The ABCs of the CPP

RYAN By Guest Blogger Ryan Lewenza

A key pillar of retirement planning is the Canada Pension Plan (CPP). When doing a financial plan for clients we consider this, their investment savings, employer pensions (if any) and their Old Age Security (OAS) pension when modelling out retirement cash flows. We get lots of questions on the CPP with one reoccurring question; will it be there when they retire? This week I try to address these questions and examine the long-term sustainability of the CPP.

Let’s begin with a look back at the history of Canadian government pension plans. Exciting stuff! In 1952 the OAS pension was introduced for Canadians 70 years and older. In 1965, when the CPP program was rolled out, the qualifying age for OAS was lowered from 70 to 65, where it currently stands. The Guaranteed Income Supplement, which is an additional pension program for low-income seniors, was introduced in 1967. The OAS and GIS were established to provide a basic minimum amount for seniors in retirement.

The maximum monthly OAS pension benefit in 2019 is $601.45 for those 65 and older and those who have lived in Canada for at least 10 years since the age of 18. Unlike the CPP plan, you don’t pay into the OAS pension – it’s funded from the general tax revenues of the government. The OAS is means tested, meaning it will clawback a portion of the monthly amount for those with an annual income above $75,910. The government claws back the OAS amount by 15 cents for every dollar above the $74,788 and it’s completely clawed back for those making more than $122,843. The GIS pays an additional maximum monthly amount of $898.32 if you are single and earn a maximum annual income of $18,240. Finally, the OAS pension amount is taxable while the GIS amount is non-taxable.

In contrast to the OAS and GIS, the CPP is a mandatory plan that Canadians (excluding Quebec which has its own government pension plan) and their employers are require to pay into. If you are employed you are required to pay half of the contributions through payroll deductions with your employer matching this amount. For those self-employed, they have to make the whole contribution. The maximum annual contribution for employers and employees in 2019 is $2,748.90 each.

The annual contribution amount was increased this year with the “CPP Enhancement” announced back in 2016. Known as Bill C-26, it involved increasing the CPP contributions from a total of 9.9% to 11.9% over a 5-year period and increasing CPP benefits from 25% of your “average lifetime earnings” to 33.33%. Now before you CPP recipients  get all excited and head down to the local shuffleboard or bocce ball courts and discuss how you’re going to spend the increase, note this is being phased in over a 45-year period!

CPP Contributions Following the CPP Enhancement

Source: Government of Canada

You can apply for full CPP at age 65, but receive it as early as age 60 with a reduced amount, or extend it to 70 with a higher amount. The amount of CPP benefits you receive depends on how much and how long you’ve contributed into the plan. To receive the maximum amount you must meet two criteria – you must contribute into the CPP for at least 83% of the time (39 years in total) that you are eligible to contribute (age 18 to 65) and you must contribute enough over those 39 years.

For 2019 the maximum pension amount is $1,154.58/month or $13,854.96/year but few actually receive this maximum amount. The average CPP amount is $640/month and it’s why you need to research what you will receive in retirement ahead making the big decision to retire. Could you imagine planning on getting the maximum amount to only receive the average in retirement? This could be the difference between ordering off the value menu at Micky D’s or enjoying a nice ribeye a few times a month. This is also why you need a good advisor/planner to help you with this critical decision.

Now the key question: take CPP early at 60, or delay to 65 and longer? Well, for any long-term reader of this blog and with a pulse knows that Garth and our team prefers to take it early. There’s a lot of debate around this topic but Garth breaks it down to these key factors:

  • The government is giving you money for once so take it as early as you can (this is bird in the hand thinking).
  • You could croak early and since you paid into the plan take it as soon as you can. In a blog post Garth quipped on the topic “a dollar when you’re healthy is worth more than a buck when you’re on meds, watching Oprah and trying to breathe”.
  • By delaying it until 65 or 70 the CPP income could put you in a higher tax bracket if you’re drawing on RRSPs, thus potentially wiping out the benefit.
  • Lastly, if you don’t need the money you can invest it and let it compound over time. If you invest the average monthly CPP amount of $640/month at 6% in a TFSA, that would grow to $45,577 in 5 years based on the pension payments of $38,400.

So take it early and either spend it before you’re on meds and watching Oprah (or now The View), or invest it and let it grow.

Finally, let’s look at the key question of CPP sustainability. With aging demographics in Canada and in most developed countries, combined with low global interest rates, many question the long-term sustainability of the CPP and overall government pensions. Not this guy!

In reviewing CPP investment returns and reading the last CPP Actuarial Report (for Garth it’s reading the tax code that gets him revved up, for me it’s actuarial reports – what can I say we’re a couple of wild and crazy guys!), I have complete confidence that the CPP is going to be just fine in the years and decades ahead despite the challenges noted above.

First, based on the current contribution amounts and the expected returns on the $356 billion fund, the Chief Actuary estimates that the CPP is sustainable over a 75-year projection period. This projection is based on a conservative long-term real rate of return of 3.9%. According to the Chief Actuary “despite the projected substantial increase in benefits paid as a result of an aging population, the Plan is expected to be able to meet its obligations throughout the projection period.”

Second, due to concerns about the long-term viability of the plan in the 1990s, major reforms we’re implemented to ensure its sustainability. This started with the CPP Investment Board taking over control and the management of the CPP assets in 1990. The CPPIB is a respected and well-managed investment organization that employs a diversified and global investment approach across a number of different asset classes. This now includes public markets (stocks and global bonds), private companies (stocks and debt) and real assets like real estate and infrastructure. This approach has yielded solid results with the plan realizing a 6.2% annualized real rate of return over the last 10-year period. So, while the Chief Actuary projects the sustainability of the fund over a 75 year period based on a conservative 3.9% return, the actual results have far exceeded this.

Lastly, if the fund was to encounter difficulty as a result of lower returns or higher than anticipated benefit payments, the Federal government can always increase the contribution amounts to address any shortfall. Yes this will increase contributions and reduce one’s take home pay for the people paying into it, but it would address any sustainability issues.

CPP Fund Projections to 2040

Source: 27th CPP Actuarial Report

That’s a lot to take in and to be honest a bit dry (clearly I’m no Garth!). But this is important stuff so hopefully this clears up some confusion around the CPP. And if not just call Trudeau to get his take, that is if he’s not busy with this SNC debacle.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

 

109 comments ↓

#1 jane24 on 03.30.19 at 3:47 pm

To crowdedelevatorfartz from Saturday

Boy you have a lot of questions for me, I’ll take them one by one.

Brexit is fine, I really enjoyed demonstrating outside parliament on Friday but there were some nutters there. We all hit the pub after.

I had to renew my Cdn passport as under Mr Sock’s new rules dual nationals cannot enter Canada on another passport. Cost my family over $1000 for extra passports we didn’t need. Canadian govt must have made a mint on this one.

I don’t have an EU passport to renew, I have a British one.

We do not have a villa in Italy, we have a palazzo (palace). This happens sometimes when you marry a Canadian Italian from Montreal. We do not stock it with tea and crumpets as when in Rome you do as the Romans do and stock it with wine and pasta. Much better. Plus the expats in our village are all Belgiums and they are not keen on tea and crumpets. They seem to drink a lot of beer.

I do not have a London flat although I do really wish I had brought one in the 2008/9 recession as they have tripled in price since then especially around Canada Tower. Hindsight is bitch sometimes.

I think that is all that you asked me. Flying to TO on Monday, I hope the wether has cheered up.

#2 Buddy on 03.30.19 at 3:49 pm

CPP is the bomb.

Question though, if it’s so good. Why don’t we enhance it more?

#3 n1tro on 03.30.19 at 3:53 pm

#93 n1tro on 03.30.19 at 9:22 am

Mulroney took no bribe. Falsehood. – Garth
——–
Apologies. What I meant to say was Mulroney took an envelope filled with $250K in cash as a “gift” near the end of his term which he failed to disclose on his income tax until years later when it was brought to light. I’m not a politician so you can understand my confusion.

It was payment for services rendered, and he was a private citizen at the time, not in office. He paid tax on the money before the payment became the fodder of the masses. Your confusion is noted. – Garth

#4 Wally Wing Nut on 03.30.19 at 3:57 pm

Is the 640 an average taken at 65 or does that include taking it early with the penalty?

