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Although OAS and CPP will boost your retirement income, you’ll still need some extra savings
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.
How much retirement income do you need?
One rule of thumb is that you’ll need at least 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 or contributing to your RRSP or pension, those savings are often partly offset by increased spending on other things, like golf, travel, or other interests that keep you blissfully busy.
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 2024, the maximum monthly benefit is $1,364.60—but the average monthly benefit is only $758.32.
Unlike CPP, OAS is available to all Canadians at age 65. For 2024, the maximum monthly OAS benefit is $713.34. In addition, the lowest-income seniors can receive the OAS Guaranteed Income Supplement (GIS), which maxes out at $1,065.47 per month.
With this in mind, an individual at age 65 would receive about $17,660 per year, on average. Continuing with our example above, this is well below the $70,000 (plus inflation) per year required at retirement.
Benefits by the numbers
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.
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