Can you survive on Canada’s government pension alone in retirement?
Renee Sylvestre Williams
May 8, 2023
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It’s unlikely most Canadians will be able to pay for their retirement on just CPP and OAS alone, say advisers and financial planners Cindy Marques and Elke Rubach.
Understanding how CPP and OAS work is key to retirement planning and knowing how much you may get. The CPP — a mandatory pension plan financed by contributions from employees, employers and self-employed individuals — was always meant to provide some but not all retirement income to Canadians when it launched in 1965.
But not a lot of people know exactly how CPP works and how much they will get, says Marques, a certified financial planner and director at Open Access Ltd. in Toronto.
“Federal pensions are great as a supplemental layer, but a retirement it does not make,” she says. “I think people just hear about a pension plan and think, ‘I’m taken care of, all these deductions are coming off, I don’t need to worry.’ ” It’s that thinking, she adds, that’s preventing people from doing their due diligence and research.
If you’re like McCabe and staring down a short tunnel to retirement with only CPP and OAS, what are your options?
Maximize your benefits
If you can, work beyond 65. Marques says that if you can work until 70 years, you can get the maximum CPP and OAS. “Both will be augmented, which is quite helpful because the CPP will be augmented by 42 per cent by age 70, and OAS will be augmented by 36 per cent.”
Using your home for a reverse mortgage
Marques says to look at assets like a paid-off home. That can be used for a reverse mortgage where you could get up to 55 per cent of the value of the home, which is repaid when the home is sold.
“For individuals who are not as concerned about keeping that property in the family after they pass, then that’s a means of accessing equity,” she says. “It’s an option if you’re comfortable with doing a reverse mortgage and you don’t have to worry about interest while you’re taking the money.”
Leveraging a whole life insurance policy
Marques says a whole life insurance policy could provide additional retirement income. Permanent life insurance policies, which provide a death benefit to beneficiaries, can also build up cash values within them that you can borrow. That means you’ll have money during your lifetime that will be repaid when the policy is paid out on your death.
Moving back in with the kids
Marques has been seeing elderly parents moving in with their kids upon retirement, pitching in with the rent or other living expenses. All of this depends on whether everyone gets along.
When asked about public long-term care homes where the fees are lower than for-profit homes, both experts say it’s an option, though Rubach says government cuts could affect the services offered.