#5 CPP early or later on 03.30.19 at 4:12 pm

Thanks for posting about the CPP yet again.
Some of us have a defined pension plan and must be careful about taking CPP early.
For example I retired early my pension is currently 3,000 per month plus what is called a bridging of $900 a month.
Bridging is for DPP that commenced before CPP came into effect.
So when I turn 65 I loose the bridging of $900 per month.
Now the bridging is the calculated amount of CPP that I am supposed to receive when I am 65. In other words no effect, I loose the bridging but gain CPP
However if I take CPP earlier my reduced amount is $600.
So yes I will get $600 a month for five years.
Then at 65 my income goes down by $300 a month. The lost Bridging less CPP 900-600
Still with me?
Yes I could invest the money and then at 65 withdraw the amount of the monthly shortfall.
I figured the the investment would last till I am 80 or so.
Anyway just posting for those who have a DPP and not aware of a bridging calculation. Many financial planners are not aware!
So be careful out there, be informed.
For me I am still thinking of taking it early, but am I deciplined enough to invest rather than spent?
Thanks again for the discussion.
PS some of my friends say so what I get the OAS which makes up the difference, and that’s another way to look at it.
Happy weekend everyone.

#6 I’m stupid on 03.30.19 at 4:13 pm

Hi Ryan

What about this situation; my mother is a widow so she receives survivor benefits once she applies for cpp the survivor benefits stop. I think the difference would be $100 a month. Should she wait until the last possible moment to collect her cpp? She’s currently 61 I think she has to take her cpp at 65 but I’m not sure.

#7 Tbone on 03.30.19 at 4:20 pm

I get 777.00 and I took it early at 60
I was over the 39 years of employment

I certainly didn’t need it as I still work but I like free money .

My problem will be when I stop working and start to unload my rrsp
And stay below the 75k threshold as I have a lot of dividend income .
I will split it with the wife but I can see how the rrsp becomes a problem
If you have been a diligent saver.

I want the oas too , like I said before , it’s free money .

#8 Penny Henny on 03.30.19 at 4:20 pm

The maximum monthly OAS pension benefit in 2019 is $601.45 for those 65 and older and those who have lived in Canada for at least 10 years since the age of 18.-Ryan

Just for clarity that $601.45 is available only to those who have been living in Canada 40 years or more past their 18th birthday. For those with between 10 and 40 years residence it is pro-rated.
https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/benefit-amount.html

#9 Ryan Lewenza on 03.30.19 at 4:26 pm

Wally Wing Nut “Is the 640 an average taken at 65 or does that include taking it early with the penalty?”

That’s the average at 65. – Ryan L

#10 BlogDog123 on 03.30.19 at 4:27 pm

The CPP has bulked up their number of employees over the years… I wonder what the equivalent MER for the plan is and if the extra legions of managers has paid off ??

#11 PGer on 03.30.19 at 4:28 pm

Thanks Ryan. We (the wife et moi) still plan on taking our CPP at 65, because we have adequate investments and pension income now (I retired 4 years ago at 56, my wife still is working but will soon retire).

We’ll both receive close to the maximum CPP at 65, which I look at as a kind of safety net for our old age. Each of us will never have over 75,000 income, even at 71 when we have to start taking our RRIF income. Also, a 36% payment increase over 5 years for a guaranteed income like this ain’t bad (if you look at it like an investment).

Just our thoughts, but I can certainly see it both ways, because there’s no guarantee as to how long one will live, or live healthy anyhow.

#12 Hans on 03.30.19 at 4:29 pm

Ryan,

When you say real rate of return, do you mean rate of return above inflation?

If so, the I believe the 6.2% annualized return isn’t as good as it will need to be over the long term. I can’t recall what the frankenumber for CPI has been but to be conservative, say it’s 2% on the ground. That means that the CPP has been squeeking through in real terms – 3.9% required over long term vs 4.2% achieved during a period of economic expansion and essentially full employment. Am I reading this wrong?

A deep recession in Canada could put a real dent in CPP’s projections, and throw many plans out of whack imo.

#13 Blame The boomers. on 03.30.19 at 4:36 pm

Remember when the contribution rate was one third of where its at now?

http://drpensions.ca/cpp-rate-table.html

#14 Tim on 03.30.19 at 4:46 pm

Hi Ryan, I look forward to your posts.

There is a typo above around OAS eligibility. The highest benefit amount is reached after 40 (forty) years of Canadian residency between the ages of 18 and 65, not after 10 years.

Regarding CPP, it has unique advantages that are very expensive to buy on the open market. Namely, it’s guaranteed to last for life, is inflation-indexed and has a guaranteed dollar return. It’s essentially like purchasing an annuity.

My plan is to defer CPP and OAS to age 70 and use RRSP withdrawals before that point to tax-shift that money out of later years when it will be a RRIF. At age 70, CPP and OAS will provide a core annual income component and I’m free to take additional equity risk with remaining saved funds and reduce sequence of return risks as I have a core cashflow not dependent on the market. I may even purchase additional annuity coverage beyond CPP/OAS.

Everyone needs a guaranteed cash flow when they are aged and it’s hard to beat CPP/OAS for this, especially if you have no other defined benefit pension benefits otherwise (which is true for most working-age Canadians now).

#15 YULYYZ on 03.30.19 at 4:51 pm

Thanks for the info on CPP/OAS/GIS.
If in retirement, one chooses to move abroad and establish permanent residence in another country, how are these 3 impacted? How would a DB or DC pension be impacted or taxed by CRA when transferred to another country? I imagine a lot depends on whether there is or isn’t a tax treaty with the country…
Has anyone had this moving situation happen in retirement?

#16 Dusty on 03.30.19 at 5:08 pm

Ryan, that’s some juicy stuff. I used to think we should fire everyone in the CPP and just pay the benefits straight from the tax payer to the collector, but with returns of 6.2% on a number in the hundreds of billions, it’s obvious that these people are worth their weight in gold.

#17 Penny Henny on 03.30.19 at 5:15 pm

#Sorry Justin… we won’t be fooled again
#Sorry Justin… fool me once…

Ya think there is some money to be made making lawn signs, I know I’d buy one for $5

#18 Randy on 03.30.19 at 5:19 pm

Your Socialist Bankrupt Government wants you to die on your 65th birthday. CPP was a tax.

#19 Keith on 03.30.19 at 5:20 pm

@ #10 Blog Dog 123: The MER on the CPP is about .35% a number you won’t find for active management in the private sector.

So it would seem that for lifelong residents of Canada, a working couple will receive close to 30k per year at the age of 65, indexed to inflation. It’s a nice base amount for regular people, although barely beer money for some of the HNW individuals who frequent this blog.

On a regular living wage, it should be possible to accumulate a decent amount of RRSPs, TFSA’s and a paid for piece of real estate. Add 30 – 40k per year in real investment income to that 30k from the government you have money for the active years of retirement, and a nest egg for some longevity insurance. It’s good live in Canada.

#20 Penny Henny on 03.30.19 at 5:25 pm

#15 YULYYZ on 03.30.19 at 4:51 pm
Thanks for the info on CPP/OAS/GIS.
If in retirement, one chooses to move abroad and establish permanent residence in another country, how are these 3 impacted? How would a DB or DC pension be impacted or taxed by CRA when transferred to another country? I imagine a lot depends on whether there is or isn’t a tax treaty with the country…
Has anyone had this moving situation happen in retirement?
////////////////

CPP no issues.
OAS – read here

https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/eligibility.html

GIS – sorry Charlie

#21 Lost...but not leased on 03.30.19 at 5:26 pm

Just mentioning “Oprah” and “The View” will exacerbate and aggravate existing medical condition resulting in orders of magnitude drops in CPP,, OAS and GIS eligibiity pool.

#22 Rick on 03.30.19 at 5:31 pm

“Unlike the CPP plan, you don’t pay into the OAS pension – it’s funded from the general tax revenues of the government.”
Yes you do pay for it! Where do you think the general tax revenues come from? Answer: TAXPAYERS! Last I checked, every time I open my wallet, the government takes some. Thieves!

#23 Richard Saunders on 03.30.19 at 6:03 pm

Ryan (and rest of Garth’s group) – stellar post! Thank you all for what you provide. Very much appreciated.

#24 Not So New guy on 03.30.19 at 6:20 pm

So if the fund is earning more than it needs, where is that extra funding going to go? Shouldn’t that be either paid out in higher benefits or actually rebated back to the people who paid them?

Something tells me this will eventually disappear into general revenues. So the higher CPP we are paying is actually just a general tax in the long term :(

#25 CPP KING on 03.30.19 at 6:31 pm

If you are self employed you do not have to pay into cpp at all. Take the 5k and invest it yourself.
At 60 there is no point in taking ur cpp and investing urself for 5 years…unless you have been investing your own money for years. The average person will be clueless at doing that. Anyone that takes there cpp at 60 is either broke or stupid. No clue why Garther even says that. We could all die tomorrow….

