CPP Pension and OAS Payments: How Much Can You Get?

If the CPP and OAS combined pays less than $1,400 per month, a retiree might need more in retirement. The Bank of Nova Scotia stock can be the third income source in the sunset years.

| More on:

The COVID-19 outbreak in March and the second wave in the last quarter of 2020 have heightened uncertainty, most especially for Canadians nearing retirement. You can look forward to receiving the Canada Pension Plan (CPP) and Old Age Security (OAS),

However, if you have little savings or none, it would be best to know how much you can get from the retirement backbones in Canada. You might need to supplement the pensions to live comfortably in the sunset years.

Pension from paychecks

CPP is a defined benefit pension plan, although the government does not own, fund, or manage the assets. Employees (plus employers’ share) and self-employed individuals contribute to the CPP from their paychecks throughout the working years. The Canada Pension Plan Investment Board (CPPIB) manages the pension fund on behalf of CPP users.

The default age to claim the CPP is 65. Assuming you’re 65 and claim today, the average monthly pension is $710.41. The maximum is $1,175.83, but you should have contributed enough to receive the full payment.

You can claim your CPP earlier at 60. However, you risk a 36% permanent pension reduction. The amount but reduces by 0.6% for every month (7.2% per year) before age 65. Delay until 70, and you receive 42% more pension as payment increases by 0.7% every month (8.4% per year) after your turn 65.

Government benefit

OAS is a government benefit and no deductions from the workers’ payroll.  A portion of income taxes the government collects goes into the OAS pot. When you reach 65, you can apply for OAS to receive a monthly pension.

There’s no early option for the OAS as it’s available for Canadians 65 years or older. The maximum monthly payment is $614.14 per month (October to December 2020). If you want to enhance the payments, you can also defer the OAS until 70. The amount bumps up by 7.2% for each year of delay or a maximum of 36%.

Dividend-payer for nearly 200 years

Yes, your CPP and OAS are guaranteed incomes for life. But now that you know how much you’ll get, the pensions alone won’t be sufficient. Retirement experts suggest you find other sources like investment income. Save more so you can invest in dividend stocks.

One of the Big Five Banks, Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) or Scotiabank, offers a hefty 5.67% dividend. The share price of $63.48 is relatively low, a steal if you can take a position today. A retiree with $150,000 worth of shares is earning close to the CPP monthly payment.

Scotiabank has been a reliable income provider for more than a century (nearing two, actually). This $77.72 billion bank and the third-largest in Canada boast of a 188-year dividend track record. The payouts should be sustainable, given the 64% payout ratio.                                      

New priority

The results of Scotiabank’s recent survey show that Canadians are becoming better savers and thrifty spenders due to the impact of COVID-19. Financial priorities are changing, with 53% of respondents prioritizing saving for emergencies.

Take it a step further by creating an additional income source in retirement. If you have a wellspring like Scotiabank, you’ll be ready to retire for good.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »