To CPP or not to CPP
That is the question. Not if, but rather when. The exception being incorporated business owners that have chosen not to contribute for a variety of reasons.
As it sits, both employees and employers pay 4.95% each towards CPP. The self-employed are responsible for both portions. The YMPE (yearly maximum pensionable earnings) for 2013 is $51,100 meaning you only contribute on earnings up to this level with individuals earning less than $3500 granted reprieve.
Changes in recent years to make the program more equitable and sustainable have made it even more difficult to choose what course to take. Ultimately, your choice is based upon your own unique circumstances. In order to answer, you must first consider;
Are you coming up to the age of 60? Income won’t flow earlier than 60 but you must make application in advance. Six months is common.
Are you planning on continuing to work? You can still take CPP at 60 but you will continue to contribute to CPP up until at least the age of 65 where you can opt out after that. For your additional contributions you are rewarded with a small increase in your pension known as a post retirement benefit.
How much will you receive? You’ve spent your working life paying into the program so it’s your responsibility to know. It’s a moving yardstick but the quick math in 2013 is you will receive 33.6% less per month at 60 than you would if you waited until 65. Should you decide to wait until age 70 you get 42% more. The current maximum at 65 is $1012 per month but not everyone gets the maximum. Best to get a quote at the age (s) you are considering retiring at.
You need a Service Canada account in order to start the process. If you don’t have one, log into
www.servicecanada.gc.ca
and follow the prompts. You can also call Service Canada at 1 800 277 9914 or park and navigate the construction zone to their office at #101-991 Alder Street.
Once you know what your entitlement (s) are your advisor can help you integrate this information with your other potential income streams in retirement to determine what you can reasonably anticipate.
Great, but will it be there for me in the future? I wouldn’t lose any sleep. It may not be identical to what it is today but as the centrepiece of Canada’s aging population’s retirement it’s not going anywhere.