Early Retirement in Canada: FIRE, the Years Before CPP and OAS, and Your Accounts

Retiring early means paying for more years from savings, including the years before CPP and OAS start, and usually receiving a smaller CPP pension. This hub covers how much you need, the gap before the government benefits, how CPP and OAS are affected, and how to use the TFSA and RRSP, with a guide for retiring at 50, 55 and 60. It is part of the retirement section.

How much you need

At the 4% rule, a FIRE target is 25 times your yearly spending, the inverse of the 4% rule. That rule comes from US historical data in which the money lasted at least 30 years; someone retiring at 45 may need it to last much longer, which calls for a lower rate and a larger target.

The FIRE number page shows how long it takes to reach a target at different savings rates, the coast FIRE page shows when you could stop saving, and barista FIRE covers working part-time instead of stopping completely.

The years before CPP and OAS

You can start the CPP retirement pension any time from 60 to 70 (65 is the standard age): it is 0.6% lower for each month before 65 (up to 36% less at 60) and 0.7% higher for each month after (up to 42% more at 70), with no gain from waiting past 70; applying after 65, you can backdate the start up to 11 months, but not before the month after your 65th birthday. OAS starts at 65 at the earliest. Until then, savings and any work or pension income cover all your spending.

Once they start, CPP and OAS reduce what savings must provide; the retirement income floor shows what they pay together.

How retiring early lowers CPP

The base CPP pension is worked out from your earnings in each year from 18 until the pension starts. Years after you stop working count as zero, but about 8 of the lowest-earning years are left out. Periods when you had low or no earnings because you were the primary caregiver of a child under 7 can be left out of your CPP calculation, if the children were born after December 31, 1958 and you or your spouse received Family Allowance or qualified for the Canada child benefit; you apply for it when you apply for any CPP benefit.

Your own estimate, from your actual record, is in My Service Canada Account (your CPP statement). Starting CPP early reduces it further: CPP at 60 vs 65 vs 70.

OAS

You can get the OAS pension from age 65 if you have lived in Canada for at least 10 years since age 18 and are a Canadian citizen or legal resident when it is approved (living abroad, you need 20 years and must have been a citizen or legal resident the day before you left); 40 years after age 18 gives the full pension, fewer years a partial one. Working doesn't affect eligibility, but high income is taxed back. Retiring early doesn’t change OAS, which depends on years lived in Canada, not on work. A partial pension is paid in fortieths of the full amount, and if you live abroad the recovery tax still applies in countries where Canada’s non-resident tax on pensions is 25% or more.

TFSA and RRSP

• TFSA. The annual TFSA dollar limit is the same for everyone eligible, but your room is specific to you: the annual limit is added from the year you turn 18 as a Canadian resident (2009 at the earliest), unused room carries forward, withdrawals are added back the following year, and no room is added for a year you were a non-resident the whole year; changes in the value of your investments don't affect it. Income earned in a TFSA and TFSA withdrawals don't reduce federal benefits such as OAS, GIS and EI, or credits such as the Canada child benefit, the Canada workers benefit and the Canada Groceries and Essentials Benefit (formerly the GST/HST credit). If you move abroad: A non-resident can keep a TFSA and withdraw from it without Canadian tax, but gets no new room for a full year of non-residency, and a contribution made while a non-resident is taxed at 1% a month until it is withdrawn in full or residency resumes.
• RRSP. You can withdraw at any age. Your RRSP issuer withholds tax on a withdrawal at a rate set by its size, applied to the whole amount: 10% up to $5,000, 20% over $5,000 to $15,000 and 30% over $15,000 (in Quebec 5%, 10% or 15% federal plus 14% Quebec); non-residents have 25% withheld unless a treaty lowers it. The withdrawal is income for the year, so the final tax can differ. An RRSP must mature by December 31 of the year you turn 71: by then you convert it to a RRIF, buy an annuity, or withdraw it as taxable income (or combine these).

The years between retiring and the start of CPP and OAS can be low-income years, when RRSP withdrawals are taxed at low rates; what to do with money after retirement covers the order of withdrawals.

Health coverage

Provincial health insurance covers doctors and hospitals at any age. Workplace coverage for prescription drugs, dental and vision usually ends when you stop working, unless your employer offers retiree benefits; health insurance compares private plans.

Risks to plan for

• A market fall early in retirement, while you are withdrawing, does the most lasting damage; a cash reserve and flexible spending reduce it.
• Inflation over a long retirement; CPP and OAS are indexed, savings are not.
• Living longer than planned, which a lower withdrawal rate and deferring CPP or OAS help with.
• Health and long-term care costs that public plans don’t cover.

Other benefits that depend on work

• CPP disability benefit: To get the CPP disability benefit you must be between 18 and 65, have a mental or physical disability that stops you from working at any job on a regular basis and is long-term (not expected to get better) or likely to cause death, and have contributed to the CPP in 4 of the 6 years before your disability stopped you from working (or 3 of the 6, if you contributed for 25 years in total).
• EI: To get regular EI you must have lost your job through no fault of your own, have been without work and pay for at least 7 days in a row, have worked 420 to 700 insurable hours in the last 52 weeks depending on your region, and be ready and able to work and looking for work. Retiring by choice doesn’t meet these conditions.
• Canada workers benefit: it requires working income.

Guides in this hub

• Retire at 50, retire at 55 and retire at 60: what each age means for savings, CPP, OAS and pensions.
• FIRE number and coast FIRE: the targets and how long they take.
• Barista FIRE: semi-retirement with part-time work.

Related guides

• How to retire at 65 and how much you need to retire
• Retirement income hub
• Pensions