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Canadian Pension Plan: Maximizing the Return on Your Investment

Kimberly Fowler
By Kimberly FowlerMay 22, 2017

After a lifetime of juggling work and family, and scrimping and saving for retirement, many seniors find that the Canadian Pension Plan (CPP) isn’t paying out as much as they thought it would. According to the Toronto Star, as of 2015 only 6% of CPP pensioners received the full amount of $1038 per month, with the average payout at about $537 per month.

Fortunately, there are ways you can maximize the return on your CPP investment. Here’s how:

When You Retire Is Important

To receive the maximum CPP payment, you need to have contributed to CPP for 39.5 years between the ages of 18 and 65. If you hit those 39.5 years before you turn 65, then there is no advantage (in terms of your CPP) to continue to work.


If you didn’t contribute the maximum CPP amount for the entire 39.5 years, then the scheme allows you to drop the eight lowest-contributing years. Deciding whether to start drawing your CPP before 60 or 65 depends entirely on your circumstances, but as a rule of thumb, if you are eligible for the Guaranteed Income Supplement (GIS) because you’re in a low income bracket, then you should begin drawing your CPP as early as possible. If you’re not eligible for the GIS, it may be better to wait.

The Old Age Security (OAS) claw back, which came into effect in 2015, means that if you earn $72,809 or more and have enough cash flow to cover expenses without CPP, then adding CPP payments to your cash flow could result in your OAS being clawed back by the CRA. In these cases, it may be better to wait until you are 70 to draw your CPP.

Conversely, retiring after the age of 65 increases the amount that you will receive from your pension plan until the age of 70 by 0.7% per month. You can also receive retroactive payments for up to 12 months, if you apply after your sixty-fifth birthday. Note that there is no financial benefit to retiring after the age of 70.

Generally, if you start receiving CPP at 60, then your monthly benefit will be reduced by 36%. If you wait until 70 to retire, then your benefit will increase by 42%.

When to collect CPP is a complex decision, and if you are considering retiring before the age of 65, then you should read more and consult an accountant.

Combine the Canadian Pension Plan with Other Plans

Many Canadians may qualify for pension plans from other countries. If you have ever worked in a foreign country and contributed to its pension plan, chances are, you’re eligible to receive some benefits. These benefits will not impact your CPP, but income from other pension plans will be taxed.

Retirees in this situation should research applying for a foreign pension plan. Every little bit counts when you’re retired, so even if you only worked for a few years outside of Canada, it’s worth it to explore whether you are eligible for a foreign pension income.

Canadians who worked in Quebec may be eligible to receive payments from the Quebec Pension Plan (QPP). If this applies to you, then you could be eligible to receive payments from both the CPP and QPP simultaneously.

Plan for Inflation

All CPP and OAS payments are protected against inflation. That means that $100 in 2000 would be worth about $129.92 in 2016. Be warned, however, that not all private pension plans are subject to the same adjustment. The only way to protect yourself against inflation is to plan for it — work it into your budget and plan to supplement your retirement savings, so you’re covered.

Will Working Part-Time Reduce Your CPP or OAS?

If you are under 65 but continue to work, then both you and your employer are required to continue to make CPP contributions. From the ages of 65 to 70, you can choose whether you would like to continue to contribute to your CPP. Be careful though, because drawing your CPP while working may push you above the threshold to receive OAS. Stretch Your CPP Further

Of course, a great way to maximize your CPP is to stretch your monthly payments further. Here are some ways you can make the most of the CPP you receive:

Reduce Your Tax Burden

Many people neglect to calculate the cost of taxes when determining how much to save for retirement, but just because you are retired doesn’t mean that you stop paying taxes. Reducing your tax burden is a great way to stretch your CPP further.

The Canada Revenue Agency recommends researching the following deductions to see if you’re eligible for:

  • Caring for a person with diminished mental or physical functions
  • Contributions to RRSPs, CPP and more
  • Employment expenses
  • Provincial tax credits
  • Dependents, spouse and common-law partners
  • Post-secondary and adult education for you and your dependents

See the full list of possible deductions here.

Take Advantage of Discounts

Many businesses and organizations offer senior discounts; they can be a great way to save money on everyday expenses. Common senior discounts include:

  • Groceries
  • Pharmacies
  • Banking
  • Education
  • Travel
  • Insurance
  • Public transit
  • Entertainment (including movies and sporting events)

Financial Services

One of the most frequently overlooked forms of senior discounts available are financial services. Everything from currency exchange providers to bank accounts offer discounts to seniors. Simply ask your financial institution or use the Government of Canada Account Selector Tool. Transferring your CPP payments to a no-fees account could save you hundreds of dollars or more per year.

Get Professional Advice

If you are (or were) self-employed, have dependents, own your own business, are a widow or widower, or contribute (or contributed) to private plans, then there may be more unique circumstances that apply to your CPP situation. No matter your situation, do your research and to talk to a professional accountant to ensure you’re maximizing your CPP contribution.

How have you maximized your CPP contribution? We’d love to hear your tips in the comments below.

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Kimberly Fowler
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Kimberly Fowler
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