Wednesday, March 24, 2021

How Much Savings Do You Need to Delay Starting CPP and OAS Pensions?

Canadians who take their CPP at age 60 instead of 70 “can expect to lose over $100,000 of secure lifetime income, in today's dollars, over the course of their retirement,” according to Dr. Bonnie-Jeanne MacDonald in research released by the National Institute on Ageing (NIA) and the FP Canada Research Foundation.  However, those who retire before 70 need savings to tide them over until their larger CPP pensions start if they want to live at least as well in their 60s as they do later in retirement.  Here we look at the amount of savings required by a retired 60-year old to be able to delay CPP and OAS pensions.

We’re used to thinking of CPP and OAS pensions as just a few hundred dollars per month, but a 70-year old couple just starting to receive maximum CPP and OAS pensions (but not any of the new expanded CPP) would get $61,100 per year, rising with inflation for the rest of their lives.  If the same couple were 65 they’d only get $43,700 per year.  If this 65-year old couple had taken CPP at 60, their combined CPP and OAS would be $32,700 per year now.  The incentive for delaying the start of CPP and OAS is strong.

We can think of the savings needed to delay the start of CPP and OAS pensions as the price of buying larger inflation-indexed government pensions.  This price is an absolute bargain compared to the cost of buying an annuity from an insurance company.  Those in good health but worried about “losing” if they delay pensions and die young can focus on the positives.  Delaying pensions allows retirees to spend their savings confidently during their 60s knowing that their old age is secure.  Taking small pensions early can leave retirees penny-pinching in their 60s worried about their savings running out in old age.

The table below shows the amount of savings a retired 60-year old requires to delay starting CPP.  This table is based on a number of assumptions:

  1. The current maximum age 65 CPP pension is $1203.75 per month.  Before you take your CPP pension, it grows based on national wage growth as well as an actuarial formula, but after you take it, it grows with “regular” inflation, the Consumer Price Index (CPI).  We assume wage growth will exceed CPI growth by 0.75% per year.
  2. We assume the retiree is entitled to the maximum CPP pension.  Those with smaller CPP entitlements can scale down the savings amounts.  For example, someone expecting only 50% of the maximum CPP pension can cut the savings amounts in half.
  3. We assume the retiree holds savings in an RRSP/RRIF so that withdrawals will be taxed in the same way that CPP pensions are taxed.  Retirees using savings in non-registered accounts won’t need to save as much because they only need to match the after-tax amount of CPP pensions.
  4. The retiree is able to earn enough on savings to keep up with inflation.  (Online banks offer savings account rates that put the big banks to shame.)  The monthly pension amounts in the table are inflation-adjusted; the retiree’s savings will grow to cover the actual CPP pension payments.
  5. We assume the retiree doesn’t have a workplace pension whose bridge benefits end at age 65.  This bridge benefit replaces some of the savings needed to permit delaying CPP and OAS.
CPP % of  Inflation-Adjusted  Months of Savings
 Start   Age 65 CPP  Monthly CPP Spending from  Needed at 
Age Pension Pension  Personal Savings  Age 60
60 64.0% $770 0 0
61 71.2% $863 12 $10,400
62 78.4% $958 24 $23,000
63 85.6% $1054 36 $37,900
64 92.8% $1151 48 $55,200
65 100.0% $1250 60 $75,000
66 108.4% $1365 72 $98,300
67 116.8% $1481 84 $124,400
68 125.2% $1600 96 $153,600
69 133.6% $1720 108 $185,800
70 142.0% $1842 120 $221,000

Unlike CPP, you can’t start your OAS pension until you’re at least 65.  But you can delay it until you’re 70 to get larger payments.  The table below shows the amount of savings a retired 60-year old requires to delay starting OAS.  The table is based on a number of assumptions:

  1. The current maximum age 65 OAS pension is $615.37 per month.
  2. We assume the retiree is entitled to the maximum OAS pension by living in Canada for at least 40 out of 47 years from age 18 to 65.
  3. We assume the retiree won’t want to live poor before age 65, which means spending from savings from age 60 to 64 to make up for not receiving OAS.
  4. We assume the retiree holds savings in an RRSP/RRIF so that withdrawals will be taxed in the same way that OAS pensions are taxed.  Retirees using savings in non-registered accounts won’t need to save as much because they only need to match the after-tax amount of OAS pensions.
  5. The retiree is able to earn enough on savings to keep up with inflation.  The monthly pension amounts in the table are inflation-adjusted; the retiree’s savings will grow to cover the actual OAS pension size.
  6. We assume the retiree doesn’t have a complex tax reason (e.g., OAS clawback) that makes it better to take OAS early.

OAS % of  Inflation-Adjusted  Months of Savings
 Start  Age 65 Monthly OAS Spending from  Needed at 
Age  OAS Pension  Pension  Personal Savings  Age 60
65 100.0% $615 60 $36,900
66 107.2% $660 72 $47,500
67 114.4% $704 84 $59,100
68 121.6% $748 96 $71,800
69 128.8% $793 108 $85,600
70 136.0% $837 120 $100,400

An example of how to use these tables

The Harts are 60 years old and recently retired.  They have $400,000 combined in their RRSPs.  Their CPP contribution histories entitle them to a 70% CPP pension each, and they’re both entitled to a full OAS pension.  They’ve decided to hold back $100,000 of their savings as a reserve or emergency fund, but are willing to spend the remaining $300,000 during their 60s in exchange for much larger guaranteed, inflation-indexed CPP and OAS pensions for the rest of their lives.  They’re tempted to reserve even more of their savings, but this would mean lower guaranteed income.

The Harts don’t want to live poor now just so they can have more income later.  So, we first go to the age 65 row of the OAS table to see that they need to spend $36,900 each from 60-64 to make up for OAS not starting until 65.  This leaves $226,200 of their savings to “buy” more CPP.  We began with OAS because starting OAS at 60 isn’t permitted.  We then focus on CPP because delaying CPP boosts pensions more than delaying OAS.  Only if we can delay CPP to 70 do we go back to the OAS table to choose a later OAS start age.

Because their combined CPP entitlement is 140% of a single maximum CPP pension, we divide $226,200 by 1.4, to get $161,600, and look up this amount in the right column of the CPP table.  We find that the Harts can delay CPP until they’re about 68.  So, the plan is to spend one-eighth of the $226,200 each year for 8 years (so CPP can start at 68) plus an extra one-fifth of $73,800 each year for the first 5 years (because OAS will start at 65).

So the Harts now have a plan.  But their lives might not play out exactly as they expect.  As they approach 65, they will apply for OAS, but they might apply for CPP before or after age 68, depending on how much they spend in the coming years, their portfolio returns, and changes to their needs for a savings reserve or emergency fund.  They will be guided by watching their RRSP balance to make sure it doesn’t drop below a sensible reserve amount.

The maximum savings required by a 60-year old to delay pensions to age 70 is $221,000 for CPP and $100,400 for OAS, for a total of $321,400.  This doubles to $642,800 for couples. Those with at least this much saved are able to maximize guaranteed inflation-indexed government pensions that will last as long as they live.  Those whose CPP or OAS pensions are less than the maximum won’t need to have as much saved.  Those who retire before age 60 will need to use more savings to tide them over until CPP and OAS pensions begin.

Although Canadians have many reasons for taking their CPP and OAS pensions early, the only reasons that stand up well to scrutiny are very poor health and lack of savings.  Here we showed how much retirees must have saved to tide them over to the start of enlarged CPP and OAS pensions.


  1. Nicely done! And (for the sake of simplicity) you have not even mentioned that delaying will actually allow retirees to "safely" spend more per year right from the start of retirement. This in turn reduces exposure of the nest egg to market risk.

    So all in all, by following this strategy, you have hedged against longevity risk, sequence of return risk, and inflation risk.

    1. Hi Garth,

      You're right that delaying CPP and OAS has all the advantages you mentioned. One barrier for people is that they imagine having to live on very little until they're 70. Many people take a long time to wrap their minds around the idea of spending down savings at an accelerated rate in return for guaranteed indexed income.