#26 Debtslavecreator on 03.30.19 at 6:48 pm

CPP will be there but it’s a rip off for anyone under 45 now
Like almost everything else the people who’ve retired over the last 10 years or about too paid nothing and on average these people will be living longer and longer
It’s massive generational theft and for the stil sizeable number of people who die before 70-75 it’s hortiblf
It’s a call option on longevity
Garth is absolutely correct about taking it ASAP and save to TFSA or a tax efficient non reg account or if you don’t like that you can use it to help you pay for a cash flow positive multi unit res property or commercial unit with a good quality tenant
Think assets that offer inflation resistant income
CPP would benefit greatly if we have a nice bear market into the early 2020’s as it only starts to payout more than whet it recieves in the early 2020’s
Imagine where’d we be if our federal government had the foresight and discipline to do with oil money what the brilliant Norwegians have done

#27 Reality is stark on 03.30.19 at 6:50 pm

The argument is good but it is framed incorrectly. The government is intent on clawing back the OAS at lower levels of income.
That is the big picture.
The rest doesn’t matter.
Telling people how great the CPP is when they are going to screw you anyway is of little significance.

#28 Lost...but not leased on 03.30.19 at 6:52 pm

My late father was in a similar situation as to whtehr he should take the gov’t pension funds as soon as he was eligible or wait til 70 .

He went for the ASAP option and lived til 87.

PS as a sidebar..in his youth, he worked a short time in Austria in his youth but received a pension of about $150/month for a couple of decades…one should check into this if not aware.

#29 AK on 03.30.19 at 7:00 pm

“So take it early and either spend it before you’re on meds and watching Oprah (or now The View)”
=====================================

Or, watch (24/7) Trump trashing on CNN and MSNBC…

#30 SmarterSquirrel on 03.30.19 at 7:08 pm

There’s a good book on how the CPP was saved if anyone is interested to know more… it’s encouraging to know govt can sometimes work towards solving problems instead of just trying to get votes.

It’s called “Fixing the Future” by Bruce Little… https://utorontopress.com/ca/fixing-the-future-4

#31 Ryan Lewenza on 03.30.19 at 7:08 pm

Hans “When you say real rate of return, do you mean rate of return above inflation? If so, then I believe the 6.2% annualized return isn’t as good as it will need to be over the long term.”

The 6.2% is a real rate of return after inflation. The next ten years will likely see a lower rate of return, but returns should be above the 3.9%, the long term actuarial forecast. – Ryan L

#32 AK on 03.30.19 at 7:09 pm

“Now the key question: take CPP early at 60, or delay to 65 and longer? ”
=====================================

I took It when I turned 60, about 18 months ago. I use it to fund my Las Vegas trips.

#33 Shawn Allen on 03.30.19 at 7:14 pm

Some CPP information

You can check the amount of CPP that you have already “earned” by setting up an account at the following link

https://www.canada.ca/en/employment-social-development/services/my-account.html

What is crucial to get the maximum out is to have earned at or above the maximum pensionable earnings for 39 years.

In one example that I saw, the person had minimal earnings from age 18 to 24 – college years. Then two years at about 70% of the maximum pensionable earnings. Then 29 years paying maximum CPP. Did not pay into CPP after age 55. (Freedom 55) But will still be eligible for 93% of maximum CPP if taken at age 65. Not bad, considering not that close to 39 years at the maximum. It would not have been a good deal to pay for ten more years.

#34 Tony on 03.30.19 at 7:32 pm

What happens when the fake stock market ponzi comes to an end? Then what? My guess is anyone with money with get nothing and a sliding scale will be used depending on your net income in the future after the stock market ponzi implodes. The CPP presently is invested in all the wrong things. Everyone has their money in the same thing and the wrong things.

#35 Shawn Allen on 03.30.19 at 7:34 pm

Old Age Clawback 15%

That is ugly but there is one bit of a silver lining.

Imagine you are in Ontario earning taxable income $80k and so over the clawback floor of $74,788. Your marginal tax rate is 31.48%.

The clawback of 15% appears to raise that marginal tax rate to 46.48%. Yikes. Actually, it’s not QUITE that bad. Since your old age pension is partially clawed back you won’t be taxed on that part of the old age pension. So, the net cost to you of the 15% clawback, in this case is 15% times (1 minus 0.3148) or 10.28%.

Your total marginal tax rate has therefore risen from 31.48% to 41.76%. Nasty but not quite as bad as 46.48%.

If you make over $95, 259 taxable income in Ontario (and up to $147,667) your marginal tax rate is 43.41% with clawback and accounting for tax saved on clawed back amount this rises to a marginal tax rate of 51.90%. But it falls back to 43.41% once your taxable income goes above $122,843 as the old age has been fulle clawed back. Many who post here should achieve full clawback.

#36 Linda on 03.30.19 at 7:37 pm

#2 ‘Buddy’ – a good question. The answer is that CPP is a DB pension plan. To set up CPP so that it compares to say a government employee DB pension plan, the annual amount deducted via payroll would have to triple at the very least. Thus if one earns enough to pay ‘the maximum’ CPP in 2019 – as per Ryan’s post, $2,748.90 – but it were adjusted to ensure a much more lucrative pension upon retirement, equal to what normal DB plans pay – the hit would jump to $8,246.90 which would be the employee share, with the employer paying the other half. Further, keep in mind that anyone who is paying into a pension plan loses the equivalent RRSP room. This is known as the pension adjustment & is meant to ensure a level playing field so that those w/o pension plans can ensure they have as good a standard of living as those who do have pension plans. They just have to ensure they do invest the full sum of their annual RRSP room. The main advantage government employees or anyone who works for an employer where belonging to the plan is a condition of employment have over those w/o pension plans is that the pension plan deduction is not voluntary. You can’t opt out & yes, that means less take home pay. Plus the cost to the employer is obviously a lot more than what a DC or a matching RRSP contribution would be. Given how few people actually make the maximum contribution to their RRSP – Canadians collectively have billions, possibly even trillions in unused room by now – I wouldn’t hold my breath that the trend of saying ‘maybe next year’ is going to change any time soon.

Ryan, a point of clarification regarding OAS: to receive full OAS, one must have lived in Canada at least 40 years since the age of 18. The 10 years cited is the minimum to get OAS in the first place & the amount is prorated to the number of years. Thus if one has only lived in Canada for 10 years since the age of 18 they would receive 25% of ‘full’ OAS – not the full amount. OAS may end up like GIS – only given to those whose income is truly below LICO.

#37 The real Kip (Ret) on 03.30.19 at 7:37 pm

Best blog post you’ve ever penned. I turned 60 last year and pulled CPP as you described. Show me the money!

#38 Shawn Allen on 03.30.19 at 7:42 pm

Will TFSA Income someday have to be reported although not taxed?

Many social programs are means tested to net or taxable income.

TFSA is designed to grow tax free and that will be hard to ever repeal. But few would argue that those with a very large TFSA (and especially with large TFSA withdrawals) should continue to get GIS and other means tested benefits.

The solution: People may be required to report TFSA withdrawals as part of net or taxable income but then get a credit to make it non-taxable but it still gets reported for use in means testing. In any case when loads of seniors start having $200k and more in TFSA it would seem fair to take that into account for things like GIS and free drugs for low income seniors. No?

#39 Nonplused on 03.30.19 at 7:45 pm

The only thing one can forecast 75 years into the future with any degree of accuracy is the weather.

Personally, I think it would be great if one could opt out of the CPP. Those savvy enough to do so could redirect the money to RRSP’s or TFSA’s, or whatever other pressing concerns they have at the time. The way it’s set up now it’s just a payroll tax. Contribute $2,748.90 per year for 39 years and only get $1,154.58 a month back? A quick Excel drag shows that $2,748.90 per year invested in a Garth Bond yielding 6% for 39 years would be worth $422,676.26 at the end of 39 years. I tried to figure out how long $422,676 dollars yielding 6% in a Garth Bonds but paying out $13,854.96/year would last only to figure out that the balance continues to grow indefinitely. $422,676 at 6% is $25,360.57 per year. CPP is a huge rip off. And unlike your RRSP or TFSA, you can’t pay your tax on it and leave the rest to your kids when you die.

Folks, CPP is a big rip off and nothing more than a payroll tax. No wonder it’s well funded. The return is less than 4%, and that assumes you live 30 years after retiring. Garth Bonds pay 6%. Since everyone here either has a motorcycle, a Porsche, smokes and drinks, or has pissed their wife off and has guns in the house, 30 years from 65 just will not happen. So the return is actually much less than below 4%.

#40 Sail Away on 03.30.19 at 7:54 pm

#115 Remembrancer on 03.30.19 at 5:06 pm
#110 not 1st on 03.30.19 at 2:28 pm
Trump does more for Canada in 30 seconds than the entire liberal govt does in 4 yrs.

Trump issues new permit for stalled Keystone XL pipeline

https://www.msn.com/en-ca/money/topstories/trump-issues-new-permit-for-stalled-keystone-xl-pipeline/ar-BBVoPGI?ocid=spartanntp
—————————————-
Great. Before High 5-ing, its Day 302 of the fake national security risk Trump Tariffs on Aluminum and Steel, got anything to say about that?
—————————-

Tariffs notwithstanding, it’s still a valid point. How has the liberal govt helped the economy more?

