CPP and OAS: How to get the maximum supplements

The Canada Pension Plan and Old Age Security have been taking a few knocks in this age of bloated government debt and austerity. Canada has managed to weather the worst of the global financial meltdown so far but our national nest egg is feeling some of the heat.

The CPP is currently operating at a surplus and officials assure us it is safe for at least the next 70 years. Returns on the investment portion of the $170 billion retirement plan have outpaced the broader markets but are still coming in below original projections.

The CPP Investment Board invests a portion of the overall portfolio for the long term, but a prolonged market slump and lower contributions from a shrinking workforce could cause the government to rethink its goals or consider increasing mandatory contributions.

The eligibility age for OAS is holding steady at 65 but the coming influx of Baby Boomers with longer life expectancies has pushed the Federal government to postpone it to 67 by 2029. Further budgetary constraints could increase the age of eligibility in the future.

Now, the good news

That's the bad news. The good news is no matter how critics may knock and mock CPP and OAS, it is money in the bank and should be part of any retirement plan.

That plan begins with recognizing that CPP and OAS are retirement supplements — not retirement plans in themselves, and need to be combined with other savings including company pensions, RRSPs and TFSAs.

CPP and OAS benefits vary depending on the individual but here's what you can generally expect:

Canada Pension Plan

The average CPP payout is currently $529 a month. People who are 65 years or older who have been working and paying into the plan all their working lives could collect as much as $986 a month. Payouts are lower for plan members who opt to begin collecting at 60.

CPP payments are indexed to inflation so it's fair to assume they will hold their value at the current levels.

As a bonus the Canada Pension Plan also provides disability and survivor benefits.

Old Age Security

Unlike CPP, Canadians do not pay directly into Old Age Security during their working lives. OAS is paid out by the government to eligible Canadians at age 65.

OAS is also adjusted to inflation.

Right now the average monthly OAS payment is $515 and the maximum amount an individual can receive is $545.

Get the max by doing the math

In total, the average combined annual payout from CPP and OAS is currently $12,528 and the maximum annual payout is $18,372. Depending on how you want to live in retirement that could be a good portion of overall living expenses.

The trick is to plan ahead to bring that payout closer to the maximum by ensuring your taxable income is as low as possible in retirement. Minimum RRSP withdrawals become mandatory when the plan holder turns 71 and must convert the plan to a Registered Retirement Income Fund (RRIF). If those withdrawals are too high the government will claw back some or all of your OAS.

That's when a tax free savings account (TFSA) comes in handy because withdrawals are not considered income (because the original contribution is not deducted).

A good plan varies depending on the individual and that's why it's important to work with a qualified financial planner early in life.

Information about an individual's standing on Canada Pension Plan contributions and payouts are mailed out regularly complete with what you can expect if you remain a contributing member. To find out go to the Service Canada website.

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