Understanding the Canada Pension Plan (CPP): A Complete Guide

Written By David Wiitala

Introduction: The Canada Pension Plan (CPP) is a cornerstone of retirement planning for working Canadians. Yet many people – from Gen Xers planning ahead, to current retirees, to incorporated professionals – have questions about how CPP works and how to get the most out of it. In this comprehensive guide, we’ll demystify the CPP in plain English. We’ll explain what CPP is and why it’s valuable, when it’s best to start your CPP (age 60, 65, or 70), how early or late retirement affects your payments, what the “break-even age” means, and bust some common myths (like fears that CPP will run out of money). We’ll also highlight CPP’s other benefits (disability and survivor pensions) and give specific guidance for business owners on CPP contributions. To make it concrete, we include real-life case studies of different CPP claiming strategies. Finally, we answer the most common CPP questions Canadians ask. Let’s dive in!

What Is the Canada Pension Plan and Why Is It Valuable?

The Canada Pension Plan (CPP) is a national pension program that provides contributors and their families with a partial replacement of earnings in cases of retirement, disability, or death (Pensions and Retirement | New Brunswick Financial and Consumer Services Commission). In other words, if you’ve worked in Canada (outside Quebec*) and contributed to CPP during your working years, you can receive a monthly benefit for the rest of your life in retirement (Canada Pension Plan retirement pension - Canada.ca). CPP is funded by contributions from employees, employers, and self-employed individuals – not general tax revenue – which means you pay into it during your career and then receive benefits later.

Why is CPP so valuable? Think of CPP as “retirement income insurance” that you’ve been buying with each paycheck. It’s guaranteed income for life, which means you won’t outlive it (no matter how long you live, CPP keeps paying). Plus, CPP payments are indexed to inflation, so their buying power rises with the cost of living each year. Many financial experts view CPP not as a tax but as an asset – essentially a “future income stream” from an inflation-protected annuity (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca) (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca). CPP efficiently hedges major retirement risks that are hard to manage on your own: the risk of living a very long time (longevity risk), the risk of high inflation, and the risk of poor investment returns. Because CPP pools contributions from across Canada, it can provide these benefits more affordably and reliably than an individual could by saving alone (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca).

Other advantages of CPP include portability (you can receive it anywhere you live in the world, even if you retire abroad) and predictability (unlike personal investments, CPP does not fluctuate with markets). It also provides protections for your family: if you become disabled or die, CPP can pay benefits to you and your dependents (more on that later).

*Quebec runs a parallel program called the Quebec Pension Plan (QPP) with similar benefits and contribution rules. If you worked in Quebec, you contribute to QPP instead, but CPP and QPP are closely coordinated.

How the CPP Works: Contributions and Eligibility in Brief

To receive CPP in retirement, you need to have made at least one valid contribution to the plan and be at least 60 years old (Canada Pension Plan (CPP) | Edward Jones). In practice, if you’ve ever had a job in Canada earning above a small minimum ($3,500/year), you likely contributed via payroll deductions. Both employees and employers contribute 5.95% of your earnings (up to a yearly limit) to CPP; self-employed people pay both shares (11.9%) (Contributions to the Canada Pension Plan - Canada.ca) (Contributions to the Canada Pension Plan - Canada.ca). The Year’s Maximum Pensionable Earnings (YMPE) – the annual earnings limit for CPP contributions – is $71,300 in 2025 (Contributions to the Canada Pension Plan - Canada.ca). Earnings above that aren’t subject to CPP contributions, and thus don’t increase your CPP benefit. (Starting in 2019, CPP is being enhanced to eventually cover up to 33% of income with a slightly higher earnings ceiling – $81,200 in 2025 – through additional contributions (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca). But for simplicity, this guide focuses on the base CPP.)

The more you earn (up to the limit) and the more years you contribute, the higher your CPP retirement pension will be (Contributions to the Canada Pension Plan - Canada.ca). To get the maximum CPP payment, you’d need about 39+ years of max contributions by age 65 (Taking CPP Early Or Late? How Long Until Breakeven? | PlanEasy). In reality, many people won’t get the absolute maximum because they had some lower-earning years or took time out of the workforce. But even a partial CPP pension is valuable. CPP is not means-tested (unlike Old Age Security, which is a separate government pension); if you’ve contributed, you’re entitled to the benefit regardless of other income.

Importantly, CPP retirement benefits are not automatic – you have to apply for it when you want it to start (Canada Pension Plan (CPP) | Edward Jones). Service Canada recommends applying about 6 months before you want your first payment. If you don’t apply, you won’t receive CPP until you do (the exception is that at age 70, the government will not increase CPP further, but it still won’t start paying it out unless you apply – so don’t forget to apply by 70 at the latest!). We’ll discuss below the factors that go into deciding when to apply for CPP.

When Should You Start Your CPP? (Age 60 vs 65 vs 70)

The “standard” age to start your CPP retirement pension is 65, but you actually have a flexible window to begin anytime between age 60 and 70. You can take CPP as early as 60 or delay up to 70 – it’s your choice (CPP retirement pension: When to start your pension - Canada.ca). However, the age you start has a big impact on your monthly payment. Here’s how it works:

  • Starting early (before 65): Your monthly CPP pension is reduced by 0.6% for each month before your 65th birthday that you begin. This works out to a 7.2% reduction per year early. If you start at the earliest point, age 60 (60 months early), the pension is 36% lower than it would be at 65 (CPP retirement pension: When to start your pension - Canada.ca).

  • Starting at 65: You receive your full calculated CPP. This is sometimes called the “normal” or 100% entitlement based on your contributions. (For reference, in January 2025 the maximum CPP at 65 is $1,433.00 per month, and the average new CPP retiree receives about $900/month (Canada Pension Plan – Monthly payment amounts - Canada.ca). Your personal amount could be higher or lower than the average depending on your earnings history.)

