Will taking CPP affect GIS?
Recently a client asked for my help deciding when to take his Canada Pension Plan (CPP) retirement pension, and I found the calculations to be so interesting that I just had to share them.
Peter’s history
Peter is currently age 55, and he had retired from working at the end of 2013. He had been self-employed for most of his life, and while he had some pensionable earnings most years, he had only a few years at the Year’s Maximum Pensionable Earnings (YMPE) level ($52,500 for 2014).
Peter’s assumptions
Peter had recently received his CPP Statement of Contributions (SOC), which showed that he would receive $320 monthly if he were age 60 today or $500 monthly if he were age 65 today.
Using these SOC estimates, he had calculated his “breakeven period” as 8.9 years, meaning that he would be further ahead by waiting until age 65 to start his CPP, as long as he lived to at least age 73.9.
Related article: The math on taking CPP early
The reality of the SOC estimates
The SOC estimates are calculated as though you’re eligible for a retirement pension on the date that the SOC is printed. That is, the estimates assume your future earnings will be the same as your current lifetime average earnings, projected through until age 60 or 65.
Related article: Understanding CPP Statement of Contributions (SOC)
Since Peter wasn’t planning to have any earnings after 2013, these results really didn’t apply to him.
When I did the actual CPP calculations for Peter, his real choices (in 2014 dollars) were a retirement pension of $280 at age 60 or a pension of $395 at age 65. This was a far cry from what Peter had expected based on his SOC.
This reality changed his breakeven period to 12.0 years, meaning that he would have to live until at least age 77 before he would be better off waiting until age 65 to start receiving his CPP retirement pension.
How the Guaranteed Income Supplement (GIS) comes into play
Peter doesn’t have a private pension or many RRSP savings, and he expects to be eligible for the Guaranteed Income Supplement (GIS) after he turns age 65.
Related article: Understanding GIS
The amount of GIS that Peter will be eligible for depends on the amount of other income that he has, including his CPP. For the most part, the GIS is reduced by 50 cents for every dollar of other income that a person has.
This means that if Peter waits until age 65 to receive his $395 CPP amount instead of taking $280 at age 60, his GIS at age 65 will be reduced by about $57.50 monthly. (This is half of the amount that he gains by waiting.) And it will double his breakeven period to approximately 24 years, which means that he must live until age 89 to be better off by waiting until age 65 to start his CPP, rather than starting it at age 60.
Conclusion
I don’t recommend that everyone should try to maximize their GIS eligibility, because it really is intended just for low-income seniors and maximizing it is not something to strive for.
I do recommend, though, that if you think you will be eligible for the GIS, don’t ignore how it is affected by your other income sources and how it should therefore affect your other retirement income decisions.
Comments
One astute reader has pointed out that Peter won’t be eligible for GIS at age 65, due to the upcoming change in age-eligibility for OAS. This is absolutely true, and while it doesn’t change the overall principle that GIS eligibility should be considered when deciding when to start your CPP, it would reduce Peter’s breakeven calculation by a year or two.
When I was making my 2 decisions whether to start collecting CPP at 60, 61,62, 63, 64, or 65, as well as whether to collect OAP at 65 up to 70, I did the calculations too. I am not concerned with the GIS as I have other income.
My parents are living into their 90’s, so I expect to have a longer than normal life; my health is excellent.
My conclusion, after looking at the numbers, and all, is to take the money now and happily spend it – with gratitude that I live in Canada!
I still say that deciding on early or late CPP is a complete no-brainer. The one critical variable that could affect the calculation is how long you will live. Since no one can know for sure how long they will live, you’re nuts not to take it as soon as possible. Unless of course, you’re OK with your heirs getting only $2,500 (taxable) even though you’ve contributed tens, if not hundreds of thousands of dollars to the plan. If you’re 60 and have debt you MUST take it and payoff debt with it. Pre-tax, after tax, still working, not working – I don’t care.
Don
I don’t agree with you that it’s a no-brainer, but I will concede that you’re entitled to your opinion.
Just in case you’re interested, if you contributed the maximum CPP amount every year from 1966 to 2014 as an employee, you would have contributed a total of $43,111.05. If you were self-employed, you would have contributed double that amount. Nobody has contributed hundreds of thousands of dollars yet.