#41 Smelly little Piglet on 03.30.19 at 8:14 pm

Don’t quote me on this but I believe that full CPP is 83% of working years maxed out. So to get full at CPP at age 65-18 is 47 working years x .83 is 39 years of full CPP contributions required. If you take it at 60 you only need 60-18 is 42 working years x .83 is 34.85 at max to receive max (reduced) CPP at 60. So another thing to consider is if you are retiring at 60 with 40 years paid into CPP at max level or retiring at 60 with 30 years paid in at Max level by waiting to take CPP at 65 in this second scenario assuming you stop contributing to CPP with 30 full years your next five years waiting to collect CPP will work against you as you will now receive you max benefit but it will be calculated as 30 years worked out of 39 needed for max so you would probably get only slightly less if you retire at 60 and took CPP then as you would be 30 years out of 34.85 needed for max (less your reduction for taking it early.

In other words if you stop working before 65 and don’t have enough years worked waiting to take it at 65 will not simply provide you full CPP as your ratio of working years will now be further diluted.

#42 crowdedelevatorfartz on 03.30.19 at 8:24 pm

@#1 Jane24
“We do not have a villa in Italy, we have a palazzo (palace). This happens sometimes when you marry a Canadian Italian from Montreal….

+++++

Hmmm, I wont delve into the rich Montreal Italian “connection” as it were.
I dont think I can swim wearing concrete….

As for “wether” the weather is acceptable in TO…. I’m not sure.
Some friends have informed me that the hellish snow and cold finally seems to have abated.
My daffodils and tulips are in full bloom in the Lower Brain Land and the birds are building nests so, I’m thinkin Spring has sprung on the Wet Coast

#43 Ken Smith on 03.30.19 at 8:25 pm

I took my CPP at 60 and the decrease was only about $100 a month. I was able to take Fridays off from my full time job for 5 years before I fully retired. So my decision worked out fine for me.

#44 crowdedelevatorfartz on 03.30.19 at 8:35 pm

Excellent topic Ryan.

I still may delay my CPP til 65 but you have given me something to think about.

If I die before drawing my CPP….well…I’m dead and I wont regret it because….I’m dead…. and only my dear surviving relatives salivating over my Estate will curse my short sightedness…..

I’m thinking of donating my body to the National Research Foundation as a Crash Test Dummy (yeah, yeah, Crowdie’s a “dummy” har dee har har)…..might as well save my grieving relatives the cost of a funeral eh?

#45 crowdedelevatorfartz on 03.30.19 at 8:37 pm

@#41 Smelly Little Piglet

Do you ride elevators?
Or is that wishful thinking on my part?

#46 PA's are not level setting on 03.30.19 at 9:08 pm

#36 Linda

“…Further, keep in mind that anyone who is paying into a pension plan loses the equivalent RRSP room. This is known as the pension adjustment & is meant to ensure a level playing field so that those w/o pension plans can ensure they have as good a standard of living as those who do have pension plans…”
___________
Hardly a level playing field. Just ask anyone from Nortel or Sears who had their pension’s evaporate with the fall of the company. With no method to get Pension adjustment back, and no time to rebuild for many, this PA adjustment is not leveling the field its disadvantaging the private sector. People in GoC equate all DB plans the same when they are not. Get rid of the “PA” for private sector plans because the risk is just too high.

#47 akashic record on 03.30.19 at 9:13 pm

#1 jane24

I had to renew my Cdn passport as under Mr Sock’s new rules dual nationals cannot enter Canada on another passport. Cost my family over $1000 for extra passports we didn’t need. Canadian govt must have made a mint on this one.

Thanks for the heads up… sneaky Mr Sock
Enjoy your stay here.

#48 jerry on 03.30.19 at 9:52 pm

Full OAS requires 40 years after 18 in Canada. A bit more than 10……..

#49 TV on 03.30.19 at 9:54 pm

I don’t understand why I would take cpp early and “invest” it if not needed. If I wait, it grows my entitlement by 8.4% yearly guaranteed! Would I get that on my own?

#50 Shawn Allen on 03.30.19 at 9:54 pm

Reduction to take at age 60…

In my case, figures from the government show I would get a reduction of 36% versus age 65…

Roughly I could collect 2/3 for five extra years but then face then lose out on the 1/3 from 65 until death. So it would take roughly 10 years to break even with no consideration of the time value of money. The time value of government guaranteed money is roughly only 2% these days. If you believe in risk-adjusted returns then a fair comparison might involve investing the early CPP risk free at 2%.

Anyhow the reduction is likely based on the CPP plan breaking even based on average age of death.

Those who turn 60 and have reason to think they have less than average life expectancy should probably take it at 60. Those who need the money have no real choice but to take at 60.

Those who are great at investing presumably have huge investment portfolios by 60 and so it won’t really matter what they do. What is plus or minus about $500 much of which will be taxed away due to the high tax bracket of these great investors? (And as master investors they will of course, already be maxing TFSA so it’s not realistic to suggest they can place early CPP money there).

To each his own…

#51 TurnerNation on 03.30.19 at 9:54 pm

Suggested retirement meal in Toronto (What inflation?): Pizza Pizza walkin special, $9.99 Extra Large one topping pizza.

#52 Remembrancer on 03.30.19 at 10:26 pm

#36 Linda on 03.30.19 at 7:37 pm
This is known as the pension adjustment & is meant to ensure a level playing field so that those w/o pension plans can ensure they have as good a standard of living as those who do have pension plans.
————————————————
Point of Order. No its not. Yes, the PA is meant to equalize the tax advantage of a registered pension plan contribution participant compared to a non-pension plan contributor for RRSP calculations. But its not there to equalize retirement standards of living… And to further in your post government employees pay CPP as well you know…

Just what is it you’re trying to get at?

#53 Vampire Studies on 03.30.19 at 10:36 pm

39 non-plused – I did a quickie calc based on the old 10% saving rule using $4000/mo wage, 40 yrs of investing, and a 4% nominal return but zero inflation.
So that is a little under the maximum CPP
contribution for self-employed. That will total $473k
assuming tax sheltered plan.

If we assume same 4% return, payout is equivalent to lending money for say a 25 year amortization which seems like a reasonable retirement life expectancy.

$2600 a month. 65% of the working wage. CPP plans for only 25%, but increasing to 33% decades from now.

Maybe someone could verify the calculation.

#54 YVRTechGuy on 03.30.19 at 10:46 pm

> The maximum monthly OAS pension benefit in 2019 is $601.45 for those 65 and older and those who have lived in Canada for at least 10 years since the age of 18
– That only applies if the applicant is resident in Canada when making the claim, otherwise it’s 20 years.

Otherwise a good post Ryan – always appreciate your posts – not as witty as the old man, but “genius with words” probably wasn’t in the job description.

#55 Vampire Studies on 03.30.19 at 10:55 pm

46 PA – get rid of it in the private sector? And let people who have a work plan save more than people in the private sector who only have an RRSP? And what happens if I hold a Sears or a Nortel in my RRSP, or
other pensions plans that hold them?

Not that I don’t sympathize with those who lost their pensions. Seems to me the problem is with the way
they are set up. Anybody with a private sector plan that does not have this employer risk?

#56 Spectacle on 03.30.19 at 11:05 pm

Hello Ryan, and very far from a boring post my friend. Greatly appreciate your efforts

If I appreciated it , that means many more must have!

My question is in regard to changes into the CPP future.

What Trumpian Scale changes can you realistically imagine some 10 – 15 years onwards. As You mentioned, If there is a 75 year model of solid viability, there has to be something very important enhancement to CPP , but not yet on the radar of the CPP managmanent.

For example, the Trump effect, and the Jody Raybold Effect, not to be discounted. The future should hold Huge and beneficial changes.

Perhaps you might have an idea where a hidden gem on retirement income, or a bigger tweak to make Canada the world leader in retirement.

Ps. Self employed contractor, business developer.

#57 top 1% of finacial planners on 03.30.19 at 11:22 pm

Another very important reason to collect CPP early (or later) that many should know about…

If you’ll in a position to collect both US Social Security and CPP, the US system penalizes you for the CPP benefit and reduces the SS benefit payable by up to 50% of the CPP benefit under the ‘Windfall Elimination Provisions” regulations. For most, this means maximum payments from the two systems combined occurs by taking either CPP or SS benefits in the earliest possible year and delaying the other to the latest possible year.

https://retiremitten.com/2018/02/21/how-your-canada-pension-plan-cpp-impacts-your-u-s-social-security-benefit/

#58 WUL on 03.30.19 at 11:28 pm

Complicated stuff here tonight and a lack of comprehension on my part has caused a confounded state in my mind. Could commenters numbered 3, 14, 30, 37, 43, 44 and 60 elaborate further? You lost me. Thanks in advance.

