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Government benefit basics

Government benefit basics

Posted on: October 30, 2013
Author: Chris Turchansky, CFA, President, ATB Investor Services

We're pretty lucky to live in Canada—a country with government-sponsored programs that help retired residents. While these programs are a key part of most Canadians' retirement income, if you rely entirely on the Canada Pension Plan (CPP) and Old Age Security (OAS) for your retirement income, you could be in for a surprise.

First, how much do you need?

The basic rule of thumb is that you'll need about 70% of your current income to maintain your current standard of living in retirement. So, if you make $100,000 per year today, you should plan to have about $70,000 (in today's dollars) per year in retirement. You'll have to adjust for inflation, so that specific dollar amount will need to be higher at retirement.

Even if the house is paid off and you no longer have the costs of commuting to work, those savings are often partly offset by increased spending on other things—like hobbies and interests that keep you blissfully busy.

Now, how much will you get from OAS and CPP?

CPP is only available to Canadians who have made contributions. CPP payment rates vary person to person, based on your work history and when you decide to start taking your benefit. For 2013, the maximum monthly benefit is $1012.50——but the average monthly benefit is only $602.86.

Unlike CPP, OAS is available to all Canadians at age 65—but this is gradually changing to age 67 starting in 2023 (learn more about the age change here). For 2013, the maximum monthly OAS benefit is $550.99, slightly more than the average benefit of $514.56. In addition, the lowest-income seniors can receive the OAS Guaranteed Income Supplement (GIS), which maxes out at $747.11 per month.

Benefits by the numbers

The combined average benefits of OAS and CPP is $1117.42 per month. Keep in mind this is taxable income. When you consider OAS clawbacks and CPP benefits that are based on your personal contributions, these two government benefits alone will leave most Canadians with a large retirement income gap.

If maintaining your current standard of living in retirement is important to you, government benefits alone likely won't meet your goals. A retirement nest egg can get you the rest of the way.

For help building your nest egg, contact an ATB Investor Service advisor.