Attention-grabbing headline!

My headline probably wasn’t all that descriptive was it? If I told you that this was about the Canadian Pension Plan (CPP), would you have stopped to read? CPP may not be the most exciting topic, but in my experience, it’s commonly misunderstood or not used optimally.

CPP information for 2022 was recently released. Here’s some highlights: 

• The maximum pensionable earnings for 2022 is $64,900.
• Your contribution as an individual will be 5.7% to a maximum of $3499.80.
• If you’re self-employed, multiply that by two.

To get all details on CPP, you can visit the Government of Canada’s website.

As I mentioned already, I often see CPP information being misinterpreted or not used optimally. The first common misconception that I hear is the amount you’ll receive. This can depend on your average earnings throughout your working life. For 2021, the maximum monthly amount you could receive as a new recipient starting the pension at age 65 is $1,203.75. The average monthly amount in October 2020 is $614.21. 

The reason is simple, throughout life things happen. When we’re young, we may not be making enough to contribute the maximum. Many people go through periods in their lives when they aren't working. If you’re divorced and one spouse spent more time at home, CPP credits will be split. There is a benefit where the government will drop a certain number of your lowest income years and drop 7 child-rearing years. You can get an estimate of your monthly CPP retirement pension payments by logging into your My Service Canada Account.

Another thing I see is the decision to take CPP early or at 65 without doing the math. This is often an emotional bias where we feel entitled or have a fear of missing out. We also tend to think we’ll die sooner than statistics actually reflect. The government wants us to wait and gives us a nice incentive to do so.

As mentioned earlier, for 2021, the maximum monthly CPP benefit is $1,203.75. If you had delayed CPP until age 70, your benefit would increase 42% to a maximum monthly CPP payment of $1,709.33 in today’s funds. Where else can you invest your money and get a guaranteed return of 42%? I’m not saying everyone should take CPP at 70. But I do see a lot of cases where people have taken it early and it would have made more sense to wait.

Here is a brief overview of some benefits and numbers behind CPP. There is so much more to know like disability benefit, survivor benefit, income splitting, etc. Please message me with your questions or schedule an appointment to see how we can optimize your CPP benefits.