CPP vs. OAS: Which Should You Prioritize in 2024?

cpp vs. oas: which should you prioritize in 2024?

retirees and finances

The Canada Pension Plan (CPP) and Old Age Security (OAS) are both strong programs for retirees. Yet we all only have so much cash on hand. So, when it comes to these programs, there are certainly benefits and pitfalls for each. That’s why today we’re going to consider both for Canadian investors who can then use the information and base it on their own scenario.

CPP

First, let’s go over the upsides and downsides of CPP by getting into the nitty-gritty details. To qualify for CPP, you must have worked and made contributions to the plan. Both employees and employers contribute to CPP, with self-employed individuals paying both portions. For 2023, the contribution rate is 5.95% of earnings for employees, up to the maximum pensionable earnings of $66,600, resulting in a total contribution limit of $3,754.45 per individual.

The average monthly CPP benefit in 2023 is $717.15, while the maximum monthly benefit is $1,306.57. CPP benefits increase annually based on the Consumer Price Index (CPI). You can start receiving CPP benefits as early as age 60, although the amount will be reduced. Conversely, delaying benefits until age 70 can result in a higher monthly payout. CPP benefits are considered taxable income, so you will need to factor this into your overall tax planning.

OAS

Now, let’s get into the details surrounding OAS payments. To be eligible for OAS, you must be 65 or older and have lived in Canada for at least 10 years since turning 18. Full benefits require 40 years of residency after age 18, but partial benefits are available with fewer years of residency.

The basic monthly OAS benefit in 2023 is $691.00. Additionally, low-income seniors may qualify for the Guaranteed Income Supplement (GIS). However, OAS benefits are subject to a clawback if your net income exceeds $86,912 as of 2023, with benefits completely phased out at around $141,917 as of 2023. OAS benefits are also taxable income. If you have a high retirement income, you might face OAS clawbacks, reducing your benefits.

Considerations

So, now that we know the details, let’s go over the key considerations for Canadian investors. You can start receiving CPP benefits as early as 60, with a reduction, or delay until 70, with an increase. Your decision should depend on your financial needs and life expectancy. OAS benefits typically start at 65, but you can delay them to increase the monthly benefit by 0.6% for each month you delay past 65, up to 36% at age 70.

If you have contributed significantly to CPP and want to maximize your retirement income, delaying CPP might be beneficial. For OAS, consider the residency requirements and the potential impact of OAS clawbacks if you expect a higher income during retirement.

Furthermore, since CPP benefits are fully taxable, consider your overall income and tax bracket when deciding when to start benefits. For OAS, plan for potential OAS clawbacks if your retirement income exceeds the threshold.

There are also health considerations. If you expect a longer life expectancy, delaying CPP can result in higher lifetime benefits. Similar considerations apply to OAS, but the OAS clawback might be a more significant factor if you have substantial other income sources.

Make it more 

Investors can strategically use both OAS and CPP benefits to increase their investments in retirement by implementing investing. And in this case the best stock to consider is Royal Bank of Canada (TSX:RY). Royal Bank of Canada is the largest bank in Canada by market capitalization and one of the largest in the world. It offers a wide range of financial services, including personal and commercial banking, wealth management, insurance, investor services, and capital markets products.

What’s more, it has a long history of paying and increasing dividends. As of 2023, it has a dividend yield of around 4-5%, making it an attractive option for income-seeking retirees. RBC consistently reports strong financial results, driven by its diverse business model and robust revenue streams.

Plus, it is actively expanding its presence in the United States and other key markets, which can drive future growth. Altogether, it’s a strong investment to increase your CPP and OAS payments even more.

What Stocks Should You Add to Your Retirement Portfolio?

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now. The 10 stocks that made the cut could produce monster returns in the coming years, potentially setting you up for a more prosperous retirement.

Consider when "the eBay of Latin America," MercadoLibre, made this list on January 8, 2014 ... if you invested $1,000 at the time of our recommendation, you’d have $18,111.92.*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 27 percentage points since 2013*.