Ryan,

Do you have and could your share Garth’s cell phone number? A long time ago, I asked him for grooming tips for Boomers.

Silence.

Now I need dating tips for 63 year old washed up lawyers. I do not own a Porsche. Is that an issue?

Thanks.

WUL

#59 Asking for a friend on 03.30.19 at 11:57 pm

Ryan, if a person is on long term CPP Disability and has collected for twenty years and hasn’t paid into CPP, what do they get when then turn 65? Do you know what the transition details are, few do and there’s lots of disabled boomers out there in this situation.

#60 Ronaldo on 03.31.19 at 12:04 am

The GIS pays an additional maximum monthly amount of $898.32 if you are single and earn a maximum annual income of $18,240. Finally, the OAS pension amount is taxable while the GIS amount is non-taxable.
——————————————————————-
Just to clarify and for those lowest income earners who have no other income than the OAS and GIS. The combined OAS and GIS works out to $1499.77 per month.

Old age security does not count towards income when calculating the GIS threshold of $18240.

A single person collecting maximum GIS of $898.32 is allowed to earn an additional income from employment of $3500 without clawback to their GIS payment. Any additional earnings above this amount are clawed back at the rate of 50 cents for every additional dollar earned. In effect, a 50% tax and possibly more as the additional income could be subject to income tax. The GIS itself is not subject to income tax.

You can see that there is a disincentive for a person to earn any more than the allowed $3500 (expected to go to $5000 in the 2019 budget) because of this clawback.

So in total a single senior can earn $1499.77 combined OSS and GIS and approx. $300 from other employment for a total of $21,497 without having to pay any income tax.

Once the senior reaches the ripe old age of 71 if they have paid into RRSP’s they will be required to convert to RRIFs and will be forced to withdraw a certain percentage annually. This income will then be subject to the 50% clawback as stated above. Any other income such as interest income, etc. would also be clawed back at same rate.

This unfairness of the clawback for the lowest income earners was the very reason that the TFSA was designed for since withdrawals from the TFSA do not result in clawbacks to the GIS.

It must be mentioned that seniors who are eligible for the GIS must apply for it as it is not paid automatically and is based on previous years income and calculated each July 1st.

A senior who reaches the age of 65 and who applies for the OAS and who qualifies for the GIS will need to also apply for the supplement at the same time. There is no disadvantage to applying.

And you thought being clawed back on your OAS once you reached an income of $75910 was unfair.

#61 retirement in mexico on 03.31.19 at 12:17 am

As a Canadian Citizen, is it possible to retire, live in Mexico and still collect OAS/CPP?

#62 Smoking Man on 03.31.19 at 12:26 am

People kick you when your down and love you when your up.

Its human nature.

Hey T2 how does a girls boot in your mouth taste. You are so over. #fakefeminist.

Taken down brilliantly by an indigenous stong woman who saw through you sub acting skills and refused to be pushed around by a girly boy and his goons.

https://youtu.be/SbyAZQ45uww

#63 SoggyShorts on 03.31.19 at 1:50 am

#39 Nonplused on 03.30.19 at 7:45 pm
Folks, CPP is a big rip off
*******************************
And if you’re self employed it’s about 100% worse.
Maybe I should have been paying myself a salary these past years and increasing my RRSP instead of dividends and non-reg, but I just couldn’t stomach that double CPP.

#64 BillyBob on 03.31.19 at 8:06 am

#34 Tony on 03.30.19 at 7:32 pm
What happens when the fake stock market ponzi comes to an end? Then what? My guess is anyone with money with get nothing and a sliding scale will be used depending on your net income in the future after the stock market ponzi implodes. The CPP presently is invested in all the wrong things. Everyone has their money in the same thing and the wrong things.

===================================

Good thing you and only you know what are the “right” things. You’ll be so rich! Any tips?

#1 jane24 on 03.30.19 at 3:47 pm

I had to renew my Cdn passport as under Mr Sock’s new rules dual nationals cannot enter Canada on another passport. Cost my family over $1000 for extra passports we didn’t need. Canadian govt must have made a mint on this one.

===================================

As much as I hate the cost as much as you, anyone with multiple passports in a global village – ESPECIALLY if one of them is a British passport – is a fool to not keep them all current.

Hopefully Brexit will soon be resolved one way or another, I’m sure when the UK separates it will finally be all rainbows and unicorns for the Brits. /sarc

Laughingstock of the world. It’s one thing to have a developing nation be a difficult place to live, but to make a reasonably decent one worse for absolutely nothing is pathetic. Forget shooting yourself in the foot, more like blowing your own face off.

Ah well.

#65 David Hawke on 03.31.19 at 8:58 am

@#15 YULYYZ
When taking permanent residency in another country you forfeit the GIS, the OAS/CPP is paid in full, however, it is subject to a 25% non-resident tax unless you fill out a NR5 form every 5-years. Other pensions would be taxed at your income rate according to your CRA ‘World Income’.

#66 theoryAndPractice on 03.31.19 at 9:05 am

#61

——

https://www.canada.ca/en/financial-consumer-agency/services/retirement-planning/travel-abroad-retire.html

#67 Travelin' Jack on 03.31.19 at 9:07 am

#61 Retirement in Mexico.

It’s straight forward, you fill out a lot of paperwork and file a tax return. Canada has a reciprocal tax treaty with Mexico so you pay your taxes on global income to Mexico. There is no tax benefit, you are required to file a Canadian tax return regardless. CPP and OAP continue as per usual.

#68 Judy Campbell on 03.31.19 at 9:08 am

A TSFA that pays 6%. Where do you find that?

#69 Ryan Lewenza on 03.31.19 at 9:39 am

I’m Stupid “What about this situation; my mother is a widow so she receives survivor benefits once she applies for cpp the survivor benefits stop. I think the difference would be $100 a month. Should she wait until the last possible moment to collect her cpp? She’s currently 61 I think she has to take her cpp at 65 but I’m not sure.”

In this instance it might make sense to delay her CPP till age 65 but you really have to run the numbers under the two different scenarios. Survivor pensions are complicated especially when the spouse is under the age of 65. I did some digging and this article provides some details around the survivor pension that may help. – Ryan L
https://www.moneysense.ca/save/retirement/pensions/survivor-benefits-a-guide-to-cpp-oas-gis-and-more/

#70 Remembrancer on 03.31.19 at 9:53 am

#55 Vampire Studies on 03.30.19 at 10:55 pm
46 PA – get rid of it in the private sector? And let people who have a work plan save more than people in the private sector who only have an RRSP? And what happens if I hold a Sears or a Nortel in my RRSP, or
other pensions plans that hold them?

Not that I don’t sympathize with those who lost their pensions. Seems to me the problem is with the way
they are set up. Anybody with a private sector plan that does not have this employer risk?
——————————————————-
Registered Defined Contribution plan vs. Defined Benefit? Ultimately transfers the risk to the contributor in some relatively low performing insurance company mutual funds while employed as well as the ability to walk away with the vested funds depending on the terms of the plan…

#71 Ryan Lewenza on 03.31.19 at 9:55 am

BlogDog123 “The CPP has bulked up their number of employees over the years… I wonder what the equivalent MER for the plan is and if the extra legions of managers has paid off ??”

According to this paper by the Fraser Institute the CPP cost or MER equivalent is 1.07%, higher than other comparable government pensions. The report states that the higher cost is due to higher administration costs and higher external investment fees. Since the CPP is expanding into other areas like real assets they likely partner with outside investment companies on these investments which increases costs. But given the returns the higher fees look justified. – Ryan L

https://www.fraserinstitute.org/sites/default/files/comparing-costs-of-the-CPP-with-public-pension-plans-in-ontario.pdf

#72 Ryan Lewenza on 03.31.19 at 10:01 am

Tim “Hi Ryan, I look forward to your posts. There is a typo above around OAS eligibility. The highest benefit amount is reached after 40 (forty) years of Canadian residency between the ages of 18 and 65, not after 10 years.”

Yes that’s correct. Thanks for pointing that out. – Ryan L

#73 dharma bum on 03.31.19 at 10:07 am

“I woke up this morning, and I got a-myself a beer,
the future’s uncertain and the end is always near!”
– The Doors

The complicated calculations involved in trying to mathematically determine whether it is better to take CPP money earlier than later depending on individuals’ particular financial, employment, investment, cashflow situations are merely a smokescreen that cloud the vision of reality.

It’s simple: Real money today is always better than the promise of money in the future.