  • Starting late (after 65): Your monthly CPP pension is increased by 0.7% for each month after your 65th birthday that you delay. That’s 8.4% boost per year of delay. If you start at the latest point, age 70 (60 months late), the pension is 42% higher than at 65 (CPP retirement pension: When to start your pension - Canada.ca).

To put that into simple numbers: if you’d get $1,000/month at 65, you’d get only about $640/month if you started at 60 (36% less), but about $1,420/month if you waited until 70 (42% more). There is no advantage to delaying past age 70 – by 70 you’ve reached the maximum increase (CPP retirement pension: When to start your pension - Canada.ca).

Table: CPP Retirement Pension Adjustment by Start Age

Start Age Monthly CPP Amount (relative to age 65) Example: If eligible for $1,000/month at 65… 60 64% of full pension (36% reduction) ~$640/month for life 65 100% of full pension $1,000/month for life 70 142% of full pension (42% increase) ~$1,420/month for life

When is it “best” to take CPP? There is no one-size-fits-all answer – it depends on your situation. Taking it at 60 means smaller cheques but you get them for more years. Waiting till 70 means fewer total years of payments, but each cheque is much larger. Here are some key factors to consider:

  • Your need for income: If you retire in your early 60s and need the CPP money to cover your expenses, that may push you toward taking it at 60. There’s no sense in struggling financially until 65 or 70 if CPP would make the difference – in that case, starting early can improve your immediate quality of life (Canada Pension Plan (CPP) | Edward Jones). On the other hand, if you have other income (like a job, pension, or RRSP withdrawals) covering your needs at 60, you might afford to wait longer for a bigger CPP payout later.

  • Health and life expectancy: This is a major consideration. If you’re in poor health or have reason to believe you won’t live into your 80s, taking CPP early can ensure you at least get the benefits for as many years as possible (Canada Pension Plan (CPP) | Edward Jones). Conversely, if you’re healthy and have family history of longevity, deferring CPP can pay off because you’ll likely collect the larger payments for many years. (For example, a 60-year-old in average health today can expect to live to mid-80s (Should I start my CPP early? – Real-Life Examples – Ed Rempel), meaning most people will live long enough that the higher age-65 or 70 benefit will eventually total more money – more on the “break-even” point below.)

  • Tax implications: CPP is taxable income. If you are still working at 60-64 or have a high taxable income for other reasons, adding CPP on top could be taxed at a higher marginal rate. In that case, it might make sense to delay CPP to a year when your income (and tax bracket) is lower (Canada Pension Plan (CPP) | Edward Jones) (Canada Pension Plan (CPP) | Edward Jones). For example, someone still employed at 60 might wait until they fully retire at 65 to start CPP, both to get a bigger pension and to avoid paying (and losing) a chunk of it in higher taxes while working.

  • Lifestyle and retirement plans: Consider when you want the money to fulfill your retirement goals. Some people want more income earlier in retirement to travel or enjoy hobbies while they’re younger – they might choose to start CPP at 60 or 65 rather than 70, to have that extra cash in their 60s. Others are comfortable drawing down other savings first and saving CPP for later. It’s a personal choice – having the money when you can best use it has value (Canada Pension Plan (CPP) | Edward Jones) (Canada Pension Plan (CPP) | Edward Jones).

  • Family situation: If you have a spouse with a lower pension, or no spouse at all, it can influence your decision. CPP does have a survivor benefit, but it only pays a portion of your benefit to your spouse if you die (and nothing to a non-spouse beneficiary). If you’re single with no dependents, there’s arguably less reason to delay CPP – you might lean toward using it earlier since no one else will benefit after you’re gone (Canada Pension Plan (CPP) | Edward Jones). If you’re one of a couple, you might coordinate your CPP timing with your partner’s needs and the survivor provisions (more on survivor benefits later).

No need to stop working: One myth to dispel – you do not have to quit work to start CPP. You can be working full-time and still begin your CPP at 60+ if you wish. There is also no requirement to start it as soon as you retire from work; you can retire at 62, for example, and delay CPP to 65 or 70 if you prefer. It’s very flexible. If you take CPP early and continue working, you will still have to contribute to CPP out of your earnings until age 65 (and optionally up to 70), but those extra contributions will earn you additional CPP credits called the Post-Retirement Benefit (PRB) to top-up your pension (Canada Pension Plan (CPP) | Edward Jones). In short, working while receiving CPP is allowed and can even boost your benefit slightly via the PRB (Contributions to the Canada Pension Plan - Canada.ca).

Early or Late? Understanding the “Break-Even” Age

A useful concept in deciding when to take CPP is the “break-even age.” This is the age at which the total amount of CPP payments you’d collect by delaying equals the total you’d have collected by taking it earlier. Before that age, the person who took CPP early has come out ahead (they’ve gotten more money overall); after that age, the person who delayed ends up with more total money (thanks to their higher monthly payments).

For example, if you start at 60 vs 65: by taking CPP at 60, you get five extra years of payments (60–64) at a reduced rate. If you wait until 65, you get 0 payments in your early 60s but larger payments from 65 onward. Roughly speaking, around age 74 is the break-even point in this scenario (Should I start my CPP early? – Real-Life Examples – Ed Rempel). By age 74, the total CPP collected if you waited until 65 will catch up to (and then surpass) the total collected by someone who started at 60. Similarly, delaying from 65 to 70 yields a break-even around age 81–82 (about 12 years after 70) (Taking CPP Early Or Late? How Long Until Breakeven? | PlanEasy) (Taking CPP Early Or Late? How Long Until Breakeven? | PlanEasy). These break-even ages assume no investment of benefits; they simply compare cumulative payouts.

