Mar 31, 2026
Consider a common, albeit hypothetical scenario. James (58) and Jenny (57) are empty-nesters. Both of their kids are married and they’ve helped them with weddings, vacations and even buying a new home. Now, they want to finally reap the benefits of their hard work by retiring in the next couple of years and traveling abroad. But they’re wondering what the best approach is given their investments and future retirement income.
To start, let’s assume the couple has managed their finances well. The Ontario couple owns a home valued at around $750,000, have $500,000 invested in Registered Retirement Savings Plans (RRSPs) in mutual funds, and $250,000 in their respective Tax-Free Savings Accounts (TFSAs), which is invested in a combination of exchange-traded funds (ETFs) and guaranteed investment certificates (GICs).
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Income-wise, James takes home $100,000 pre-tax each year and Jenny makes $90,000 before tax annually. James is set to start earning his pension in two years’ time, which works out to $45,000 a year pre-tax — Jenny will also earn her pension at the same time, coming in at $43,000 before taxes. Once they turn 65, however, those pensions will be cut in half due to their bridge benefits ceasing. Bridge benefits are additional monthly payments from their employers for retiring early, which stop at 65 (1).
In terms of expenses, the couple spends approximately $40,000 a year. They also have budgeted around $20,000 a year for vacations. In total, the couple expects that they will need to spend around $7,000 a month after tax ($84,000 annually) to keep up with the lifestyle they want and keep a solid financial buffer in place — more than their pensions can cover.
So, they wonder: what’s the best way for them to cover these expenses? Should they lean on their Canada Pension Plans (CPP) to fill the gap or tap into their RRSPs? Is this kind of retirement plan feasible?
CPP or RRSP: What’s the right option?
As it stands, James and Jenny are expected to earn around $64,000 post-tax, so they’re shy of their income goal by around $20,000 annually or $1,666 each month. Let’s compare the merits of tapping into CPP early to cover these gaps or dipping into their RRSPs.
On the one hand, CPPs are a source of reliable, government income (2) that can continue to payout until you pass. However, in James and Jenny’s case, choosing to start taking CPP early at 60 will severely impact their payments in the future and lower their retirement income overall. By taking their CPP at age 60, they shrink their payments by 36% — a reduction of 7.2% annually for each year prior to their 65th birthday (3). Currently, the average CPP payout is $803.76 per month (4), so at a 36% reduction, they would each earn only $514. This lower CPP amount could cause them to dip even further into their retirement savings in their later years, when both of their pension incomes drop significantly at 65.
Moreover, taking out CPP right now would not cover their gap expenses entirety. They would still have to cover around $667 each month from their savings.
A better option is for the couple to tap into their RRSP savings now and delay their CPP benefits until they hit age 65. While they have to pay a 30% withdrawal tax for taking out the $30,000 to cover their expenses — and potentially additional income tax if their income tax bracket increases after the withdrawal (5) — the couple won’t face a major CPP income hit for the rest of their lives. James and Jenny will also be withdrawing exactly 4% of their retirement income, which has long been considered a safe rule (6).
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By delaying their CPP benefits until 65, the couple gains a much higher payout, which will help them meet their retirement budget needs into the future.
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How you can decide which income source is best for your needs
Like anything in the personal finance world, there isn’t a one-size-fits-all solution. The same goes for deciding on whether to tap into CPP benefits versus your retirement savings. That said, there are some key considerations Canadians need to take into account when making such a major decision.
- Consider delaying CPP. Delaying receiving CPP benefits until you are 65 or older is generally a smart move, as taking them early reduces your overall income. Additionally, because CPP is indexed to inflation and therefore inflation-proof, relying more on CPP in later years instead of RRSPs can reduce your investment risk overall (7).
- Review your retirement budget and timeline. While the math might say that delaying CPP is a net positive, sometimes life takes precedence. Review your retirement budget, savings and timeline to see if you have enough to comfortably cover expenses. If not, taking CPP early might make sense.
- Consider other benefits. Additional government benefits kick-in at age 65, such as the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) for lower-income Canadians. Having a higher income level when these benefits begin could result in clawbacks — additional tax paid on retirement income (8). Getting a picture of what your total retirement income looks like at 65 is important to not inadvertently step into these tax traps.
Bottom line
There’s no universal formula for funding retirement. However, it’s important to consider the big picture when deciding how to fund your golden years and what you plan to do with them. For James and Jenny, their best option meant using their savings strategically in the early years while preserving the long-term value of their CPP benefits.
Delaying CPP may not be the right move for everyone. But for Canadians with sufficient savings, it can act as a powerful form of longevity insurance — and provide stable, inflation-protected income later in life when other sources may decline.
That said, the best approach is one that aligns with your personal circumstances: your health, your savings, your lifestyle goals and your risk tolerance.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
HOOPP (1, 7); Government of Canada (2, 4, 5, 8); Credit Counselling Society (3); Morningstar (6)
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Brett Surbey is a corporate paralegal with KMSC Law LLP and freelance writer who has written for Yahoo Finance Canada, Success Magazine, Publishers Weekly, U.S. News & World Report, Forbes Advisor and multiple academic journals. He and his family live in northern Alberta, Canada.