    2. Yes, in essence we are funding a bridge amount using savings.

    3. It is also the "SAFELY SPEND MORE" that many if not most cannot wrap their heads around...

    4. I have very close friends who I've tried to persuade to delay CPP. Everything about their situation makes delaying CPP clearly the right thing to do. The decision point is coming soon. I'm expecting to find out they took it at 60 because of . Maybe I'll be pleasantly surprised, but the pull to take free money right now seems overwhelming.

    5. You might be able to persuade them to delay CPP, but take OAS at 65, if you expect that there would be a future claw back due to the bracket they fall in. Sometime folks just need to feel a win.....

    6. Hi Eccentric Rogue,

      OAS clawback won't affect them, but maybe pretending it might would help them delay CPP.

  2. Quality thoughts Michael.I really liked your analysis. Did you give any thoughts to the tax implications? Seems to me, we are going to be faced with some tough problems in the coming years and I get the distinct impression that we are going to be hit with de-indexing tax brackets and increased taxes within the brackets. It might be a wash, but it might also have a big impact on the delay. No?

    1. Hi Eccentric Rogue,

      I don't take any tax predictions as given, but if we assume tax brackets will get de-indexed, I don't see how this would make much difference. Whether you delay CPP or not, de-indexed brackets would increase your taxes. My guess is that it would make the case for delaying either a little stronger or a little weaker without changing which decision is correct.

    2. And if you are using RSPs or RIFs to bridge until age 70, the tax implications should be a wash... It's all taxable income.

  3. Great article! I'm in the camp of delaying our CPP and OAS as long as possible. Seeing these numbers our savings luckily support the delay! This adds to our feeling that this is the best approach. As suggested we will revisit this decision each year to make sure our savings can support our decision and that we remain healthy!

    1. Hi Joel,

      Glad you liked the article. Good luck with your retirement.

  4. Good information. Have you considered the scenario when both spouses are entitled to maximum CPP, when one of them dies the other is still limited to maximum amount of just 1 CPP benefit + 1 time death payment of $2500. If they both start cpp early, then the survivor will continue to get the maximum amount and they have the use of cpp funds when they are younger & may enjoy it more. Thanks & have a wonderful day!

    1. Hi Joeseph,

      To begin with, the strategy of delaying CPP leads to more available spending when you're younger, not less. If the couple takes CPP early, they have to preserve their savings in case they live long. If they have enough savings to execute this strategy, it allows them to spend more safely while they're young.

      The worst case scenario when taking CPP at 70 is if one spouse dies at 70, leaving the other spouse with a lower total income. Of course, the surviving spouse will have lower expenses as well. The deceased spouse no longer eats, buys clothes, or or has any discretionary spending. A rough estimate is that one person spends about 70% as much as a couple, but this can vary from case to case. Another consideration is that whatever portfolio savings were held back as a reserve or for emergencies will go further when it's covering the needs of only one person. Still, it's conceivable in some narrow cases that the income cut for the surviving spouse would be enough to lower standard of living a little. In such cases, a modest amount of term life insurance, likely less than $100,000, might make sense from say age 65 to 80. Alternatively, this couple could hold back a slightly larger savings reserve when executing this strategy just in case one of them dies close to age 70. I wrote about this issue in an earlier article:

  5. I definitely plan to delay CPP as long as possible to get the higher income indexed to inflation. I am less convinced about OAS as I am leery of the clawback. From 65-71 I can manage my RSP/LIF money to not exceed the maximum income. After 71 I am forced into an annual minimum.
    Thanks for your article I haven't seen this side of the equation before. Much appreciated!!

    1. Unknown,

      I have similar concerns about OAS clawbacks. I'm able to deal with it by making modest annual RRSP withdrawals in the years before I have to make RRIF withdrawals. Unless I have unusually high portfolio returns in the coming years, my calculations say that I will be better off delaying OAS to age 70. Your mileage may vary.

