Don’t Delay Your Retirement: Your TFSA Can Match CPP’s Best Payout Today

Planning your retirement is a big challenge as you will no longer have an active source of income, and you do not want to outlive your investment. That’s where the Canada Pension Plan (CPP) payout plays an important role. Every year, the Canada Revenue Agency (CRA) adjusts the CPP payout for inflation and gives you a monthly fixed payout. You can start receiving the payout anytime between age 60 and 70. The CRA also offers Old Age Security (OAS) and Guaranteed Income Supplement (GIS) after 65.

Why claim CPP at age 60?

This answer depends on your financial and health conditions. It also depends on your tax situation. You should never look at the CPP payout amount in isolation.

For 2025, the maximum annual CPP payout is $11,005.44 if you claim it at age 60, $17,196 if you claim it at age 65, and $24,418 if you claim it at age 70.

From the amount, you might think that claiming CPP at age 60 might not be a good decision. But in some scenarios, you are better off claiming CPP at age 60:

• You don’t expect to live past 70.
• You need the money to pay bills.
• You have not made any CPP contributions since age 55.
• You are in a high-income bracket even after retirement, and your income will only compound.

The benefit of collecting CPP at age 60

After you turn 65, you will be eligible for OAS and GIS. For 2025, the maximum annual payment for OAS is $8,732.04 if your 2024 income is below $90,997. Those receiving OAS pension are eligible for a tax-free GIS of $13,042.56 annually if their income is below $22,056. The CRA will claw back 50 cents of GIS for every $1 income above the threshold. The CRA updates these numbers annually.

You could look at your income from other sources, add a rough estimate of the CPP payout, calculate the GIS and OAS payments after adjusting for clawback, and see your consolidated income in a year at ages 60, 65, and 70.

The above illustration will help you understand why you should not see CPP payments in isolation. I have assumed $12,000 in other income and maximum CPP payout.

At age 60, you will only get $23,005 a year. When you turn 65, GIS and OAS will begin, and you will be at a disadvantage of only $3,105 to the one who claims CPP at age 65. Your actual payout may differ from the illustration figure as the CPP, GIS, and OAS will grow. However, the gap will be similar. The illustration is only to help you understand how you can calculate the benefits you are eligible for and make informed decisions.

Use TFSA to maximize your pension

The GIS income threshold takes into consideration the taxable income. However, the Tax-Free Savings Account (TFSA) can give you tax-free passive income, which could protect you from GIS clawback. Suppose you earn $4,000 annually in TFSA passive income, it could compensate for the $3,105 earnings gap in the above illustration and also save on tax.

A $20,000 investment in CT REIT (TSX: CRT.UN) dividend-reinvestment plan could compound your dividends and earn you $4,200 in annual passive income. Like CPP, this dividend income will be inflation-adjusted as the REIT grows its dividends by 3% annually. You might wonder where you will get $20,000 to invest in TFSA. Low-income earners can prioritize TFSA contributions over RRSP contributions, as the latter’s withdrawals are taxable and can affect your GIS.

There are ways to earn $4,000 in TFSA passive income from lower investments. You could consider investing in growth stocks like Constellation Software or Shopify that can double your money in five years or less, cash out the profits, and invest in high-yield dividend stocks like Telus Corporation that grows its dividend by 7% and can compound returns with DRIP.