It just feels like hundreds of thousands I guess. BTW, like millions of other CPP contributors, I am self employed and have been for many years so I’m close to your maximum of $86,222. And as you suggest, that’s how much I’ve contributed so far. So how much longer will I have to contribute to reach the $100K (or one “hundreds of thousands of dollars”)?
On the question of it being a no brainer, what criteria do you suggest the decision hinges upon for the average person? Do you suggest we roll the dice on what we believe our life expectancy will be?
I’ve been in Canada since 1985 and let me tell ya, when you work with horses nobody pays cpp for you, you get paid cash, even from team members, then figure out what you owe For me it would be better to take my money at 65, I will have more monthly income. Besides, I can shovel shit somewhere.
“Yet” being the operative word. Like millions of other CPP contributors, I’m self employed and still working and contributing. How long will it be until we have contributed ONE “hundreds of thousands of dollars” to the plan?
And what exactly is the criteria that the average person should use to decide about taking benefits early? The only arguement I’ve ever seen requires a rolling of the dice on life expectancy. Do you have other suggestions?
Don
If you have already contributed the maximum every year since 1966, that would make you at least 66 years old now. I’d recommend that you take your CPP immediately and stop contributing before you ever reach that milestone.
If you’re exaggerating a bit though, and you didn’t start contributing in 1966, I’d need to know when you were born and when you first starting contributing at the maximum rate as a self-employed person.
And that brings me to the answer to your second question also. In my mind, the decision should be made on accurate numbers, tailored for each individual.
Maybe I wouldn’t recommend rolling the dice on life expectancy if the breakeven age for me was 85ish, but maybe I would if it was 75ish.
It’s one thing to be concerned about leaving money on the table if you die young, but some people are equally concerned about outliving their money. For them, the more that they can increase their fully-indexed CPP and OAS pensions, the better.
I don’t think there’s a one-size-fits-all answer for everyone.
Hi i am wondering.. if i want to rely on the government income.., and would need the GIS (guaranteed income supplement).. it sound like, using an example.. that weather i take my CPP at 60 or 65 i end up in the same place..
$22k ( roughly) per year..
Hi Neil – If you’re eligible for GIS, it will definitely reduce the net gain of delaying your CPP, but you should likely still be a little bit ahead by delaying your CPP. Using very rough estimates only, of your choices for CPP were $640 per month at age 60 or $1,000 per month at age 65, it appears that you would be ahead $360 per month at age 65. Your GIS would be reduced by about 50% of that increase however, meaning that you would really only be ahead by about $180 per month. It is certainly something to think about anyway.
(sorry, the first post looked like it went into the twilight zone so I re-posted)
I respectfully disagree. Unless you’re a very selfless individual and believe that leaving money on the table for the enjoyment of your fellow CPP contributor is OK or may give you the extra Karma points you need to get into heaven, how long you live to collect benefits is the only factor that matters. You can’t solve a calculation without it and it’s just too unknown an assumption to really rely on.
Also, the age 73 breakeven point only looks at the difference in the dollars received. To properly frame the question you need to apply even a small amount of growth to that early benefit. Even a modest 2% pushes the breakeven to 76, 5% to 79. And if the benefits are used to pay down credit card debt of 12% there’s just no contest. Anyway, that’s my 2 cents. Consider me firmly in the camp that except in a very unusual circumstance (that I can’t think of but you’ve probably encountered), taking CPP early is the way to go.
Don
That sounds like a fine place to leave it!
I’m not coming out in favour of taking it early or late. I’m just suggesting that you should have accurate numbers as your starting point, and consider as many relevant factors as you can.
I agree that life expectancy is the greatest single factor in the breakeven equation, and while I agree that it is uncertain I don’t agree that means you ignore it.
Why do some accounting firm ignore the laws relating to CPP contribution? Based on my experience not contributing to the plan when one is self employed works in favor of the CRA who is supposed to investigate and assure all tax laws are followed?
I find it interesting to see that no part of this discussion considered postponing taking CPP and for each year postponed to age 70 receive an additional 8.4% or 42% for the full 5 years. When combined with OAS also being postponed – and receiving an extra 36% at age 70, this makes this guaranteed income which is inflation protected particularly valuable.