  6. Hi Michael. Very helpful info, thank you. I was intrigued by this idea that before taking CPP, it increases according to "national wage growth" rather than inflation. I looked for other sources for this info and couldn't find any. I'd love to nail that down as I try to calculate my own likely retirement income in a few years. I'd been factoring in 1.8% yearly increases but maybe that's wrong.

    1. Hi Trevor,

      The data I looked at indicated that the average wage growth has been 0.75% per year above inflation, but who knows what the future will bring.

  7. Your approach to determine at what age to start CPP is very different than my advisor's. I started receiving survivors pension at 55. Although my late husband didn't qualify for the maximum CPP, it was a much higher payout than I was scheduled to get for my own CPP. As I approached 60, my advisor plugged the numbers into a program to show how old I would be at the "break-even" point. We had the actual numbers of my expected CPP because I was no longer working. The result was that I would never make up the amount I would be giving up by taking my CPP at 60. I wonder now if the graph program took into account all the factors involved. As soon as I started taking CPP, the survivors benefit was reduced. I would have continued receiving the higher amount until I started CPP. Also, when my late husband would have turned 65, it will be cut back again. Are you familiar with this "break even point" method? The other consideration is that I don't expect to live a long life. My dad died at 36 and my mother at 72. Yes, it has been pointed out to me that if I continue the pattern, I will live to 144. With my lifestyle, I never expected to make 30. Now I'm considering postponing my OAS, just in case. Thoughts?

    1. Unknown,

      Yes, I am familiar with the breakeven point method. Unfortunately, it's often misused. To use it you have to assume some rate of return on invested money. If you use an unrealistically high rate, this tips the answer toward taking CPP early. The next thing is that once you have some breakeven age, say 77, many people just imagine that they might die before then. In reality, you need to imagine whether it's possible you'll live past this age. If you might, then you will be forced to hold back savings in case you live long. In this case, it would make sense to plan for old age and consider delaying CPP if you have the savings to do so.

      All that said, I don't know the details of your situation (such as all the CPP numbers, your savings, your lump-sum spending needs, etc.), and I can't say whether early or late CPP makes sense in your case.

  8. Thank you for your response. My current strategy is to withdraw enough from the RRIF to bring my income to the top of the second tax bracket. I'm trying to drain enough from the registered account as possible since whatever is left there would end up being taxed at the highest bracket in the year of my death. I'm beginning to worry about the prospect of inflation, but whatever happens is out of my control. A crystal ball would be so handy :-)
    Take care

  9. I'm in the fortunate position of being able to delay to age 70 quite easily (I'm 64). I look at the delay time as investing the CPP versus my investment portfolio. The CPP returns 8.4% per year, no tax and no risk, while my portfolio is about 7% before tax and with moderate risk. Is this a good way to look at delaying CPP?

    1. Hi Gordon,

      There are a few other complicating factors, but it's true that the return from delaying CPP is higher than you can expect from your portfolio. Delayed CPP grows with wage inflation rather then the CPI, so this makes the expected return from delaying CPP higher than we might expect. On the other hand, collecting CPP for fewer years drops this return somewhat. On the third hand (!), once we take CPP, it is indexed to CPI, so we should be comparing its return to your portfolio's real return.

  10. Excellent article on a viewpoint not shown elsewhere. Incredibly helpful for me at this time as I am evaluating whether I can retire early or not and trying to determine if I could/should delay taking the CPP & OAS

    1. Hi Tricia,

      I'm glad you liked it. Good luck with your decision.

  11. Great information. I am 64 and was wondering what to do about my CPP with my industry being wiped out due to the current pandemic, and with little likelihood of going back to work anytime soon. So was contemplating starting my CPP. I now see I can spend my RSP and delay for awhile. Hadn't thought about it in the terms you lay out.

    1. Hi Ennelle,

      Glad you liked it. It makes sense retain some RRSP in case you have uneven spending needs in the future, particularly if you have a spouse who will depend on your CPP. But if your RRSP is large enough, it makes sense to consider spending it down some before drawing CPP.