So, you’re 65 years old, have no savings, and plan on relying primarily on the Canada Pension Plan (CPP) in retirement, but you’ve heard this will leave you perpetually cash-strapped. Does that mean you should stay at your job? Learn to survive on noodles? Work more to build up savings?
In October 2024, the average monthly CPP payment to anyone aged 65 and just starting their retirement payments was $808.14.
Living on less than $1,000 is no easy feat, especially when inflation continues to drive living costs upward.
And yet so many Canadians rely on CPP as their primary income source in retirement. According to an Ontario Securities Commission survey, 85% of Canadians rely on the federal Canada Pension Plan (CPP) as the vital foundation for their retirement income.
For those young enough, this should be a wake up call: To start saving for the non-earning years.
For others, it’s a reminder: It’s possible to live on CPP alone. But to make it work, you’ll need to make some sacrifices. To help, here are three suggestions.
Delay your CPP claim for a larger monthly benefit
You can sign up for CPP once you reach age 60, but delaying it for a few years allows you to collect your full-CPP monthly benefit.
You also get credits for delaying your CPP claim — a credit for each year past age 60 that you delay. This translates into an 8.4% increase in your monthly benefit, per year, up to a maximum of 42% if you wait to collect CPP at age 70.
By delaying CPP payments, continuing to work and finding smart cost-saving strategies, you could end up in a position where the CPP benefit you collect starting at age 70 is sufficient to live on, without additional savings.
Scale back your living costs and stick to a tight budget
Only a third of Canadians (33%) currently have a financial plan and 59% do not have a household budget for the year.
If your retirement plan is to live on CPP alone, you must be prepared to budget carefully and limit your spending on non-essential items.
Budgeting and tracking can help you understand where your money is going, so you can make every dollar work for you.
With YNAB, you can track spending and saving all in one place. Link your accounts so you can see a big-picture look of your expenses and net worth growth. You can prioritize saving for short or long term goals with the app’s goal tracking feature.
The easy-to-use platform allows you to simplify spending decisions and clarify your financial priorities. Plus, you don’t need to add your credit card information to start your free trial today.
Reduce your housing costs by downsizing
Housing costs account for about 30% of expenses among Canadians across all provinces, according to Advanis.
If you’re forced to rely solely on CPP during retirement, you may need to take steps to reduce your housing costs, and downsizing could be a great solution.
Downsizing could do more than just save you money (as it should allow you the option to pay less rent or reduce those mortgage payments). If you’re a homeowner, downsizing could mean cheaper property taxes and lower maintenance expenses.
If downsizing is not for you, consider refinancing your mortgage to lower your monthly payments. If you have equity built up in your home, you may want to consider refinancing in order to cash out on your home equity. You can use this money to supplement your retirement income or pay high interest debt.
Loans Canada is an online lending platform that makes this process simple by putting you in touch with lenders offering mortgage refinancing suited to your unique situation.
The application process takes about five minutes, and all you need to do is provide some basic information about yourself like your name, address and proof of employment and Loans Canada will provide you with a list of mortgage refinancers to choose from so you can pick the option that works best for you.
Sources
1. Ontario Securities Commission: Profiles of Retirement (Jan 10, 2024)
2. Healthcare of Ontario Pension Plan: New research from HOOPP and Abacus Data finds half of Canadian women have less than $5,000 in savings; most Canadians feel unprepared for retirement (Jun 20, 2024)
3. BMO: One-third of Canadians expect to curtail their spending in 2025 (Dec 17, 2024)
4. Advanis: Housing affordability across Canada (Jun 26, 2024)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