To illustrate, let’s assume a person’s full CPP at 65 would be $1,000/month for ease of math (your actual CPP will vary). Here’s how the cumulative totals might look:

  • Case 1: Alice starts CPP at 60. She gets $640/month. By age 65, Alice has received 5 years of payments totaling ~$38,400 (not counting inflation increases). By age 75, she’ll have 15 years of payments totaling ~$115,200. By 85, about $192,000 in total.

  • Case 2: Bob starts CPP at 65. He gets $1,000/month, but from 60–64 he got $0. By age 65 Bob has $0 from CPP. By age 75, he’ll have 10 years of payments totaling $120,000. By 85, 20 years totaling $240,000.

By age 74, Bob (who waited) catches up to Alice’s total – after that, Bob’s larger cheques put him ahead. If both live to 85, Bob collects roughly $48k more than Alice in total. If both only lived to 70, however, Alice would have collected ~$76k (10 years at $640) while Bob collected ~$60k (5 years at $1,000), so Alice would come out ahead in that shorter lifespan scenario. This is the trade-off: taking CPP early gives you more money now (and over the next decade or so), whereas delaying gives you more money later on.

Keep in mind that break-even analysis, while helpful, shouldn’t be the sole decision factor (Taking CPP Early Or Late? How Long Until Breakeven? | PlanEasy). None of us knows exactly how long we’ll live, and retirement planning isn’t just about maximizing one number. Consider quality of life, financial needs, and peace of mind. For instance, some people decide “I’d rather have extra income in my 60s when I’m active, even if it means a bit less in my 80s.” Others prefer to insure against living into their 90s by getting the biggest possible indexed pension (which is what delaying achieves).

Bottom line: If you expect to live well past the break-even age (well into your 80s or beyond), delaying CPP can provide significantly more lifetime income (Should I start my CPP early? – Real-Life Examples – Ed Rempel). If you have reasons to suspect you won’t reach the break-even (due to illness, etc.), or if you simply need the income earlier, taking it sooner may be advantageous. Many experts do lean toward encouraging people to delay CPP if they can, because Canadians are living longer on average and CPP is a very valuable guaranteed benefit in one’s late 70s, 80s and 90s (Should I start my CPP early? – Real-Life Examples – Ed Rempel) (Canada Pension Plan (CPP) | Edward Jones). However, it remains a personal decision with multiple factors – there is no universally “right” answer for everyone.

CPP Myths and Misconceptions (Busted!)

Despite CPP’s importance, several myths persist that can cause confusion. Let’s address some common misconceptions:

  • “CPP is going to run out of money by the time I retire.” False. This is a persistent fear, especially among younger Canadians, but the evidence shows CPP is financially solid. The CPP is funded by contributions and investment returns, and it operates at arm’s length from government through the CPP Investment Board. Every three years, the Chief Actuary of Canada reviews the CPP’s finances, and the latest report indicates CPP is sustainable over at least a 75-year horizon (Financial Sustainability of the CPP | Our Performance | CPP Investments). In fact, the Chief Actuary found that the current contribution rates are higher than needed to pay future benefits, meaning the plan is running with a safety margin (Financial Sustainability of the CPP | Our Performance | CPP Investments) (Financial Sustainability of the CPP | Our Performance | CPP Investments). The CPP Fund has amassed huge reserves (over $500 billion in assets as of mid-2025) that will help pay benefits as the population ages. So, CPP is not projected to go broke – it will be there for you, and for future generations, under current projections. All CPP contributions go into the CPP fund or to pay CPP benefits; by law they can’t be used for other programs (). In short, don’t let talk of CPP “running out” scare you – the plan has been reformed in the 1990s to be sustainable and is closely monitored to remain so (Financial Sustainability of the CPP | Our Performance | CPP Investments).

  • “I’ve paid into CPP my whole life; if I die early the government keeps it.” This is only partly true, and often overstated. It’s true that CPP is not a personal account – it’s a social insurance plan. If you never draw benefits or die shortly after retirement, you won’t personally get back everything you contributed. However, CPP does provide benefits to your family if you die: your spouse could receive a survivor’s pension (usually up to 60% of your CPP if they are 65 or older ()), and your dependent children (under 18, or up to 25 if in school) can receive a monthly children’s benefit (around $300 per month per child) (Canada Pension Plan – Monthly payment amounts - Canada.ca). There is also a one-time death benefit paid to your estate, up to $2,500 () (Canada Pension Plan – Monthly payment amounts - Canada.ca). These payments ensure that some of your CPP contributions go to your loved ones if you pass away. So, while CPP isn’t fully refundable like a private account would be, it’s not true that “the money just disappears” – it supports your survivors and the pool of contributors.

  • “CPP is a tax and I could invest better on my own.” It’s easy to see why some feel this way: CPP contributions come off your paycheck like a tax. But unlike general taxes, CPP contributions are directly tied to a benefit for you – think of it as forced savings for retirement, with built-in insurance features. Financial planners often argue CPP should be viewed as part of your fixed-income or annuity allocation in retirement. The implied “rate of return” on CPP contributions can be quite attractive when you consider it pays you (and potentially your spouse) inflation-indexed income for life, regardless of market conditions (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca). To replicate CPP’s guaranteed lifelong income on your own, you’d likely have to take on substantial risk or buy an expensive annuity from an insurance company. Moreover, CPP’s pooling of longevity risk means those who live longer are subsidized by those who don’t – that might sound bad, but it’s exactly what an insurance/pension plan is meant to do (protect you if you end up living a long time). So while yes, in theory if you invested all your CPP contributions yourself you might earn more, you’d also bear all the risk. CPP provides a secure base – it’s like a foundation of the retirement house. You can always invest additional money on top of CPP, but most advisors suggest treating CPP as the “safe” layer of lifetime income that you can count on no matter what.

