Hey welcome back.
It’s Thomas here!
I just realized I have been sharing in
this platform for 1 year and a half already!
And this is my 70th video!
Thank you for being here with me!
There is a lot that I learned
since starting my YouTube journey.
And that’s why I decided it’s time to
update some of my most valuable videos.
I will do a full upgrade on
both the graphic and the audio.
Plus I also want to give you
a more updated number
For today’s remaster project,
I’ll go over Canada’s top 3 pension plans
CPP, Canada Pension Plan,
OAS, Old Age Security,
and the GIS, Guaranteed Income Supplement.
I will go over the details again and share
how you can get up to $1800 per month
Even if you know my old video from way back,
I think you’ll get a lot more value out of this one.
But if you are new here!
Again, my name is Thomas
This channel is to help Canadians to make better choices on
Retirement Wealth and Insurance
My goal is to make sure you take 1 or 2 ideas home
And start making better financial decisions today
If you found this video valuable,
make sure you click the subscribe button below!
let’s jump right in!
Canada Pension Plan, know as the CPP,
was designed back in 1965 with the goal to
provide Canadians with 25% of their retirement income.
But since our living standards have grown and evolved,
the government has actually enhanced the CPP.
They aim to provide you with
⅓ of your retirement income.
The good and the bad side about the CPP
is that it’s a mandatory plan,
meaning that everyone who is 18 years or older
and employed
will need to contribute into their CPP.
Right now,
in 2021, the maximum CPP benefit you can receive at age.
65 is $1,203.75.
But the truth is,
not a lot of people will get that.
So the average CPP amount that
Canadian gets is around $690 a month.
To qualify and start receiving the CPP payment,
you must be at least 60 years old and
have made at least one valid contribution to the CPP.
The amount you get is based on
average earnings throughout your working life,
your contributions, and your age.
What some people don’t like about CPP is that
the money is automatically taken from their pay cheque.
If you are a person who is
good at saving their own money,
it can be a bit of a drawback.
But since the CPP is guaranteed income (for now),
it makes sense to maximize it as much as possible.
So how can you do that?
To maximize your CPP benefits,
let’s first get a deeper understanding of
how the CPP works.
There are 3 parties involved:
The employee contributes up to 5.25%
of the salary after the first $3500.
There is The Employer side,
who will match it for another 5.25%
The Canada Pension Plan Investment Board,
which will invest the money accordingly.
According to a recent report,
the fund plus the return can sustain the plan
for the next 75 years.
If you make $3,500 or less a year,
both you and your employer
don’t have to pay into CPP that year.
This is also called the Basic Annual Amount.
Another number you need to know is
the Yearly Maximum Pensionable Earnings.
This number gets updated every year.
And In 2021,
The YRPE it’s $61,600.
Therefore,
as long as you make anything between
$3,500 and $61.600,
you and your employer have to pay into your CPP.
That being said,
if you are self-employed,
you have to pay both the employee
and the employer portion into the CPP.
Let’s look at an example:
Tom is self-employed and he’s making
$50,000 per year.
$50,000 minus the $3500 is $46500.
He needs to pay both portions in CPP –
so 10.5%
So he needs to contribute $4882.50 for his CPP.
The max CPP contribution is up to $5796 per year.
But starting in 2020,
there is a tier 2 contribution for high-income earners.
They can contribute more on top of the normal CPP
so they can get a higher retirement benefit.
There are ways to maximize your CPP benefits.
First is the contribution length.
Between the age of 18 and 65,
only 39/47 years will count
toward to the cpp calculation.
That’s because the Investment Board
automatically excludes the 8 years of your life
where you earned the least amount.
The government does this because they recognize that
you will have less income in some years.
So they give you a bit of a break.
What’s more,
if you are a mother,
you get 7 years off CPP after you got a baby.
So, to get the maximum,
you have to max out the contribution limit for 39 years.
Another thing to consider is
the age you start getting your CPP benefits.
The standard age is 65
but you can start as early as age 60
or as late as age 70.
And the age you start at has an effect on your benefits.
If you start at age 60 your monthly payout will be lower.
If you start at age 70, it will be higher.
Here is an example:
If Tom’s CPP benefits are $1000 per month at age 65,
he decides to withdraw CPP at age 60 instead.
The amount he gets will be 36% lower.
So in his case,
it will be $640 per month.
If he decides to get it later,
at age 70,
then he gets $1420 per month,
which is 42% more.
So the question is,
should Tom take it at age 60, 65, or 70?
Yes you get less payout at the age of 60
but you get 5 years early.
But if you take it out later,
you get a more guaranteed return.
The bottom line is,
whether you should take out the money early or
wait until age 70 depends on your unique situation.
If you are unsure when you should get your CPP,
time to ask yourself:
Are you healthy?
What is your current financial situation?
What’s your plan for retirement?
For example,
if you’re healthy and expect to live a long life,
or have access to other sources of income,
you may choose to start receiving
your CPP retirement pension later.