I find that many of my clients aged between 65 and 70 are continuing to work and don’t need the pensions currently anyway – so why not postpone? And its especially important to postpone OAS if it’s being clawed back anyway.
Hi Robert – This article was written for people at the other end of the income spectrum; those eligible for GIS. I fully agree with you though, that if you’re still working after age 65 and your income is in the OAS clawback range, deferring at least OAS is a no-brainer. As for deferring CPP, I’d need to consider what their planned income after age 70 would be though, because if having a larger CPP after age 70 pushes them into the OAS clawback range maybe deferring CPP is not a good idea?
Doug,
What about the contributions I’m making to the Post Retirement Benefit of the CCP?
It’s like, $2500/year for a $20/month increase. Looks like I should stop those, save the $2500/year. That money saved into a tax free account would be better served, no?
Again, it’s the ‘how-long-will-I-live’ question. Hard to know what to do, because once you are retired, there is NO going back and saying….’geesh… I could use more monthly income’
Hi Hal – Until you were age 65, contributing to PRBs was mandatory anyway, but if you know that you’ll be eligible for GIS once you’re receiving your OAS, I probably wouldn’t make any further CPP contributions after age 65.
In 2021 I am receiving CPP plus OAS. I have no other income. Will I be eligible for the GIS?
Hi Leny – As long as you are single and living in Canada, the answer is “Yes”.
Thanks for the update on why this article was written. I stumbled across it from a search so did not see the main concept.
However, I would like to mention taking CPP early eliminates the Disability provisions which is otherwise valid to age 65 and has a larger payout than normal CPP benefits. This is a commonly missed consideration by those considering taking it early.
Hi Robert – I will agree with you again on the disability versus retirement issue, and I have written a separate article on that issue: https://retirehappy.ca/cpp-disability-benefit/
Then again, the Liberal government indicated recently that they were going to fix that issue, although they gave very little detail: https://retirehappy.ca/proposed-changes-canada-pension-plan/
Something I would like clarified is: does calculating the GIS take into account your CPP and your OAS? I have found a few contradictory answers. I have no pension other than government. I have very limited savings. When looking to see if I’m eligible for GIS there is no straight answer as to whether your pre GIS income includes CPP and / or OAS.
So, bottom line … is your GIS based on the total of your monthly CPP and GIS, or one or the other?
Hi Gina – When determining the amount of your GIS entitlement, income includes CPP but excludes both OAS and GIS. There is a “GIS top-up” provision for anyone who is receiving only a partial OAS pension, so to that extent the amount of OAS (in terms of partial versus full) that you’re receiving will affect the amount of your GIS. I hope this explanation helps a bit?
I “still” don’t know what the maximum amount per month is, if for instance I have approximately $750.00 in CPP and decide to retire at 65 (given that’s now) as a single person and, have no company pension.
From what I can gather from the GIS sliding scale…the maximum combined CPP of 750 and with maximum OAS and GIS is around $1,500.00 per months or $18,000 per year.
How does anyone live on $18,00 a year? that can’t be accurate, or is it?
Hi Mary – If your only income aside from OAS/GIS is CPP of $750 per month ($9,000 per year), your OAS/GIS would be approx. $985 per month ($11,820 per year) for a combined total of $20,820 per year. Not a lot better perhaps, but that’s what it would be.
ok i get 486.oo CPP ,had to take my cpp out at 60 because of provincial law because im on provincial dissability,got screwed big time on that,and wcb screwed me over,oh well,my question is what will i get for gis plus old age next yr,very complicated to me,also would i be entitled to safer rent program or does that put me into the too much income category,i get 782.00 on disability because my cpp is unearned income ,if i did not earn it not sure who did lol but anyway hope to hear a response and thank you
Hi Aubrey – If your only other income at that time is CPP of $486 monthly and if you’re single, your combined OAS would be $1,207.91 monthly.
I have searched government sites for 2 days to find an answer with no success. I want to know which income tested benefits I will lose by receiving CPP pension which reduces my GIS benefit? February 2021 CPP letter announced I was proactively enrolled for September 2020 as I reached 70 years age in August.