  • “Everyone gets the same CPP amount.” Not true. CPP is earnings-related – the amount you get is individual to you, based on how much you contributed and for how many years. If you had low earnings or many years with no contributions (perhaps due to raising children or other reasons), your CPP will be lower than someone who consistently earned at the maximum level. There are provisions that help – for example, you’re allowed to “drop out” a number of your lowest-earning years from the calculation (to avoid unduly penalizing periods of unemployment or child-rearing). But ultimately, CPP rewards higher and longer contributions up to its limits (Contributions to the Canada Pension Plan - Canada.ca). On the flip side, CPP is redistributive to a degree – lower earners get a higher proportion of their contributions back as benefits than higher earners. But absolutely people have different CPP entitlements. The maximum anyone can get at 65 in 2025 is $1,433/month (Canada Pension Plan – Monthly payment amounts - Canada.ca), and very few reach that. The average is around $800–$900. So don’t assume you’ll get the max – check your personal CPP Statement of Contributions for an estimate of your benefit.

  • “CPP will cover all my retirement needs.” Unfortunately, no – CPP was never meant to replace your full income. It’s designed to replace about 25% of a middle-income earner’s pre-retirement earnings (and eventually 33% under the enhancements) (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca). The rest of your retirement income is supposed to come from other sources like personal savings (RRSPs, TFSAs), employer pensions if you have one, and Old Age Security (OAS). For example, if you earned $60,000 a year, CPP might provide roughly $15,000–$20,000/year in retirement (if you contributed heavily). You would need other savings to cover the rest of your income goal. So, CPP is just one pillar of the retirement system. Make sure to plan for additional income streams.

In summary, CPP is robust and reliable, but it’s not a golden ticket to full retirement security on its own. Understanding what CPP can and cannot do will help you make better planning decisions.

Beyond Retirement: CPP Disability and Survivor Benefits

One of the great features of CPP is that it’s more than just a retirement pension. It also provides several other benefits for contributors who face disability or death before retirement (or early in retirement). These can be a financial lifeline in tough times:

  • CPP Disability Pension: If you become severely and permanently disabled and cannot work regularly, CPP disability benefits can provide you with a monthly income before age 65 (Canada Pension Plan disability benefits). To qualify, you must have contributed to CPP in enough years (generally 4 of the last 6 years, or a total of enough years based on your age) and be under 65. The disability pension is higher than an early retirement pension – it’s calculated as a fixed base amount ($598.49 in 2025) plus an amount based on your contributions (Canada Pension Plan disability benefits: How much you could receive). In 2025, the maximum CPP disability benefit is about $1,673 per month (Canada Pension Plan – Monthly payment amounts - Canada.ca). (Average is around $1,200 for new disability beneficiaries (Canada Pension Plan – Monthly payment amounts - Canada.ca).) If you are on CPP disability, when you turn 65 it automatically converts to a regular retirement pension. The key point: CPP includes a form of disability insurance. If during your working life you unfortunately can’t continue working due to disability, CPP will replace a portion of your lost income, provided you’ve paid into it.

  • CPP Survivor’s Pension: When a CPP contributor dies, their surviving spouse or common-law partner may be eligible for a monthly survivor benefit. The amount the survivor receives depends on how much the deceased contributed and the survivor’s age. A younger widow(er) (under 65) gets a smaller flat-rate plus a portion of the deceased’s pension; an older widow(er) (65 or above) can receive up to 60% of the deceased’s CPP pension (subject to a maximum) (). In practical terms, the maximum survivor pension for a widow(er) 65+ is about $860 per month in 2025 (Canada Pension Plan – Monthly payment amounts - Canada.ca). If the survivor is younger, the monthly amount is less (for example, under age 65 the maximum is around $771, because the formula is different) (Canada Pension Plan – Monthly payment amounts - Canada.ca). Note that if the survivor is also receiving their own CPP retirement pension, there are limits on the combined amount – you won’t get two full CPP pensions, there is a cap on the total. But essentially, CPP provides a continuing pension to your spouse after your death, which can greatly help a widow or widower, especially if the deceased was the higher earner.

  • CPP Children’s Benefit: If a CPP contributor dies or is receiving CPP disability, their dependent children are eligible for a monthly benefit. To qualify, the child must be under 18, or 18–25 and attending school full-time. This children’s benefit is a flat rate (regardless of the parent’s contributions). In 2025, it’s about $302 per month per child (Canada Pension Plan – Monthly payment amounts - Canada.ca) (indexed annually). For part-time students aged 18–25, it’s half the amount (about $150). This benefit can help with the costs of raising children after the loss or disability of a parent, and it continues until they finish school or reach the age limit.

  • Death Benefit: As mentioned earlier, CPP provides a one-time lump sum to the estate of a deceased contributor. The CPP death benefit is $2,500 (maximum) (Canada Pension Plan – Monthly payment amounts - Canada.ca). It’s essentially a small life insurance payout to help with funeral costs or other expenses. To get the full $2,500, the contributor must have contributed for the minimum period (at least 3 years, or 10% of the years in their working life with a minimum of 3) (Canada Pension Plan (CPP) | Edward Jones). Most people who have contributed for a reasonable number of years will qualify for the max. This benefit is taxable to the estate or recipient.