I’ve said it before, and I’ll say it again:

Take the money, and RUN!

https://www.youtube.com/watch?v=r9oW1dHBZ5M

#74 Ryan Lewenza on 03.31.19 at 10:14 am

retirement in mexico “As a Canadian Citizen, is it possible to retire, live in Mexico and still collect OAS/CPP?”

Canadians living abroad in retirement can receive OAS/CPP or a combination of Canadian benefits with the foreign country benefits if there is a “social security agreement” with that country. According to the link below, Mexico would be included as there is a social security agreement with them. – Ryan L

https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-international/mexico.html

#75 Ryan Lewenza on 03.31.19 at 10:41 am

Asking for a friend “Ryan, if a person is on long term CPP Disability and has collected for twenty years and hasn’t paid into CPP, what do they get when then turn 65? Do you know what the transition details are, few do and there’s lots of disabled boomers out there in this situation.”

I’m a bit confused on this once since you have to pay into the CPP to be able to collect CPP disability benefits. According to the CRA website it states “Canada Pension Plan (CPP) provides disability benefits (disability pension and post-retirement disability benefit) to people who have made enough contributions to the CPP and who are disabled and cannot work at any job on a regular basis.” So are you sure they have not paid into the plan or you could be talking about another plan? In any event, regular CPP benefits kick in after age 65 so if they are receiving CPP disability benefits then they should receive regular CPP benefits at age 65. – Ryan L

#76 Ryan Lewenza on 03.31.19 at 10:55 am

Spectacle “My question is in regard to changes into the CPP future. What Trumpian Scale changes can you realistically imagine some 10 – 15 years onwards. As You mentioned, If there is a 75 year model of solid viability, there has to be something very important enhancement to CPP , but not yet on the radar of the CPP managmanent. For example, the Trump effect, and the Jody Raybold Effect, not to be discounted. The future should hold Huge and beneficial changes.”

Right now I don’t see anything major that needs to be implemented in the CPP to ensure its long-term sustainability or protect from potential short-term dislocations from Trump or the SNC debacle. First, the returns on the fund have been solid which has greatly contributed to the long-term sustainability of the fund. Yes the next 10-year period returns should be below the last 10-year period but I think they can continue to grow the fund at a decent rate, and above the 3.9% long-term real return estimate they use. Second, the recent changes to the contribution rates also help on the long-term sustainability, although this will also increase benefit payouts in the coming decades. Third, Trump, SNC, Brexit, or any other short-term event will not impact the long-term sustainability. These are short-term in nature with the fund being managed on a multi decade time horizon. So don’t fret over the CPP sustainability due to any short-term market corrections from these one off events. – Ryan L

#77 millmech on 03.31.19 at 11:32 am

Ryan,
If one took the average CPP at 60 the amount would be $410/mth due to the 36% correct?
This would result in a lump sum of $29,500 ish after 5 years not the $45,000 that was calculated, am I correct?

#78 millmech on 03.31.19 at 11:35 am

Ryan
That should be the 36% penalty for early CPP withdrawals

#79 LP on 03.31.19 at 11:39 am

#68 Judy Campbell on 03.31.19 at 9:08 am
A TSFA that pays 6%. Where do you find that?

*************************************

With respect, your question is “savings account” thinking. Just as any other investment vehicle, sometimes the return on a TFSA MAY be 6%. Other years it MAY be higher or lower. Some posters on here have boasted of returns much higher than 6%. (This is an anonymous board don’t forget.) You must remember that investments inside a TFSA are subject to the risk/reward formula just as any other investment vehicle is.

#80 Kevin on 03.31.19 at 11:39 am

Don’t ignore the fact that if you retire and delay your CPP those zero earnings years will factor into the calculation to reduce your CPP amount. For example if you retire at 55 and are now 62 without having started your CPP, your CPP entitlement is increasing but also decreasing (by a lesser amount) due to zero contribution years factoring in.

#81 Ronaldo on 03.31.19 at 11:45 am

The “GIS Saga” by Richard Shillington, July 21, 2002. – how 300,000 lost out on GIS and then some/most got their benefits.

http://www.shillington.ca/benefits/gis_saga.htm

Prior to this date many seniors who were eligible for the GIS were unaware and as a result the government saved millions of dollars. Through the work of Richard and others many of those people received retroactive payments and today when you apply for OAS there is a section to fill out regarding the GIS.

When I ran across this website back in the mid 2000’s I started researching into this and asking a lot of questions and what I find out was quite interesting. I discovered that many people were buying into the RRSP thing who should never have been doing so.

There was an elderly couple that I met who were in their late 70’s early 80’s and the husband was working part time at a department store so that they could have extra money to live on. They owned a townhouse but had no savings and no pensions other than the OAS and a bit of CPP. The woman had never worked and was a stay at home mom. He worked in trades in seasonal work so did have a bit of CPP. I asked her if they were collecting the GIS and she asked “what’s that”. I explained to her that since they were at the income level they were at that they would qualify for it and therefore her husband would not have to work as much as he was as there was an amount that he could earn without being clawed back on the GIS. She replied, “that is welfare and he would never go for it”. I tried.

I sat down with a so called financial adviser at the local Credit Union where I lived and questioned her on the GIS and advising people like that on purchasing RRSP’s. She had not heard of the GIS and yes was urging people such as the couple I mentioned to buy RRSP’s.

Many elderly people who retired either did not apply for the GIS and the ones that did soon realized how the drawing from their RRSP’s would result in a 50% plus in income tax and possible loss of other means tested benefits. As a result, many did not draw from RRSP’s until forced to do so when they reached age 71.

The proposed increase to CPP will not be for the benefit of those individuals but will benefit the government as it would result in reduced GIS for this group and would end up paying more tax.

This is why the TFSA is the way to go for most low income earners.

The governments reduction in the amount that can be placed in a TFSA is another blow to those people since they could eventually sell their home and place the proceeds into a TFSA where the amount would grow tax free and not affect their GIS.

There is a group of people in this country who need the assistance of financial planners more than anyone but are not getting it.

#82 Shawn Allen on 03.31.19 at 11:54 am

Always Take The Money and Run?

#73 dharma bum on 03.31.19 at 10:07 am said:

The complicated calculations involved in trying to mathematically determine whether it is better to take CPP money earlier than later depending on individuals’ particular financial, employment, investment, cashflow situations are merely a smokescreen that cloud the vision of reality.

It’s simple: Real money today is always better than the promise of money in the future.

I’ve said it before, and I’ll say it again:

Take the money, and RUN!

**************************************
If that were true then no one should invest in anything ever.

Basically the argument above says, look I have already made up my mind. Don’t bother me with facts and math, I don’t have time for that.

Fair enough, in life we don’t have the time to evaluate every decision based on math and facts. But for many people CPP is an important part of their retirement. There is obviously no universal rule that it is always better to take it at age 60. It’s worth some thought and calculation.

Again, too each his own.

#83 Jamie Dimon on 03.31.19 at 11:56 am

Great post Ryan! This blog freaks me out sometimes, I just had this exact conversation with my father a day ago. Keep it up.

#84 Pinksnow AWOL on 03.31.19 at 12:11 pm

Pinksnow man, pinksnow man, where are you? I miss your posts that highlighted how Vancouver area property values are falling.

#85 Blackdog on 03.31.19 at 12:19 pm

Note, for those who are planning to continue working to age 65, if you take CPP before age 65 you will no longer be able to collect disability benefits should you be forced to quit working due to disability. Since disability benefits are typically higher than CPP taken early, this is something you may want to factor into your decision regarding when to take CPP. Not everyone has disability insurance through their employers.

Unlike Garth and Ryan, I do not think there is a one size fits all solution regarding when to take CPP – i.e. the earlier the better. For those with no indexed to inflation, defined benefit pension plans through employment, CPP is the only such guaranteed pension they will ever get. If you are still working and able to support yourself adequately at age 60+, waiting to collect a much increased pension can compensate for the lack of work pension. It sucks to be old. It sucks to be old AND poor. Some people with no work pension and limited assets, collect CPP early because they can, but they do not think through the implications into their older years. Just my 2 cents.

#86 Spectacle on 03.31.19 at 12:22 pm

Just a response clarifying…..

” #75 Ryan Lewenza on 03.31.19 at 10:41 am
Asking for a friend “Ryan, if a person is on long term CPP Disability and has collected for twenty years and hasn’t paid into CPP, what do they get when then turn 65?

Do you know what the transition details are, few do and there’s lots of disabled boomers out there in this situation.”

Ryan’s clarification ( attempt under limited information ).