If you'd prefer to work less,
or you want the money now to pay off debts
or to fund your retirement plans,
you may choose to start receiving your pension
before age 65.
Unlike CPP the Old Age Security,
or OAS for short,
does not require your contribution.
Instead,
the benefits are funded by Canadian government,
and the earliest to receive OAS benefits is at age 65.
In 2021,
the max OAS you get is $618.45
regardless if you are married or not.
The amount goes up a bit every year due to inflation.
But keep in mind,
there are a couple of requirements to receive the benefits.
First, you have to be a Canadian citizen or
Permeant Resident and live in Canada for
more than 10 years between the age of 18 and 65.
In order to get the full amount,
you need to live in Canada for 40 years.
You can estimate how much OAS you get by taking
the number of years you lived in Canada
and dividing it by 40.
Then multiply that number by
the maximum OAS amount possible that year.
For example,
if you lived in Canada for ten years:
10 / 40 = 25% so you get 25% of $618
which is about $154 a month.
The benefit is quite straightforward.
It’s an automatic enrollment
as long as you file your tax on time.
Usually,
it starts at age 65 but same as CPP,
you can wait until age 70.
If you wait,
your OAS goes 0.6% more each year.
There is one thing that can
lower your OAS benefits though.
If your income is higher than $79,054
the government will start reducing the OAS benefits by 15%.
If you have a net income of $128,137 or more,
your OAS is fully clawed back and reduced to zero.
Keep this in mind
especially if you get your OAS at age 65
while you are still working.
It can create scenarios where you earn too much
and your OAS is clawed back.
Now you might think,
that number seems high.
Who makes $120,000 in their retirement?
But don’t forget CPP,
Pension plan from your work,
RRSP,
and interest generated from investments
are all considered taxable income.
That’s why the best retirement strategy is
to plan way early before you actually retire.
There are strategies to meltdown your RRSP and
pension plan so it doesn’t affect your OAS benefits.
You can have a chat with me using the link below!
The last benefit is GIS,
the Guaranteed Income Supplement.
It’s designed to provide minimum support to
people who have extremely low incomes.
There are 2 requirements to receive GIS.
One you must first qualify for OAS.
And two,
your net annual income must be
lower than $18,600 assuming you are single.
The closer your income gets to 0,
the higher the GIS you receive.
The maximum GIS benefits per month are $916.38.
Meaning, you get this if you have no income at all.
If we combine GIS with OAS,
you can possibly get $1529.91,
and the GIS portion is Tax-free.
But keep in mind,
not a lot of Canadians can get
the full amount of the GIS.
Pretty much all income
except OAS will affect the GIS benefits.
Pretty much there are only two types
of people to qualify for the full amount
either you are dead broke,
or you are super rich enough to hire
a team of accountants to help you
with the tax planning.
Now the key question is,
can you really retire if you
solely depend on the government benefits?
Or How much do we need
to live ok during retirement?
Statistic Canada reports an
average Canadian household spends:
$800 on food
$1600 on housing
$300 on clothing
$1000 on transportation
$300 on healthcare
$300 on recreation
And another $300 on other stuff
That’s around $4600 per month for an average
Canadian family to maintain their lifestyle.
If the average CPP + OAS benefits are
around $1300 for one person.
If both couples are retired,
which means $2600 bring to the table
That means we still need $1000
after-tax money extra per person per month.
But where do these $1000 come from?
And the answer comes from the savings
and investments that you plan NOW.
Let’s have a look at how much money you need to save:
We will use rules of 4% to see how much we need
to live comfortably during retirement.
We divide the difference by 4% which gives us $300,000.
If you want to be more conservative,
times that amount by 1.2.
This should give you a good buffer room.
If we have this money in the bank account,
with an average 4% return per year,
it should produce $1000 cash flow per month.
Can you see why the government urges us
to prepare for retirement early?
It’s because most people can’t live
with the government benefits alone.
To set up your retirement right,
use tax shelter accounts like TFSA or RRSP.
The reality is,
a lot of people think retirement planning is important,
but it’s not urgent to them.
Studies show that life expectancy is going up,
yet fewer and fewer people are
contributing to their retirement plans.
It’s never about how much you put in,
it’s about how early you want to do it.
Here are a couple of tips on
how you can build up your retirement fund.
First,
understand your current spending today and
estimate what’s likely to be during retirement.
Next is to put your savings into a plan
that works for you on autopilot.
It takes less time and effort.
All you need to do is review it from time to time
and adjust along the way.
I know there is no one size fits all solution,
everyone has their own definition of retirement life.
But we should and need to do better in
taking control of our financial situations.
Our government do help us in covering some of
the basic costs during retirement.
But to live the retirement you envision,
it takes some planning.
Alright,
let me know if you like this remaster version.
And of course,
if you found this video useful,
be sure to click the subscribe button and
turn on notifications to get more videos
that help you maximize your finances.
This is Thomas!
And I will see you in the next video!