These additional benefits mean that CPP is not just a retirement plan – it’s also a form of insurance for disability and a support for your family. If you’re an incorporated professional or self-employed person considering opting out of CPP, remember that by not contributing you lose access to these valuable protections. For example, a self-employed individual who doesn’t contribute to CPP would not have a CPP disability pension to fall back on if they become unable to work, nor would their family get CPP survivor benefits if they passed away. You’d have to rely entirely on private insurance or savings to cover those scenarios. That’s an important consideration.

Finally, note that CPP (retirement, disability, and survivor pensions) are taxable income (Canada Pension Plan (CPP) | Edward Jones). They get added to whatever other income you have in the year, and you’ll pay income tax at your marginal rate on them. There’s no special tax break for CPP amounts (unlike, say, the Age Credit or pension income splitting which apply to other pensions – we’ll touch on splitting in a moment). This doesn’t diminish the value of CPP, but it’s good to be aware for planning purposes: the CPP you receive will have to be reported on your tax return each year.

CPP Planning for Incorporated Business Owners and Professionals

If you’re an incorporated business owner or professional, you may have heard conflicting advice about whether to pay yourself a salary (and contribute to CPP) or take dividends (which do not require CPP contributions). Many incorporated Canadians lean toward dividends to avoid paying the employer+employee CPP premiums on a salary. It might feel like you’re saving money by skipping CPP. However, recent research and expert analysis suggest that maximizing CPP contributions can be smart for most business owners – and avoiding CPP might be a mistake in the long run (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca) (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca).

Here’s why paying into CPP is often beneficial even if you pay both halves:

  • CPP is an investment in a future benefit, not just a tax. When you contribute to CPP as a business owner (paying ~11.9% on earnings up to the limit, split between you and your corporation), you are essentially buying yourself a deferred lifetime income stream. As discussed, CPP acts like an inflation-indexed annuity starting at retirement – that has significant value. The contributions you make now translate into a guaranteed cash flow later. You’re also buying disability insurance and survivor insurance through CPP. If you avoid CPP, you save the contributions now, but you lose that guaranteed pension later (and would need to self-insure for disability/death). Many owners who skip CPP end up needing to draw more from their business or investments in retirement, or they may lack income if they live exceptionally long. CPP provides longevity protection that’s hard to replicate.

  • The cost isn’t as high as it seems once taxes are considered. CPP contributions made via salary are tax-deductible to your corporation (the employer portion) and create an income tax credit for you personally (the employee portion). If you pay yourself dividends instead, you’ll pay corporate tax on those earnings and personal tax on the dividends. The math can get complex, but analyses have shown that the effective “net” cost of contributing to CPP is lower than the raw 11.9% when you factor in these tax offsets and the dividend tax differences (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca). In other words, you don’t actually come out 11.9% “ahead” by paying dividends – the advantage is much smaller, and in some cases salary + CPP can even be more tax-efficient overall. One study showed that once tax effects were included, the savings from avoiding CPP were much less than the value of the CPP pension you give up (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca).

  • CPP benefits from pooling and high-efficiency investing. The CPP fund (managed by CPP Investments) is one of the largest pension funds in the world, with professional management and global diversification. It’s targeting returns that individual investors might find hard to achieve consistently. By contributing, you are indirectly getting exposure to that. More importantly, through mortality pooling, CPP in effect gives you an enhanced return if you live longer than average (since those who die earlier subsidize those who live longer). If you invest on your own, you have to plan as if you might live to 90 or 100 (meaning you can’t spend all your money by 75 just in case). With CPP, you don’t have to worry – the payment keeps coming for life, which allows you to spend more freely from other assets. Some advisors note that by delaying CPP to 70, retirees can actually spend more in their 60s because they know a larger CPP (and OAS) will kick in later to support them (Another Emotional Reason to Take CPP Early). This kind of planning benefit is intangible but important.

  • RRSP room and other benefits: Paying yourself a salary to contribute to CPP has side benefits: salary creates RRSP contribution room (dividends do not). So, by taking salary, you not only contribute to CPP, you can also contribute more to RRSPs, doubling up on retirement savings. Salary also makes it easier to demonstrate income for purposes like mortgages or certain insurance programs. These aren’t CPP benefits per se, but they tilt the scales towards paying a salary rather than exclusively dividends.

In summary, for incorporated individuals, funding your CPP to the max (by paying yourself at least the YMPE in salary each year) can be a wise decision for long-term security. There are exceptions – e.g. if your business is very volatile or you have short-term cash flow issues, you might prefer dividends flexibility – but purely from a retirement perspective, CPP contributions are usually worth it. One financial planner crunched the numbers and concluded that business owners do not get a “bad deal” from CPP; once all factors are considered, the value of CPP was well worth the cost of contributions (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca) (Should business owners avoid CPP by paying themselves dividends? | Advisor.ca). Remember, CPP will pay you (and potentially your spouse) an inflation-adjusted pension for life – something your corporation or investments would have to work hard to guarantee. Thus, many incorporated professionals treat CPP as their baseline pension and still invest corporate profits on top of that for additional growth.

Tip: The maximum combined CPP contribution (employer + employee) for 2025 is about $8,860 (on earnings of $71,300) (Contributions to the Canada Pension Plan - Canada.ca) (Contributions to the Canada Pension Plan - Canada.ca). If you’re self-employed, that’s what you’d pay for the year. In return, if you contribute at the max for 40 years, you could receive on the order of $17,000+ per year in CPP benefits for life (in today’s dollars), starting at 65 (more if you delay till 70) (Canada Pension Plan – Monthly payment amounts - Canada.ca) (CPP retirement pension: When to start your pension - Canada.ca). Plus disability and survivor coverage during your working years. Seen in that light, CPP can be a cost-effective piece of a retirement plan. Of course, every situation is unique, so consult with a financial advisor or accountant about the optimal mix of salary/dividend in your case – but don’t dismiss CPP outright as “wasted” money. Many experts argue the opposite: CPP is an extremely valuable program for those who take advantage of it.