“I’m a bit confused on this once since you have to pay into the CPP to be able to collect CPP disability benefits. According to the CRA website it states “Canada Pension Plan (CPP) provides disability benefits (disability pension and post-retirement disability benefit)

– to people who have made enough contributions to the CPP and who are disabled and cannot work at any job on a regular basis.” –

So are you sure they have not paid into the plan or you could be talking about another plan? In any event, regular CPP benefits kick in after age 65 so if they are receiving CPP disability benefits then they should receive regular CPP benefits at age 65. – Ryan L

——— my thoughts on this ——
Reminds me of a similar situation of a 53 year old woman I heard of,
-lives in her parents musty basement,
– has dried up all her past abilities to prey/feed off of eligible men in her life,
– now on disability ( not to be confused with CPP Canadian Pension Plan. About $750 a month. Poverty !

– Smoker,
– alcoholic,
– pot user ( non legal) ,
– trash horder
– plenty of personality issues,
– ensnare herself into some sort of unpronounceable / unexplainable Government disabling illness .

Claims she too is in early retirement, nope!

My guess is pretty screwed long term if they think society has agreed to take financial care of them. Seriously, $740 a month to surrender to having a life.

In regard to your example, It is probably called being on long term disability welfare::
Painful to hear such stories, family is beyond being able to help ( like enabling the issue further).

As Ryan states, it seems to be confusing situation: and one which gets worse over time.

PS, Thanks you Ryan for your response to my post.

& Thanks Mr. Turner.

#87 Spectacle on 03.31.19 at 12:43 pm

#62 Smoking Man on 03.31.19 at 12:26 am
People kick you when your down and love you when your up.

Its human nature.

Hey T2 how does a girls boot in your mouth taste. You are so over. #fakefeminist.

Taken down brilliantly by an indigenous stong woman who saw through you sub acting skills and refused to be pushed around by a girly boy and his goons.

https://youtu.be/

——————-
It is just getting started. People eventually Kick people, eg Trudeaus Mob of liars and scammers, after being kicked by them .

If there are 3 women who ” experienced things differently..” There are millions of canadian women, business owners, etc that really have had enough.

My guess is she will successfully run for/win Prime minister of Canada in near future. Run on integrity and real issues, probably hire Ryan for Finance Minister ( comes with Garth, so bonus hire).

Drain the Tundra! Lock-them-up ! New slogan…

Any bets Smokey? Appreciate your insights most of the time.

#88 Armpit on 03.31.19 at 12:45 pm

Great Article for those planing their retirement… i.e. anyone under 70 (lol)

Fellow Blog readers – here are a few links that I found helpful as well. Enjoy!

https://retirehappy.ca/apply-for-cpp-early/

https://retirehappy.ca/cpp-survivor-benefits/

https://retirehappy.ca/cpp-post-retirement-benefit/

#89 Vampire Studies on 03.31.19 at 12:50 pm

70 Remembrancer – thank you. I only have my own investments so I’m not at all familiar with pension plans and how they are set up.

What confuses me is the employment agreements where pension plan is mandatory, but pension assets are still vulnerable to seizure to meet company’s credit obligations at insolvency. I wouldn’t feel comfortable with this arrangement. I guess the trade off is that the employer is on the hook for shortfalls. Fine if they are public service, not so good if private sector.

My sis has a ‘group rrsp” which she is now withdrawing from, which is of course a DC. She says it wasn’t very good, but it sounds like there are many options, including the amount of the contribution, matching employer contribution, commuting etc. Has the advantages of forced savings, free money, and lower fees than an individual pays.

https://www.nbc.ca/personal/advice/savings-investment/how-group-rrsps-work-are-they-really-beneficial.html

Another nice day here. Lots of sun. sigh…….

#90 crowdedelevatorfartz on 03.31.19 at 12:52 pm

@#84 PinksnowAWOL
“Pinksnow man, pinksnow man, where are you? I miss your posts that highlighted how Vancouver area property values are falling.”

++++
Unfortunately.
For Those about to Flop had to pack in his blog posts and his own Pink Swon blog due to personal threats directed at him and his wife.
To assume the anonymous, slime crawling, gutless troll that threatened him was somehow involved in the failing Real estate industry (construction? marketing? sales?)….. isnt too much of a stretch.

All I can say is .
Flop may be silenced but his information was the truth and if the real estate slime cant handle the truth without blowing a gasket……..

They havent seen anything yet.
Karma is a bee-yatch with a big stick.

Happy housing CRASH everyone.

#91 Remembrancer on 03.31.19 at 12:57 pm

#79 LP on 03.31.19 at 11:39 am
#68 Judy Campbell on 03.31.19 at 9:08 am
A TSFA that pays 6%. Where do you find that?

*************************************

With respect, your question is “savings account” thinking. Just as any other investment vehicle, sometimes the return on a TFSA MAY be 6%. Other years it MAY be higher or lower. Some posters on here have boasted of returns much higher than 6%. (This is an anonymous board don’t forget.) You must remember that investments inside a TFSA are subject to the risk/reward formula just as any other investment vehicle is.1
—————————————————-
Like nails on a chalk board for me (youtube it kids) anytime someone still talks about buying a TFSA or buying a RRSP, almost invariably meaning a low interest GIC in their TFSA or RRSP accounts @TB, sigh…

#92 crowdedelevatorfartz on 03.31.19 at 1:22 pm

2019
The first year in world wide history where there are more 65 year people than 5 year olds.

And moving forward it’s going to get much , much worse.

Screwed Canadian Millennial was right!
Millennials are screwed after CPP is cannibalized and even the bones are sucked dry by those well deserving Boomers….

#93 yvrmc on 03.31.19 at 1:30 pm

Yes Flop , miss your posts … a guest appearance maybe …..

#94 crossbordershopper on 03.31.19 at 1:50 pm

people should just retire in mexico or florida, million quebecors a year (or so it seems, hanging out at winn dixie then the gas station, everywhere i go its either spanish or french. anyway, go to florida, i have no idea whey people live in south ontario anyway.
collect your canadian welfare cheques and live ok in florida, do a little side gig for cash.
rrsp , taxes its all bs, just relax and get some sun.

#95 Westcdn on 03.31.19 at 1:50 pm

I retired at 58 and start collecting OAS in a couple of months. I took a few penalties to do so but my math said a few more years of answering for my beliefs wasn’t worth the aggravation (too many people that I thought had, ahem, poles stuck up their butt). People thought I was crazy not to take “free” money from employers but I have my values to the grave.

I did benefit from a cpp bridge component in my db pension starting at 58 so taking cpp at 60 was a no brainer plus it stopped the non-contributory year clock. It is a modest lifestyle better most plus I have confidence in myself to overcome or improve. It does help “sparklies” do little for my ego and I like being self-sufficient and doing things on my own.

Meanwhile, the planned wind down of my RIF (I converted from a RRSP to stop needless admin fees) and the contributions to my TFSA continue.
I am switching to glide which suits me fine. I was trapped too long. https://www.youtube.com/watch?list=RDsxkjvKBPQjo&v=sxkjvKBPQjo

PS. It helps to understand the banking system by thinking of it as just one brand worldwide. So yes, deposits will account for most loans but it still would create “money” out of thin air. I also tend to think of loans as cash that pays interest since they can used as collateral. Have you ever wondered where shadow banks (they don’t take deposits) get their funds to loan?

#96 Remembrancer on 03.31.19 at 2:19 pm

#89 Vampire Studies on 03.31.19 at 12:50 pm

No problemo. Glad to help with the conversation.

On the Group RRSP angle, she may be correct. It could be possible to have both that and a DC or DB pension plan or only one or the other. Usually you could see the difference in that Group RRSPs had a match plan where a % of salary the company kicked in (up to a certain amount) was based on the % of salary you contributed as an incentive to save given no company pension – again with a limited set of options, usually run by an insurance company contracted by the employer, while the DC pension is paid for solely by the employer. I have seen that even evolve into a hybrid pay-to-play situation where even employer DC plan contributions are based on an amount that the employee contributed themselves into a shared plan that otherwise was a DC plan (or no contribution, no company payment no pre-retirement savings kiddo). Or she may be confused as the Group RRSP thing is an earlier version of a straight DC pension plan. Both schemes reduce your RRSP limit by the amount contributed by the employer so she may not realise the difference…

The main difference between DC and DB in the situation you brought up, Sears, Nortel, etc (know people who were impacted significantly by both BTW) is that the Defined Benefit is a company managed or mismanged fund exposed to creditors while legit Defined Contribution plans are legislated by the feds/provinces and owned by you per the vesting agreement with your employer ie monthly based on latest contribution by the employer… So, the cleaning supplies company isn’t getting paid for their buckets and pine cleaner before you see any DC pension contributions in that case… Of course you get what you get with DC based on how well the investments did as the risk is all yours (like you :-)), DBs paid for by a company that stayed in business and didn’t restructure benefits plan etc etc were the golden ticket…

#97 Comment on OAS clawback on 03.31.19 at 2:40 pm

I was reading that the clawback starts at around 74,000 However I just been reading the pension spitting is not allowed to bypass the clawback. For example I earn $90,000 and my wife $20,000 we pension splitting it wass $60,000 each.
But this does not work for OAS clawback
Comment please
Thanks

#98 Better Halves on 03.31.19 at 3:03 pm

https://retirehappy.ca/minimizing-old-age-security-clawback/

Income splitting in retirement. Probably the biggest impact for retires with spouses was the introduction of pension splitting in 2007. With pension splitting, spouses can give up to 50% of their pension income to their spouse for tax splitting purposes. This is a very effective way to reduce income if you are close to the OAS clawback threshold. For retirees with no pension income, RRIF and annuity income qualify for pension splitting after the age of 65. Splitting or sharing Canada Pension Plan (CPP) is another income splitting strategy that can help minimize or avoid OAS clawback.

