Canada Pension Plan payments increased just 2.6 per cent for 2025 – a big drop from the 4.4-per-cent hike last year – putting a squeeze on retirees still grappling with lingering effects of inflation.
Starting this month, the maximum monthly CPP payment for those starting their pension at age 65 will be $1,433, up $68.40 from last year. The smaller increase is because of cooling inflation, which is what CPP adjustments are tied to.
Although prices are not rising as fast anymore, costs for key essentials, such as groceries and gas, still remain much higher than prepandemic levels, with many saying the latest CPP increase falls short of what retirees actually need. This could mean retirees will burn through their savings faster than expected, causing them to rethink their retirement plans.
“The cost of things has skyrocketed all over the place,” said Dianne More, a 74-year-old retired teacher living in Markham, Ont. “As a retiree, it feels like we don’t have any control over it.”
While the rate of inflation is falling, prices are still about 12 per cent higher than three years ago. Laura Tamblyn Watts, chief executive of the advocacy group CanAge, says the latest CPP increase isn’t enough to help retirees keep up.
“The numbers don’t add up,” Ms. Tamblyn Watts said. The current inflation rate “doesn’t equate with the real cost of things.”
CPP payments are adjusted every year based on how much Canadians paid for goods and services, as tracked by Statistics Canada. This year’s adjustment is based on data from November, 2023, to October, 2024, compared with the year prior.
The idea is CPP payments rise in line with inflation, but Ms. Tamblyn Watts says there is a flaw in the system: While overall inflation is down, the cost of items and services that seniors need are still climbing faster.
For example, inflation hit 1.9 per cent in November, but grocery prices still rose 2.6 per cent, making food prices 19.6 per cent more expensive than in 2021.
Ms. Tamblyn Watts said that one way to address this issue is by overhauling how CPP payment increases are calculated. Specifically, she proposed adjusting the basket measure used to measure inflation, so it better reflects the expenses seniors actually face.
For Ms. More, higher costs have meant cutting back. She now spends less on discretionary items and more time scouring flyers for grocery deals. She delays filling her gas tank until 9 p.m., hoping for better prices later in the day.
She says the fact that this year’s CPP increase is smaller is discouraging, considering the costs she faces. “We’re struggling because we’re on a fixed income,” she said. “There isn’t money for the extras.”
While CPP increases rise or fall with inflation, retirees’ total income growth largely depends on how their savings are invested.
For those with a financial cushion, investing in stocks can provide long-term gains. But soaring costs have made investing a challenge for some retirees, who need their money readily available for day-to-day expenses.
David Field, a certified financial planner and founder of Papyrus Planning, advises retirees to have both short- and long-term financial strategies.
In the short term, retirees grappling with higher costs shouldn’t be afraid to dip into their savings, Mr. Field said. “Sometimes you just have to get through now, but things will be fine in the long term,” he said.
However, this strategy can create challenges if retirees don’t cut back on discretionary spending and end up withdrawing savings faster than planned, he said. Regular budget reviews can help identify where spending can be reduced.
Mr. Field recommends that retirees avoid drawing on their stock investments during this period and instead rely on other savings to cover short-term expenses.
In terms of managing investments that are already in the market, Mr. Field said that investment strategies shouldn’t vary significantly between periods of high and low inflation. Rather than attempting to time the market, retirees should focus on the long-term growth of their investments.
Once retirees gain control over their immediate costs, they can focus on the long term by continuing to invest. “The only way to stay ahead of future inflation is through stocks,” Mr. Field said.
