Understanding the Canada Pension Plan (CPP): How Does it Work and How Do I Calculate It?

Understanding CPP

Have you ever wondered, “What is the Canada Pension Plan?” Simply put, the CPP is a government-backed retirement pension that we receive when we retire. But it’s a little more complicated than that.

How exactly does CPP work? Is everyone eligible to receive it? And when can you start receiving it? We take a look at the answers to these questions as well as how much you can expect to receive from your CPP retirement pension.

What is CPP in Canada and how does it work?

We’re often asked, “What is CPP?” and “How much CPP will I get when I retire?” The CPP Canada Pension Plan is actually a series of government benefits funded by Canadians who contribute to the plan (along with their employer) over the course of their working life.

Most people think of CPP in Canada as the retirement pension. This is a monthly amount paid to anyone over the age of 60 who made CPP contributions while working.

When is CPP paid? CPP rules allow you to choose when you receive your Canada pension plan payments, so long as it is any time between your 60th and 70th birthdays.

There are several other CPP benefits, however, such as the CPP death benefit and CPP survivor’s pension.

You must apply for CPP in Canada

You do have to apply for CPP and can do so any time after your 60th birthday, (though 65 is the standard age). If you meet the CPP eligibility, you’ll receive it for the rest of your life. However, the amount you’ll receive will be considerably less if you start withdrawing it at 60 and considerably more if you start at age 70.

There is no advantage in waiting beyond 70 to draw your CPP retirement pension, so you should apply for it at age 70 at the latest.

How much CPP will I get when I retire?

This is the million-dollar question. The amount that you receive from the CPP retirement pension will depend on the following CPP eligibility criteria:

  • Your average earnings throughout your working life
  • How much you’ve put into your Canada pension plan payments
  • When you started to contribute
  • When you start collecting it

CPP rules dictate that the longer you’ve contributed to the CPP Canada Pension Plan, the more you’ve contributed and the later you collect it, the more you’ll receive.

What is the maximum CPP payment? If you start collecting your CPP Canada retirement pension at age 65, CPP eligibility allows for a maximum amount of $1,364.60 monthly for 2024. To put that into context, however, the average monthly amount for 2023 was just $758.32.

Looking at how to calculate CPP without a CPP calculator can be tricky. You can get a good idea of how much you will receive by logging into your “My Service Canada” Account. There you can see a statement of your CPP contributions and get an estimate of your monthly CPP Canada benefits. You can sign into your account from this page.

Work out how much CPP pays using a CPP calculator

You can also use a CPP payment calculator to work out how much CPP Canada pension plan income you will receive, according to your intended retirement age.

One of the most accurate CPP calculators is the government’s Canadian Retirement Income Calculator. This particular CPP calculator is especially useful as it combines any work pension and private retirement savings with CPP retirement pension and Old Age Security benefits.

It takes 30 minutes to complete all of the information in this CPP payment calculator. You’ll need your CPP Statement of Contributions, employer pension statements, RRSPs and other savings that will provide retirement income.

An Internet search for “CPP payment calculators” will bring you to other, commercial CPP calculators. However, the government calculator is great for showing you how to calculate CPP and can reveal the full extent of your Canada pension plan eligibility.

How much CPP will I get when I retire if I delay receiving it?

The standard age to receive the CPP Canada pension plan is 65. For every month you delay receiving it, it increases by 0.7%. Conversely, if you start drawing your CPP retirement pension before your 65th birthday, the amount decreases by 0.6% every month.

This table shows the differences between the average and maximum CPP Canada retirement pensions. It shows how to calculate CPP according to the different ages you start receiving it.

Age Average monthly
CPP Payment amounts
Maximum monthly
CPP payment amounts
60 $485.32 $873.34
62 $594.53 $1,069.85
65 $758.32 $1,364.60
68 $949.42 $1,708.48
70 $1,076.81 $1,937.73

Source: CPP retirement pension: When to start your pension

As you can see, you’ll receive well over $500 extra per month if you start receiving the average CPP Canada pension plan at 70 instead of 60. Similarly, drawing the maximum CPP payment at 70 instead of 60 is worth over $900 extra per month.

Other ways to increase your CPP payment amounts

If you need to keep working into your 60s while receiving the CPP Canada pension plan, you could boost your CPP Canada benefits.

If you and your employer both make CPP contributions (or if you make both contributions if you’re self-employed), those contributions will go towards post-retirement benefits (PRB). If you contribute the maximum amount, PRB will be worth 1/40 of the maximum CPP retirement pension. You can check how much you’ll receive with this CPP calculator.

Other ways to boost your retirement income

If you don’t have much in the way of a company pension or retirement savings, Canada pension plan payments probably won’t be enough to give you the retirement you’re dreaming of.

If you’re 55+ and own your own home, the CHIP Reverse Mortgage® could be an ideal way to boost your retirement income. With a reverse mortgage you can cash in up to 55% of your home’s value without having to make any mortgage payments.

You can receive the money in a tax-free lump sum or regular monthly payments, so you can greatly improve your standard of living in retirement. You only pay what you owe when you decide to sell your home or move out.

Call us at 1-866-522-2447 to find out how much money you could borrow to get the kind of retirement you want.

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