#99 Remembrancer on 03.31.19 at 3:04 pm

#97 Comment on OAS clawback on 03.31.19 at 2:40 pm

Got a link for that? The consensus otherwise seems to be that income splitting is the one loophole, other than not counting TFSA withdrawals as income, that you have to pass the income test and not have OAS clawed back er recovered by the guberment….

#100 espressobob on 03.31.19 at 3:15 pm

It sucks paying both sides of CPP when your self employed. Great fun.

Just hit 60 and took my benefits right away. During a bumper year the proceeds can go into the RRSP nullifying taxes in a higher bracket. During a crappy year then the TFSA is the go to.

This is one tough nut to crack since none of us knows how long were around on this planet? Good post Ryan, this one really made me think.

#101 Linda on 03.31.19 at 3:20 pm

#46 ‘PA’ – the unfortunate fact that there is very little legislation protecting pension benefits is something that our government should have long since taken action over. BTW, even ‘government’ benefits can be reduced or vanish altogether. Take Air Canada for example. It was under government control, was privatized & when it got into financial difficulties the pension plan of the employees was gutted. Employees with less than 25 years of contributions lost everything. Those with more than 25 years of contributions saw every dollar of contributions reduced by 2/3rd’s – effectively they got $0.36 Cents on the dollar. The government of Saskatchewan changed their DB plan to a DC plan. I didn’t mention CPP deductions since I thought everyone knows CPP is universal – all workers pay into the plan unless they are working under the table – but just in case some people are unaware of that little fact then yes, CPP is deducted in addition to any other pension plan an employee may be contributing to.

#52 ‘Remembrancer’ – the point I am trying to make is that those w/o pension plans are not necessarily disadvantaged. IF they utilize their RRSP or TFSA contributions, they could actually end up in a better position than those who do have a work related pension other than CPP. First, they would have control over the money – less chance of reductions or outright disappearance of plan benefits such as has been experienced by Enron, Air Canada, Sears, Nortel etc. Second, tax deferral which may well include annual tax refunds depending on income – refunds that can be put into the RRSP & generate faster growth as well as future refunds. To all those who wail about having to pay tax when funds are withdrawn, repeat – tax deferral. Not tax free like TFSA’s. Also note that pension beneficiaries, even those whose only income is CPP/OAS/GIS still are subject to tax on that income. Third, growth potential. My spouse’s DB pension is CPP. No other work related plan, so a RRSP was contributed to in lieu. Within 10 short years all contribution room had been used up (those tax refunds went back into the plan) & that RRSP balance exceeded the total value of my work related pension plan benefit (my commuted value). Balanced & diversified portfolio & when retirement occurs, sufficient income to ensure an enjoyable retirement. Could market swings affect that? Of course – but pension plans are also affected. Benefits might be curtailed/reduced either temporarily or permanently depending on funded plan status.

I do maintain that the rules regarding the pension adjustment ensure a level playing field for retirement. Two workers earn the same amount but one has a work pension plan & the other does not. The employee with a work plan paid $5,000 into their plan. The employee w/o a plan is credited with $8,000 RRSP room. IF the work plan employee were allowed to contribute $8,000 to an RRSP as well as pay $5,000 into their pension plan they’d have an advantage, but due to the PA they are only allowed to contribute $3,000 to an RRSP. Level playing field, insofar as contributions are concerned. In the great pension plan debate, those w/o work related plans frequently state they operate at a disadvantage. I disagree & in fact, think the real disadvantage is that those w/o plans can choose to contribute or not, whereas those with plans generally have no choice. Enforced savings (as with CPP) are meant to ensure a stable income upon retirement. Unfortunately as pointed out by ‘PA’, all too often that promised future income turns out to be a pot of fool’s gold. The employee paid in, but will not receive even what they contributed, let alone what the employer contributed. This is a wrong that should be legislated out of existence.

#102 PastThePeak on 03.31.19 at 3:35 pm

For those commenting on *high* NW earners and retirement, consider the following example:
– $2M combined liquid assets for a couple (super rich according to some on this blog)
– Per Garth’s figures, long-term average in balanced portfolio is 7% nominal return over time.
– With assumption of 2% inflation*, that is 5% real return per year
– The $2M portfolio can then deliver around $100K for TWO people, without much risk of depleting the capital much.
– In a drawdown scenario, say you push that to 7% withdrawal per year, or $70K per person. The money might last until mid 90s.

$70k/person is a good retirement, don’t get me wrong, but that is no different than a typical public sector DB pension (+ benefits) if both persons worked to the magic formula.

NW calculation might not include DB pension, but it is worth *well* over $1M per person when looking at funding one’s own retirement, since it is indexed to inflation.

* (I personally think 2% is low for retirement planning purposes, as items seniors would pay most for – lodging, food, cars, travel – seem to rise more, and seniors are not buying other items which bring down the gov’t CPI calcs, like electronics, cheap disposable clothes, etc).

#103 Linda on 03.31.19 at 3:37 pm

#89 ‘Vampire’ – Do not presume that government employee plans are secured by the government. In Alberta, the province enacted legislation to ensure that ‘the government’ would not be on the hook for any government worker pension plan shortfalls decades ago. In Saskatchewan, the province changed the government employee DB plan to a DC plan to avoid any possibility that future plan deficiencies would fall upon the taxpayer. Other provinces may well have similar legislation. While it is true that government worker pension plans are less likely to experience the issues that private plans have it does not mean they are exempt. Of course, these are provincial examples but I have reads news articles indicating that the federal government has proposed similar changes to federal employee plans.

One need only look south of the border to see how various ‘guaranteed’ government worker pension plans/benefits have ended up. Don’t think for a moment that can’t happen here.

#104 Eco Capitalist on 03.31.19 at 4:21 pm

Ryan, do I have this right?

A single person collecting the average CPP (640) + OAS (601.45) would fall under the cap and get GIS (898.32) for a total monthly income of $2,139.77?

That’s enough to cover my existing monthly expenses, so long as I have no vehicle, no rent (or house to maintain) and don’t need clothing.

Without somewhere to live, I save heat, hydro, Netflix, etc., but I could afford to keep the cell phone and rent a PO Box so they have somewhere to mail the cheques.

To summarize, if you manage to collect all 3, you could be a well fed, well dressed homeless person (assuming you stayed healthy).

#105 Ronaldo on 03.31.19 at 5:40 pm

#99 Remembrancer on 03.31.19 at 3:04 pm
#97 Comment on OAS clawback on 03.31.19 at 2:40 pm

Got a link for that? The consensus otherwise seems to be that income splitting is the one loophole, other than not counting TFSA withdrawals as income, that you have to pass the income test and not have OAS clawed back er recovered by the guberment…
———————————————————–
My wife and I income split otherwise we would have some of the OAS clawed back.

#106 Asking for a friend on 04.01.19 at 12:05 am

Re: 75 Ryan. I’m sure this person contributed sporadically ( some years of full payment contributions other years not) from age 18 up to the date of their chronic disabling injury at 42 years old. They’ve been on CPP disability since and are within a year of turning 65. Will they receive an income?

I also am ‘a bit confused on this’, I asked around and got a few different interpretations of the matter. The person should receive regular CPP & OAS (perhaps GIS) because accidents are just that, no fault to the individual. But, Canadian bureaucrats have proven to be somewhat oblique on this very specific question. Any help you could offer would be appreciated. Daily reader.

#107 Vision on 04.01.19 at 12:22 am

Excellent Review!

#108 ken neudorf on 04.01.19 at 7:14 am

i know you recommend taking cpp early,
but if you are making over 120K, the taxes on that are basically 50%, so you only net 50% of the money,
why not wait until you are 65, and theoretically have structured your retirement income so that you pay a much lower tax rate on that cpp income? if i take the money early – getting approx $700 and change, my net is only $350 a month which is not much compared to the $1100 a month i get at 65, and probably taxed at 20% leaving me a net of about $850.00. Can you correct me if this is wrong headed. Thanks, Ken

#109 PA's are not level Setting on 04.01.19 at 7:25 am

#108 Ken Neudorf

Your not wrong.