Case Studies: CPP Claiming Strategies in Action

Let’s look at a few simplified case studies to see how different CPP strategies play out. These examples illustrate early vs. late CPP, the impact of survivor benefits, and the perspective of a self-employed individual.

Case Study 1: Early CPP at 60 – “Take the Money and Run.”
Jasmin, age 60, is retiring from her job. She could start CPP now at 60 or wait. Jasmin’s health is average, but she doesn’t have a lot of other savings, and she worries that “I’ve paid in all these years, what if I don’t live to enjoy it?” She decides to start CPP at 60, taking the 36% reduced amount. Suppose her full age-65 CPP would have been $1,000/month; at 60 she’ll get roughly $640/month (CPP retirement pension: When to start your pension - Canada.ca). This smaller pension is enough, combined with her other modest income, to cover her needs. By starting at 60, Jasmin gets money in hand now. By the time she’s 65, she will have collected about $38,000 in CPP benefits that she wouldn’t have if she had waited (not counting annual inflation increases). The trade-off is that her monthly income from CPP is permanently lower. If Jasmin lives a long time (into her 80s), she will end up with less total CPP than if she had delayed. However, if due to health she only lives to, say, 75, she will have collected slightly more over her lifetime than if she started later. Jasmin also appreciates having the extra cash in her 60s to travel. This strategy (taking CPP at 60) tends to make sense for those who need the income early, have shorter life expectancy, or place higher value on money today versus later. Just remember, Jasmin’s CPP cheques are smaller forever – which could be an issue if she reaches 85 or 90 and has little else to rely on.

Case Study 2: Delayed CPP until 70 – “Late but Great.”
Marco, age 65, has just officially retired from full-time work. However, he has a decent company pension and some rental income that cover his expenses at 65. He’s in good health and longevity runs in his family. Marco decides not to take CPP at 65. Instead, he will withdraw a bit more from his RRSP in his late 60s while he delays CPP to the max, age 70. By doing so, Marco’s CPP benefit will grow by 42% compared to 65 (CPP retirement pension: When to start your pension - Canada.ca). If he was entitled to $1,200/month at 65, waiting until 70 will give him about $1,704/month for life (again, plus inflation). He’s essentially “buying” a larger indexed pension by forgoing CPP for 5 years. Marco’s break-even age for delaying from 65 to 70 is around 82 (Taking CPP Early Or Late? How Long Until Breakeven? | PlanEasy) (Taking CPP Early Or Late? How Long Until Breakeven? | PlanEasy). That means if he lives beyond 82, the total CPP he collects will exceed what he’d have gotten by taking it at 65. Marco is quite confident he’ll get there (and even if not, his spouse will get a survivor share). At age 70, his CPP and OAS combined will provide a substantial guaranteed income, reducing withdrawals needed from his investments. In his case, delaying CPP also had a tax benefit: from 65–70 he was in a higher tax bracket due to some consulting income, so skipping CPP then saved him from paying tax on it at ~30%. After 70, his other income will be lower, so the CPP will be taxed less. This strategy (delay to 70) often works well for those who don’t need CPP early, expect to live a long time, and want to maximize secure lifetime income (often to avoid outliving their savings). It requires using other assets in the meantime, but many find the “raise” at 70 well worth it.

Case Study 3: Survivor Benefit Scenario – “Helping the Widow(er).”
Linda and Kevin are a married couple in their late 70s. Both started CPP at 65. Kevin had a much higher earnings history, so he receives about $1,200/month from CPP, while Linda, who took time out for childrearing and had lower earnings, receives $600/month. Unfortunately, Kevin passes away at 78. Linda is now 78 as well. What happens to their CPP? Linda will apply for the CPP survivor’s pension. Because she is over 65, the survivor benefit for her is 60% of Kevin’s CPP (). Sixty percent of Kevin’s $1,200 is $720. However, there’s a maximum combined CPP rule – one cannot normally exceed the maximum CPP amount for a single individual. In 2025 that max is $1,433. Linda was already getting $600 on her own, so adding $720 would total $1,320, which is under the max, so she will get the full $720 survivor pension. Her own $600 CPP continues as well. So after Kevin’s death, Linda’s CPP income changes from $600 (her own) to about $1,320 (combined her own + survivor). It’s not the full $1,800 that both were getting, but it certainly helps. If Linda had no CPP of her own, she could have gotten up to ~$860 (60% of Kevin’s, capped at max) (Canada Pension Plan – Monthly payment amounts - Canada.ca). This scenario shows that CPP does provide for spouses, though not dollar-for-dollar replacement. For couples, it’s important to understand that when one spouse dies, the household will lose one CPP income, but gain a survivor portion of it. Planning joint finances with this in mind is wise. In Linda’s case, CPP’s survivor benefit ensured she still receives a significant portion of Kevin’s pension for the rest of her life, which will help her maintain financial stability.

