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An Introductory Guide to the Canada Pension Plan (CPP) For Retirees Thumbnail

An Introductory Guide to the Canada Pension Plan (CPP) For Retirees

Financial Planning Retirement Tax

The Canada Pension Plan, or CPP, provides taxable monthly income for retired individuals. Monthly CPP payments are not standardized. Instead, the amount paid will fluctuate based on individual factors. This comprehensive guide to the CPP will help you better understand the factors that determine monthly payments and the requirements to qualify for the CPP.

How To Qualify for the CPP

To qualify for the CPP, individuals must be at least age 60 and have made one or more contributions to the CPP. A contribution is typically made from work performed in Canada, though it can also be received from credits through a former relationship with a spouse or common-law partner.1

How Monthly Payments Are Determined

Once individuals determine that they qualify for the CPP, they are free to choose a date to start payments.2 

However, three primary factors impact how much one receives, including:3

  • Age at the start of payments
  • Total contribution amount and duration of contributions
  • Average earnings before retirement
  • Age

Individuals can choose to start payments as early as age 60. There will be a monthly payment reduction of 0.6 percent or 7.2 percent a year until this reduction reaches a maximum of 36 percent or until the individual reaches age 65.4

Alternatively, those that decide to wait to receive their pension after age 65 will receive a monthly payment increase of 0.7 percent or 8.4 percent a year, until this benefit reaches 42 percent or the individual reaches age 70.4

Contributions

You will receive a benefit to your monthly CPP payment for each year that you choose to continue working and making contributions, up until the maximum age of 70.3 In addition, if you decide not to take CPP payments and continue to work and make contributions after age 65, then any higher earnings after 65 will replace lower earnings in your final payment calculation.3

Average Earnings

Your average earnings before retirement are used to calculate your monthly payment, though certain time periods will be removed before determining your average.

These include:3

  • Removal of eight years of your lowest earnings.
  • Years in which you were raising children younger than seven will be removed.
  • Times at which you were disabled will be removed.

Additional Factors That Impact Payments

Lastly, monthly payments could be affected if you share your pension plan or go through a divorce and opt to split credits.3

Applying for the CPP

The CPP application process provides both an online and a paper application. Applying online is listed as the fastest option, however, individuals who have been denied CPP payments, received them in the past, do not live in Canada or utilize a third party to handle their CPP must fill out a paper application.2

Make sure to utilize this guide to the CPP to help you understand how payments are calculated. When to take the CPP is up to your personal circumstances, though if you are looking for additional guidance then contacting your financial advisor can help.

  1. https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/eligibility.html
  2. https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/apply.html
  3. https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
  4. https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/when-start.html

Please consult financial, legal, or tax professionals for information specific to your situation. The information and material presented are general, may have changed since the published date shown, and should not be considered financial advice. LetsPlan.ca is published in Canada exclusively for residents of Canadian jurisdictions where our products and services may be legally offered. The services offered within this site are available exclusively through our Canadian advisors. While we often provide original content, Twenty Over Ten initially provided the subject matter for this post. It has since been edited, reviewed and approved by our Privacy and Compliance Officer. Advisors may only conduct business with residents of the province(s) in which they are licensed and registered.