CPP for 2021 – $287.24/$3446.88.annual. 2020: OAS/$7,364.19 + WCB/$2,632.80 + GIS/$9,595.29 = $19,592 —– Age deduction & DTC & OTB & GST & ClimateA.
2021 estimate: OAS/$7,384.44 ($615.37) + WCB/$2,635. + CPP/$3,446.88 + GIS/$6985.44 (table 1) = $20,451.
What I’ve calculated from a 2021 tax test is that I lose $30 from the climate benefit; OTB & GST credit stays the same. What other benefits am I at risk of losing by accepting the CPP? Is there anything other than what is income tax benefit; ie. gov’t senior programs? I see that I can postpone for 6 mon. > 1 year; somehow I don’t think that is of much advantage.
Are my calculations wrong? I don’t understand how my CPP can add $3,466. but with the GIS clawback I only gain ~$ 860 per year. Isn’t that more than the 50% clawback (CPP + WCB)? Is that credible?
I am amazed that CRA allows a $5000. exemption to employed seniors, 70 years of age and yet disabled seniors who physically can not work are penalized with a 50>75% GIS claw back. At 65 yrs. I was forced off ODSP because OAS+GIS was $12. per month higher; but I lost $~3000. per year in medical benefits, so I’m naturally skeptical about programs that are ‘supposed’ to benefit me.
I appreciate your assistance. thank you
Two questions:
I am age 66 and recently sold my business. I have after tax cash available that could see me through to age 71 so I am considering delaying CPP, OAS and the conversion of my substantial RRSP’s to RRIFS. I also topped up my TFSA when I sold my business. I am married, my wife is 64 and might earn $15,000 next year. As you can see, I could structure my life so that my taxable earnings are zero (and withdraw from my TFSA if necessary) and my wife could even quit her covid-threatened job so that family income could be zero.
1) If I defer CPP to age 70 can I collect GIS? I thought there was talk that you could not collect GIS if you had made the decision to delay CPP past age 65.
2)If I take $5000 as employment income (commisisons) from a company that I own, I would be an employed senior, so it might be exempt from income tax, but would still reduce GIS, correct? Or can $5000 be earned, exemption applies, and full GIS be received?
Hi Don
1) You cannot receive GIS if you have delayed OAS (because GIS is a component of OAS), but you can collect GIS if you have delayed CPP.
2) The first $5,000 of income from employment or self-employment are exempted for GIS purposes each year.
Thank you very much, Doug.
Don
I understand the GIS rules regarding employment income. However, I am confused at how CPP is treated. Is it deducted 100% from GIS?
ie. I get $456 in CPP a month, does my GIS decrease by $456 or is it 50%??
Hi Jackie – It depends on a couple of things, but it’s usually a reduction of 50% but sometimes as high as 75%.
Hi Doug
I just recently retired (September) I am 66 years old . I took my CPP at age 60 and started receiving my OAS at 65 .I do not have any other means of income myself . My wife works and has an income of approximately $37000.annually . My question is will I be able to receive any GIS
HI MIke – I’d need a bit more info to answer conclusively, but it’s certainly a possibility so I would suggest that you apply now.
What additional Information do you require
Too much to get into without charging a fee.
Hi, I retired last May. I started getting my cpp at 62,I’m 65 now. After retiring I received cpp, oap, my work pension of $480, so eventually got $540 gis. Just got my taxes done and they estimate my gis to be $350. I worked part of last year so my income has dropped since retirement so why would I get less gis ?
I’ve looked for this info on your site, even in the comments, and haven’t found it (which doesn’t mean it isn’t there :-). In any case, I’ve confirmed with a Service Canada representative (who sounded quite certain) that an increase in CPP does not immediately cause a decrease in GIS (by ~50%) but follows the usual procedure of the GIS reduction starting in July of following year, based on the previous year’s full GIS-reducing income (including the newly started delayed CPP). I’d like to say this is generous of govCan (with left-hand GIS and right-hand CPP being quite ‘knowable’ for immediate simultaneous enactment), providing a noticeable amount of time when one can receive both without any reduction.
Hi John – This would be correct unless the individual’s GIS was based on their estimated current-year income due to them retiring or having a reduction in their pension income.