The other day I was reading an article on Facebook about CPP and OAS and then I
was reading the comments after from everybody and what I realized almost
immediately was that basically every single person that was commenting had
absolutely no idea what they were talking about. So what I've decided to do
is spend the next three weeks talking to you guys about government pension plans,
which make up the majority of at least the beginning of everybody's retirement
plan, so I think you should have an understanding of how these things work.
How much you can expect to get paid and why you can expect that much. So the
first plan that I'm going to talk about today is CPP or the Canada Pension Plan
which is basically the most complex pension plan that Canadians get and any
employee is entitled to this plan. So how does CPP work?
Well first off everybody during their working years pays into CPP as long as
they're an employee of a company and their employer has to match their
contributions, so for a self-employed person like me I have to make my
contributions as the employee and the contributions as the employer. Now how
much do I pay depends on how much money I make. So you're gonna pay an amount
that is equal to 4.95% of YMPE and YMPE is the yearly
maximum pensionable earnings and in 2017 this number is fifty five thousand three
hundred dollars, however you do not have to contribute to CPP
on the first thirty five hundred dollars you make. So if you make that or less you
don't have to contribute. So this year if you make at least fifty five thousand
three hundred dollars then you're gonna be paying twenty five hundred and sixty
four dollars into CPP and your employer is going to match that amount exactly.
Now if you make less than that then you're not going to fully fund CPP for
the year and in the end of the day you most likely won't be entitled to your
full CPP benefit, unless you always made over that threshold of YMPE. However the
government does do something nice here where they say we know that there's
going to be times in your life where you're gonna have low income earning
years, so what you can do is basically peel off the lowest 17 percent of
earnings that you made over your life and that doesn't count towards your CPP
benefit when you start taking it, so otherwise in other words you get to take
off 8 years of your lowest income earning years. Plus if you're a mother or
primary caregiver they also allow you to exclude an amount there, so if you had a
child in 2010 you're allowed to basically take off the next seven years
and count and take those off as counting towards CPP and then if you had a child
in 2012 you can take off seven years from there for a total of nine years
where that doesn't count towards how much you get when you retire. However if
you did always pay fully into CPP right now in today's dollars you could expect
a taxable income of eleven hundred and fourteen dollars per month which is
increased with inflation as that goes up in your retirement. Now the next thing to
consider is really when you're going to want to talk to a Certified Financial
Planner Professional about your options, because this is where it can get kind of
tricky and basically the best date or the date that they wanted you to take
CPP at is 65 years old however you are allowed to take it early if you want or
postpone it. What happens if you take it early is that your CPP is reduced by
0.6% per month that you take it early so if you take it at sixty then you're
gonna have a 36 percent reduction in CPP and if you take it after 65 you get a
0.7 percent increase in your payout, so if you decided to take it at
seventy years old you'd have a 42 percent increase, so this would only
really make sense if you did not need the money and you knew for a fact that
you're gonna live for a long period of time. You can take CPP while you're still
working. CPP is fully taxable, there's a whole bunch of other stuff involved with
CPP that you don't really need to know right now and lastly there is also a CPP
death benefit that's given to anybody that pays into it of twenty five hundred
dollars so if you were too lazy to talk to me about life insurance you could
leave your family with twenty five hundred dollars to buy like a sweet
sandwich tray at your funeral. Thank you. Next week we'll talk about Old Age
Security, thanks