Case Study 4: Self-Employed Professional – “Maximizing Contributions Pays Off.”
Raj, 50, is a self-employed consultant who has incorporated his business. For the first few years, he paid himself mostly in dividends to minimize payroll taxes and CPP contributions. However, after discussing with his financial planner, Raj decides to switch to taking a salary up to the CPP maximum (YMPE) each year, so that he can contribute to CPP. He realizes that while paying both employer and employee portions of CPP feels costly now, it will entitle him to a lifelong pension in the future. Raj’s accountant shows him that the net cost isn’t as bad after deductions, and Raj values the idea of a steady retirement income floor. Fast forward to Raj’s retirement at 65: by consistently maxing contributions for 15 more years after age 50, Raj is able to get a CPP pension of, say, $1,200/month at 65 (in addition to OAS and his own investments). That’s ~$14,400/year for life, indexed, which he likens to having a several hundred-thousand-dollar annuity. He’s glad he contributed. Moreover, along the way, Raj was effectively covered by CPP disability insurance – had he become disabled at 60, he could have gotten a CPP disability pension (whereas if he’d avoided CPP, he’d get nothing). His spouse will also be eligible for a survivor pension if Raj dies first. Raj’s story shows a common scenario for incorporated professionals: while it’s tempting to avoid CPP premiums in the short run, those who contribute can reap significant benefits later. Raj also found that paying a salary gave him RRSP room and he built up personal savings in tandem. In retirement, he has both CPP and his own portfolio; the CPP acts like a “safety net” base income that allows him to invest the rest a bit more aggressively or spend freely knowing basic expenses are covered. For many business owners, this balanced approach ends up very effective.

These case studies highlight that CPP decisions can vary widely based on personal circumstances. Early vs. late start is a trade-off between immediate money and long-term security; the survivor benefit provides some cushion for widows/widowers; and contributing (or not) as a business owner can alter one’s retirement picture. Consider your own health, finances, and family when making CPP choices – and don’t hesitate to consult a qualified advisor for personalized guidance.

Frequently Asked Questions about CPP

Q1: How do I qualify for a CPP retirement pension?
A: To qualify, you must be at least 60 years old and have made at least one valid contribution to CPP during your working life (Canada Pension Plan (CPP) | Edward Jones). A valid contribution means you earned income and paid into CPP (or had it paid on your behalf by an employer) for at least one year. In practice, virtually anyone who has worked in Canada for even a short period after age 18 will have a CPP contribution on record. If you meet those criteria, you can apply to start your CPP. (Note: Contributing more, and for more years, will increase the amount you get, but only one contribution is needed to qualify for some benefit.)

Q2: How much CPP will I get per month?
A: The amount varies widely per person. It depends on how much you earned and contributed to CPP, for how many years, and at what age you start your pension (Canada Pension Plan (CPP) | Edward Jones) (Canada Pension Plan (CPP) | Edward Jones). Service Canada calculates your pension by taking your best 40 years or so of contributions (dropping some low years) and determining your average lifetime pensionable earnings. As a reference, in 2025 the maximum CPP retirement pension at 65 is $1,433.00 per month (Canada Pension Plan – Monthly payment amounts - Canada.ca). However, very few people get the maximum – you’d need nearly 40 years of max contributions. The average CPP payment for new retirees is about $900 a month at age 65 (Canada Pension Plan – Monthly payment amounts - Canada.ca). Your personal amount could be lower or higher. The best way to know is to check your CPP Statement of Contributions (available through your My Service Canada Account), which provides an estimate of what you’ll receive at 65, and possibly at 60 or 70. Remember, if you take CPP early, the amount will be less (see above), and if you take it late, it’ll be more. Also, CPP is indexed annually to inflation, so your starting amount will rise with the cost of living each year after you start.

Q3: When can I start receiving CPP and do I have to stop working to take it?
A: You can start anytime between age 60 and 70 (inclusive) for the retirement pension (Canada Pension Plan (CPP) | Edward Jones). Starting at 65 gives you your full entitlement; starting before 65 means a reduced amount; starting after 65 means an increased amount (see earlier section for details on the percentages). You do not need to stop working to start CPP (Canada Pension Plan (CPP) | Edward Jones). There is no work test or requirement – it’s based strictly on age and having contributed. If you start CPP while working between 60 and 64, you and your employer will still contribute to CPP, and you’ll earn extra post-retirement benefits. If you’re 65-69 and working while on CPP, you can choose to contribute or not – contributing will again augment your pension slightly (Canada Pension Plan (CPP) | Edward Jones) (Canada Pension Plan (CPP) | Edward Jones). By age 70, contributions stop regardless. So, you have full flexibility to draw CPP while employed or to delay it while retired – whichever suits your financial plan.

Q4: How do I apply for CPP?
A: Applying is relatively straightforward. You can apply online through My Service Canada Account or by filling out a paper form and mailing it to Service Canada (Canada Pension Plan (CPP) | Edward Jones). It’s recommended to apply about 6 months before you want your pension to begin. Service Canada will send you a letter of decision, and once approved, your CPP will start the month you chose (or retroactively up to 12 months if you applied late after age 65) (CPP retirement pension: When to start your pension - Canada.ca). Note that CPP payments are made near the end of each month. If you’re approaching 65 and want to start then, applying a few months early is wise. If you’re delaying past 65, you can apply later – just remember to do so before age 70, since you can’t gain by waiting longer. And if you’re taking it at 60, you can apply as soon as you’re within 6 months of your 60th birthday.

Q5: Are CPP benefits taxable?
A: Yes. CPP payments are fully taxable income (Canada Pension Plan (CPP) | Edward Jones). They will be included on a T4A(P) slip and you’ll report them on your tax return. You can request that tax be withheld at source from your CPP payments (to avoid owing at year-end) or pay tax when you file. There’s no special tax credit for CPP itself (though seniors can claim the Age Credit if income is below a threshold, and CPP counts as income for that). Unlike many employer pensions, CPP cannot be split with your spouse for tax purposes on the tax return (because it’s not eligible pension income for the pension-splitting provision). However, see the next question about CPP sharing which is a different mechanism.

