If you’ve ever caught yourself thinking about retirement, you’re not alone. For many Canadians, financial stability after leaving the workforce depends on more than just personal savings. The Canada Pension Plan (CPP) and Old Age Security (OAS) are key components of retirement income — and understanding them early can make a big difference in how well-prepared you are.
The True Cost of Retirement
Retirement doesn’t automatically begin the day you turn 65. While many people imagine a life of freedom and travel, the reality is that expenses don’t disappear when you stop working. You’ll still need to pay for housing, groceries, utilities, transportation, and healthcare — all while ensuring you have funds for emergencies and the occasional vacation or hobby.
Most workers underestimate just how much savings are required. Even a modest annual spending goal of $35,000 for 30 years means you’d need over $1 million saved. For most, that’s not achievable through savings alone — which is why investing and contributing to government programs like CPP is essential.
The Full Retirement Picture
Your retirement income in Canada typically includes three parts:
- Personal savings and investments.
- The Canada Pension Plan (CPP).
- Old Age Security (OAS), which includes the Guaranteed Income Supplement (GIS) for low-income retirees.
Understanding Old Age Security (OAS)
OAS is a monthly payment available to Canadian citizens or legal residents aged 65 and older who have lived in Canada for at least 10 years after turning 18. The amount you receive depends on how long you’ve lived in the country — with the maximum benefit going to those who’ve lived in Canada for 40 years or more.
OAS is funded directly from government revenues, meaning payments aren’t tied to how much you’ve earned during your career. The GIS, on the other hand, provides extra financial support for retirees with limited income.
The Canada Pension Plan (CPP)
The Canada Pension Plan is the backbone of Canada’s retirement income system. Created in 1965, it provides a partial income replacement for retirees. Every employed Canadian aged 18 or older contributes a percentage of their earnings into CPP — unless they live in Quebec, which has a separate plan called QPP.
These contributions are deducted automatically from paycheques, with your employer matching the same amount. As of 2023, employees contribute 5.95% of their income (up to the year’s maximum pensionable earnings), while employers match the same, for a combined 11.9%. Self-employed individuals pay both portions.
How CPP Contributions Work
When CPP began, workers paid into the plan while retirees received payments. Over time, this “pay-as-you-go” model evolved to ensure long-term sustainability. In 1997, CPP Investments was created — a professional investment organization that manages contributions in global assets like stocks, bonds, real estate, and infrastructure.
This structure allows the CPP fund to grow steadily. In fact, CPP Investments has produced an average annual return of 10% over the last decade, and the fund now exceeds $500 billion. These investments ensure that future retirees can rely on the plan even as the population ages.
CPP’s sustainability is reviewed every three years by independent actuaries to ensure it remains viable for at least 75 years. The most recent review confirmed that the CPP remains fully funded through 2097.
When and How to Receive CPP Benefits
Canadians can start receiving CPP payments as early as age 60 or delay until age 70. The standard age is 65, but starting earlier means smaller monthly payments, while delaying increases the amount.
Your benefits depend on how long you contributed and how much you paid in. To qualify for the maximum benefit, you must contribute for at least 40 years at or above the maximum pensionable income.
In 2023, the maximum monthly amount for those retiring at 65 is $1,306.57, or about $15,678 per year. However, the average payment is closer to $811 per month, or $9,734 annually. These benefits are taxable income, so retirees should factor them into their tax planning.
CPP vs OAS: The Key Difference
When comparing CPP vs OAS, the biggest distinction is funding. CPP is based on contributions made during your working years, while OAS is funded by general government revenues and based on residency.
CPP replaces roughly 25–33% of your pre-retirement income, depending on contributions, whereas OAS provides a flat amount to all eligible Canadians. Together, they create a financial foundation, but personal investments are still necessary for a comfortable retirement.
Final Thoughts
The Canada Pension Plan plays a vital role in ensuring financial stability for retirees across the country. Your contributions today support your future income — and through CPP Investments, those funds continue to grow and strengthen Canada’s retirement system.
For full details about CPP, contribution rates, and payment schedules, visit Government of Canada’s CPP Information Page.