See the 10 stocks * Returns as of 5/22/24

More reading

    Fool contributor Amy Legate-Wolfe has positions in Royal Bank Of Canada. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

    OTHER NEWS

    7 minutes ago

    Are you the office 'vibe lifter'? The rise of the personality hire and how to navigate a contemporary workplace

    7 minutes ago

    Queensland government introduces pill testing at Schoolies on the Gold Coast

    7 minutes ago

    Urgent warning to Brits over giant hogweed surge: 'Britain's most dangerous plant' can leave you and your pets with pus-filled, golf-ball sized blisters, experts warn - here's how to spot it

    7 minutes ago

    Our knight in a castle! A stay in the grounds of Dover's storied fortress while exploring its new siege-themed playground makes a memorable history lesson

    7 minutes ago

    Dad pays a staggering $600,000 over the asking price for a massive country home in Victoria - just so he can get his young kids off their iPads

    7 minutes ago

    Transcript: Biden's speech explaining why he withdrew from the 2024 presidential race

    7 minutes ago

    Will the real Joe Burrow please stand up? NFL star gets new blond buzz cut

    7 minutes ago

    Israel-Hamas war latest: Cease-fire talks face delays after Netanyahu's fiery speech to Congress

    7 minutes ago

    More than a dozen African migrants dead, over 150 missing after their boat capsized on way to Europe

    7 minutes ago

    So you get an offer to buy a carbon offset. Here are 4 things to know

    7 minutes ago

    Macron aims to sidestep political concerns and regain prestige with the Paris Olympics

    7 minutes ago

    Inside Out 2 has entered the all-time box office history books

    7 minutes ago

    Horror as car collides with bus carrying 20 high-school students

    7 minutes ago

    Hell Jumper, review: the heart-stopping story of one Briton’s tragic sacrifice for Ukraine

    7 minutes ago

    What to know about the 25th Amendment as Trump makes wild claim about Biden

    7 minutes ago

    Australian shares slide to two-week low as tech drags

    7 minutes ago

    Why is the Brainchip share price tumbling 7% on Thursday?

    7 minutes ago

    Mamelodi Sundowns dealt with Cardiff City set-plays, says Steve Komphela

    7 minutes ago

    'Bigg Boss 17' actress hospitalised over panic attack

    7 minutes ago

    The sinister pact between Putin and North Korea

    7 minutes ago

    Moment shark causes panic among sunseekers on a packed Spanish beach

    7 minutes ago

    CNN data guru says JD Vance ‘making history’ as first VP pick with negative favorability following convention

    7 minutes ago

    Salman Khan says family was targeted by Mumbai gang

    7 minutes ago

    Andy Murray explains reason for Olympics withdrawal as Brit pulls out of tennis singles

    7 minutes ago

    £70k starting salary, no wolves of Wall Street, and anti-burnout care – life for City recruits

    7 minutes ago

    Thursday's analyst calls: Amazon to jump more than 25%, Apple price target increase

    7 minutes ago

    Bikini-clad Ferne McCann cosies up to shirtless fiancé Lorri Haines as they pack on the PDA during sun-soaked holiday to St Tropez

    7 minutes ago

    Phil Salt and Jonny Bairstow to be their team's top run scorers now 16/1 - as Manchester Originals and Welsh Fire clash in The Hundred at Old Trafford tonight

    7 minutes ago

    Cantwell set for Rangers exit after handing in SECOND transfer request following failed talks with Clement

    7 minutes ago

    Andy Murray opens up on how he'll handle retirement from tennis after Paris Olympics, with 'pretty relentless' challenge of his four young kids to keep him busy and 'something new' teased

    7 minutes ago

    Vue Hires Chief Information Officer & General Manager In The Netherlands

    7 minutes ago

    Pictured: Lieutenant Colonel stabbed in knife attack near Kent barracks

    7 minutes ago

    Surfer’s leg washes up on shore in Australia after shark attack

    7 minutes ago

    Amanda Abbington hits out at Strictly's 'toxic environment' as star left 'vulnerable and exposed'

    7 minutes ago

    ‘Time to pass on the baton’: Linda Burney delivers emotional speech on retirement announcement

    7 minutes ago

    Nine newspapers staff vote for five-day strike on eve of Paris Olympics

    7 minutes ago

    LA Olympics in jeopardy over China doping case

    7 minutes ago

    Lions put 4 more on injured lists, activate 3 others

    7 minutes ago

    Fortescue shares sink despite record quarter

    7 minutes ago

    Russian Drone Strikes NATO Territory in Romania