contribution rate is 5.95% of earnings for employees, up to the maximum pensionable earnings of $66,600, resulting in a total contribution limit of $3,754.45 per individual.

The average monthly CPP benefit in 2023 is $717.15, while the maximum monthly benefit is $1,306.57. CPP benefits increase annually based on the Consumer Price Index (CPI). You can start receiving CPP benefits as early as age 60, although the amount will be reduced. Conversely, delaying benefits until age 70 can result in a higher monthly payout. CPP benefits are considered taxable income, so you will need to factor this into your overall tax planning.

OAS

Now, let’s get into the details surrounding OAS payments. To be eligible for OAS, you must be 65 or older and have lived in Canada for at least 10 years since turning 18. Full benefits require 40 years of residency after age 18, but partial benefits are available with fewer years of residency.

The basic monthly OAS benefit in 2023 is $691.00. Additionally, low-income seniors may qualify for the Guaranteed Income Supplement (GIS). However, OAS benefits are subject to a clawback if your net income exceeds $86,912 as of 2023, with benefits completely phased out at around $141,917 as of 2023. OAS benefits are also taxable income. If you have a high retirement income, you might face OAS clawbacks, reducing your benefits.

Considerations

So, now that we know the details, let’s go over the key considerations for Canadian investors. You can start receiving CPP benefits as early as 60, with a reduction, or delay until 70, with an increase. Your decision should depend on your financial needs and life expectancy. OAS benefits typically start at 65, but you can delay them to increase the monthly benefit by 0.6% for each month you delay past 65, up to 36% at age 70.

If you have contributed significantly to CPP and want to maximize your retirement income, delaying CPP might be beneficial. For OAS, consider the residency requirements and the potential impact of OAS clawbacks if you expect a higher income during retirement.

Furthermore, since CPP benefits are fully taxable, consider your overall income and tax bracket when deciding when to start benefits. For OAS, plan for potential OAS clawbacks if your retirement income exceeds the threshold.

There are also health considerations. If you expect a longer life expectancy, delaying CPP can result in higher lifetime benefits. Similar considerations apply to OAS, but the OAS clawback might be a more significant factor if you have substantial other income sources.

Make it more 

Investors can strategically use both OAS and CPP benefits to increase their investments in retirement by implementing investing. And in this case the best stock to consider is Royal Bank of Canada (TSX:RY). Royal Bank of Canada is the largest bank in Canada by market capitalization and one of the largest in the world. It offers a wide range of financial services, including personal and commercial banking, wealth management, insurance, investor services, and capital markets products.

What’s more, it has a long history of paying and increasing dividends. As of 2023, it has a dividend yield of around 4-5%, making it an attractive option for income-seeking retirees. RBC consistently reports strong financial results, driven by its diverse business model and robust revenue streams.

Plus, it is actively expanding its presence in the United States and other key markets, which can drive future growth. Altogether, it’s a strong investment to increase your CPP and OAS payments even more.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Royal Bank Of Canada. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Retirement

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Retirement

RRSP Investors: Buy These Top Dividend Stocks for Total Returns

These dividend stocks still look cheap.

Read more »

financial freedom sign
Retirement

Want $1 Million in Retirement? Invest $10,000 in These 3 Stocks and Wait a Decade

What would it take to convert $10,000 into $1 million? Let’s do the math and see stocks that have the…

Read more »

edit Balloon shaped as a heart
Retirement

3 Stocks Retirees Should Absolutely Love

These three dividend stocks are perfect for retirees wanting not just income, but growth in shares for the foreseeable future.

Read more »

Close up of an egg in a nest of twigs on grass with RRSP written on it symbolizing a RRSP contribution.
Dividend Stocks

2 Top Canadian Dividend Stocks for RRSP Investors 

No matter how much you save, you may wonder if it is enough to retire. These dividend stocks can give…

Read more »

Increasing yield
Retirement

3 High-Yield Dividend Stocks for Retirees

Top TSX dividend stocks are on sale.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Retirement

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

Here's why Chartwell Retirement Residences (TSX:CSH.UN) could be a successful turnaround story to invest in as Canadian grow older

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Retirement

Retirees: What Is the CPP Enhancement and How Does it Work?

The CPP enhancement will increase your pension payout in retirement. But you still need other income sources to supplement the…

Read more »

Path to retirement
Retirement

Invest in These TFSA Stocks to Sail Into a Serene Retirement

Is your TFSA set for safety or growth? Having these solid TFSA stocks provides a blend of both.

Read more »