Q6: Can I split or share my CPP with my spouse?
A: CPP retirement pensions cannot be “income split” on the tax return the way RRIF or pension income can for seniors. However, CPP does allow something called pension sharing (often confused with splitting). If you and your spouse or common-law partner are both receiving CPP, you can apply to share your CPP retirement benefits between you (Canada Pension Plan (CPP) | Edward Jones). Essentially, Service Canada will notionally redistribute a portion of each of your CPP incomes based on the length of time you lived together during your contributory years. The total between you doesn’t change, but it can be divided so that one spouse gets more and the other gets less. This is usually done to equalize incomes and potentially save tax if one spouse is in a lower bracket. Both need to be at least 60 and one of you must apply for the sharing. It’s optional and can be cancelled if circumstances change. Note that pension sharing is not available for survivor’s pensions or disability pensions – it’s only for retirement pensions while both spouses are alive. If you divorce or separate, CPP credits can be divided in a one-time credit split, but that’s a different process (it splits past contributions, potentially affecting future benefits for each). In short: you can’t directly split CPP on your tax return, but you can formally share pensions by application, which has a similar effect (Canada Pension Plan (CPP) | Edward Jones).

Q7: Will I get CPP if I never worked or contributed?
A: If you truly never contributed to CPP, you generally cannot receive a CPP retirement pension on your own record. CPP is contributory – no contributions, no benefits (again, except survivor or child benefits based on someone else’s contributions). However, you might still be eligible for the survivor pension if your spouse contributed, or a child’s benefit if a parent contributed and passed away. Also, if you worked in Quebec or in a country that has a social security agreement with Canada, those credits might help you qualify via totalization. But for a straightforward case, no CPP contributions means no CPP retirement payments. Note that even a small amount of contributions (e.g. a summer job or two) will make you eligible for at least a tiny CPP pension from age 60 onward. For those who didn’t work much, the amount will be small, but it’s something. Regardless of CPP, all Canadians 65+ can be eligible for Old Age Security (OAS) even with no work history, since OAS is based on residency, not contributions.

Q8: What happens to my CPP if I keep working after 65?
A: If you continue working between 65 and 69, you can choose whether to contribute to CPP or not. By default, at 65 CPP contributions become optional – you’d have to file an election (form CPT30) to stop contributing if you don’t want to, otherwise your employer will continue to deduct them. Why might you continue? Because those contributions will earn you additional Post-Retirement Benefits (PRB) – essentially small top-ups to your CPP that you’ll receive for life, starting the year after each contribution year (Contributions to the Canada Pension Plan - Canada.ca). If you’re drawing CPP while working in that age range, it can make sense to keep contributing to get a bit more later, especially if you plan to work several years. If you don’t need the extra CPP and prefer more take-home pay, you can opt out at 65+. After you reach 70, you cannot contribute to CPP anymore even if you’re still working (Canada Pension Plan (CPP) | Edward Jones) (Canada Pension Plan (CPP) | Edward Jones). Also, even if you haven’t started your CPP by 70, you won’t contribute past 70 – but you should definitely apply to start CPP by 70 as there’s no gain in waiting. In summary, working after 65 has no impact on your ability to receive CPP (you can receive it and still work). It only gives you the choice to possibly enhance it slightly via contributions up until age 70.

Q9: Is CPP indexed for inflation?
A: Yes. CPP pensions are adjusted each January based on the Consumer Price Index (CPI). The adjustment ensures CPP payments keep up with cost of living increases. For example, if inflation is 2% over the year, CPP payments the next January will rise by about 2%. There have been years with no inflation where CPP didn’t change, but in most years it goes up. Once you start your CPP, your benefit will never go down (even if we had deflation). The annual CPI increase is applied to all CPP benefits (retirement, survivor, disability, children’s). This indexing is a key advantage of CPP – your $1000 today will be something like $1200 a decade from now if inflation accumulates, preserving your purchasing power.

Q10: How does CPP differ from Old Age Security (OAS)?
A: CPP and OAS are two pillars of Canada’s public retirement system, but they are fundamentally different programs. CPP is an earnings-based contributory pension – you only get it if you paid in (or someone paid in on your behalf), and your benefit depends on your contributions. Old Age Security is a demographic pension funded out of general government revenues – you don’t pay OAS premiums; instead, OAS is paid for by taxes. OAS eligibility is based on years of residency in Canada, not on employment or contributions. A Canadian who’s lived in the country for e.g. 40 years after age 18 can get a full OAS (around $691/month as of early 2025), even if they never worked. OAS starts at 65 (or can be delayed to 70 for a higher amount) and is the same for everyone at a given age, but it’s subject to a clawback for high-income seniors – if your income exceeds a threshold (~$86k in 2025), you have to repay some or all of your OAS. CPP has no clawback; it’s your earned benefit. In summary, CPP = work-based pension you pay into; OAS = basic pension from government based on residence, with a clawback for higher incomes. Most Canadians will receive both CPP and OAS in retirement (CPP if they worked; OAS if they meet residency requirements), so it’s not an either/or. Planning should account for both streams.

Conclusion: The Canada Pension Plan is a vital part of retirement planning in Canada, offering secure income to retirees and important protections to workers and their families. Understanding how CPP works – from contributions to benefit calculations to timing choices – can help you make the most of it. Remember to regularly check your CPP Statement of Contributions, consider your health and financial needs when deciding to take it at 60, 65, or 70, and don’t buy into the doom-and-gloom myths about CPP’s future. The plan is solid, and if you’ve contributed, it will be there for you when you need it. Whether you’re a Gen Xer strategizing for retirement, a current retiree looking at your CPP options, or a business owner weighing salary vs dividends, we hope this guide has provided clarity on the CPP’s features and benefits. When in doubt, consult a financial advisor or Service Canada for personalized advice, and enjoy the peace of mind that CPP’s lifetime benefit can bring to your retirement years.

Sources:

David Wiitala
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