A popular question from soon-to-be retirees is, “How many years do I have to work to get the maximum CPP?”
The Canada Pension Plan (CPP) makes up a good portion of the retirement income relied on by seniors. It was originally designed to replace 25% of pre-retirement income and will increase to 33% when ongoing enhancements are fully implemented.
In this article, I cover how much the maximum CPP is in 2023, how long it takes to get the maximum CPP, and the CPP benefit increases planned for the future.
How Many Years Do I Have To Work To Get Maximum CPP?
To get the maximum CPP benefit, you will need to meet two conditions:
- Make CPP contributions for at least 39 years during your working years. Of the 47 years between ages 18 and 65, you must have contributed to the CPP for a minimum of 39 of these years.
- Make the maximum CPP contribution in each of the 39 years, based on the Yearly Maximum Pensionable Earnings (YMPE) each year … more on this later.
What is the Maximum CPP Benefit in 2023?
The maximum CPP retirement pension in 2023 is $1,306.57 per month, assuming you start collecting at the standard age of 65. This is equivalent to $15,678.84 per year.
The average retirement CPP benefit paid out to beneficiaries in 2023 is $717.15 per month, which is 42% lower than the maximum.
Other maximum CPP benefits in 2023 include:
|CPP Pension||Maximum benefit in 2023||Average benefit in 2023|
|Post-retirement benefit at 65||$40.25||$9.53|
|Disability benefit at 65||$1,538.67||$1,078.07|
|Post-retirement disability benefit||$558.74||$524.64|
|Survivor’s pension (<65 years)||$707.95||$480.52|
|Survivor’s pension (65+)||$783.94||$313.59|
|Children’s benefit (disabled CPP contributors)||$264.53||$281.72|
|Children’s benefit (deceased CPP contributors)||$264.53||$281.72|
How To Calculate The Maximum CPP
The maximum CPP contribution required per year is based on a percentage of your maximum contributory earnings (MCE).
For example, the YMPE for 2023 is $66,600, and there is a basic amount of $3,500 that is not subject to CPP contribution rates.
After deducting $3,500 from $66,600, you are left with $63,100 ($66,600 – $3,500) in maximum contributory earnings.
If your income is $66,600 or higher in 2023, you will pay $3,754.45 in employee contributions. If you are self-employed, this is doubled to $7,508.90 (i.e. you pay both employer and employee portions).
CPP contribution rates over the last 5 years are as follows:
|Year||Maximum annual personable earnings||Exception amount||Maximum contributory earnings||Employee & Employer contribution rate (%)||Maximum annual employee & Employer contribution||Maximum annual self-employed contribution|
In the past, you could calculate how much the maximum CPP benefit was going to be by calculating the Average Year’s Maximum Pensionable Earnings (AYMPE) and multiplying it by 25%, which is the income replacement level at which the CPP was set.
AYMPE is calculated as the average of the YMPE over the last 5 years.
For example, the AYMPE in 2023 is (($66,600 + $64,900 + $61,600 + $58,700 + $57,400) ÷ 5)) = $61,840.
Multiply $61,840 by 25%, and you have a total annual CPP benefit of $15,460 or $1,288.33 per month.
As you can see, this amount is lower than the $1,306.57 maximum paid this year (a difference of $18.24).
This is because of the CPP enhancements set in motion in 2019.
Under this plan, CPP benefits will gradually increase over the next several decades and eventually replace one-third or 33% of the average pre-retirement employment earnings.
At the same time, contribution rates will increase from 2019 to 2023, and new higher limits (Year’s Additional Maximum Pensionable earnings – YAMPE) will be introduced in 2024 and 2025.
The slight increase in the CPP payment in 2023 is due to the enhanced CPP benefit.
When the new CPP is fully rolled out, you will need to contribute the maximum for 40 years (no longer 39 years) to get the maximum CPP benefit.
You may be able to drop out some months or years from the calculation, including periods of low or no salary, when you were raising children, and periods of disability.
For a CPP calculator that estimates how much you could receive, try the Canadian Income Retirement Calculator.
The base CPP contribution rate in 2023 is 5.95% or 11.9% for self-employed individuals.
How Much CPP Will I Get at 60?
You can start taking CPP benefits earlier at age 60, instead of the traditional 65.
If you plan on retiring earlier, your CPP benefits are reduced by 0.6% for each month before age 65. This is equivalent to a 7.2% decrease in benefits per year and up to a permanent decrease of 36% at age 65 (i.e. 0.60% x 60 months).
Assuming you are eligible for the current maximum monthly CPP amount of $1,306.57, if you start at 60, you could receive approximately $836 per month after accounting for the full 36% reduction.
If you choose to delay CPP until age 70 instead, you receive a 0.70% increase for each month after age 65 (i.e. 8.4% increase per year) and a maximum increase of 42% at age 70.
The maximum CPP payment in 2023 is $1,306.57 per month or $15,678.84 per year.
You will need to work and contribute the maximum CPP rate for at least 39 years to get the full amount.
This depends on several factors, including your health and financial situation. Getting CPP at 60 will reduce your monthly benefit, while delaying it until 70 will increase your benefits. Here are some factors to consider when taking CPP at 60 or at age 70.
You can use the retirement income calculator provided by the Canadian government to estimate your pension benefits.
No, CPP benefits are not available at age 55. The earliest you can collect is at 60.
The maximum OAS payment in 2023 is $687.56 for seniors aged 65 to 74, and $756.32 for seniors aged 75 and over.