Canada Pension Plan (CPP) benefits can make up a key portion of your income in retirement. Individuals receiving the maximum CPP payments at age 65 can expect to collect more than $14,400 per year in benefits.
The amount of your CPP payments depends on two factors: how much you contributed, and how long you made contributions. Most don’t receive the maximum benefit. In fact, the average amount for new CPP beneficiaries is just $8,570 per year (as of June 2021).
CPP Payments 2021
The table below shows the monthly maximum CPP payment amounts for 2021, along with the average amount for new beneficiaries:
|Type of pension or benefit||Average amount for new CPP beneficiaries (June 2021)||Maximum payment amount (2021)|
|Retirement pension (at age 65)||$714.21||$1,203.75|
|Survivor's pension - younger than 65||$415.18||$510.85|
|Survivor's pension - 65 and older||$308.60||$722.25|
|Death benefit (one-time payment)||$2,500||$2,500|
|Combined survivor's and retirement pension (at age 65)||$871.61||$1,203.75|
|Combined survivor's pension and disability benefit||$1,136.85||$1,413.66|
Now, you may not have a hot clue how much CPP you will receive in retirement, and that’s okay.
The good news is that the government does this calculation for you on an ongoing basis. This means that you can find out how much money the government would give you today, if you were already eligible to receive CPP. This information is available on your Canada Pension Plan Statement of Contribution. You can get your Statement of Contribution by logging into your My Service Canada Account, which – if you bank online with any of the major banks – is immediate.
If you’d prefer to send your personal information by mail you can request a paper copy of your Statement of Contribution sent to you by calling 1.877.454.4051, or by printing out an Application for a Statement of Contributions from the Service Canada Website.
Note that the information available to you on your CPP Statement of Contribution may not reflect your actual CPP payments. That’s because it doesn’t factor in several variables that might affect the amount you’re entitled to receive (such as the child-rearing drop-out provision). The statement also assumes that you’re 65 today, which means that later years of higher or lower income that will affect the average lifetime earnings upon which your pension is based aren’t taken into consideration.
CPP is Indexed to Inflation
Canada Pension Plan (CPP) rate increases are calculated once a year using the Consumer Price Index (CPI) All-Items Index. The increases come into effect each January, and are legislated so that benefits keep up with the cost of living. The rate increase is the percentage change from one 12-month period to the previous 12-month period.
CPP payments will be increased by 2.7 percent in January 2022, based on the average CPI from November 2020 to October 2021, divided by the average CPI from November 2019 to October 2020.
Note that if cost of living decreased over the 12-month period, the CPP payment amounts would not decrease, they’d stay at the same level as the previous year.
CPP Payment Dates
CPP payment dates are scheduled on a recurring basis a few days before the end of the month. This includes the CPP retirement pension and disability, children’s and survivor benefits. If you have signed up for direct deposit, payments will be automatically deposited in your bank account on these dates:
All CPP payment dates 2022
- January 27, 2022
- February 24, 2022
- March 29, 2022
- April 27, 2022
- May 27, 2022
- June 28, 2022
- July 27, 2022
- August 29, 2022
- September 27, 2022
- October 27, 2022
- November 28, 2022
- December 21, 2022
Why Don’t I Receive The CPP Maximum?
Only 6 percent of CPP recipients receive the maximum payment amount, according to Employment and Social Development Canada. The average recipient receives just 59 percent of the CPP maximum. With that in mind, it’s best to lower your CPP expectations when calculating your potential retirement income.
Why don’t more people receive the maximum? Well, because it requires 39 years of CPP contributions at the maximum level to get the biggest possible benefit in retirement. That means you need a salary that meets or exceeds the yearly maximum annual pensionable earnings threshold, which in 2022 is $64,900.
- Year YMPE
- 2022 $64,900
- 2021 $61,600
- 2020 $58,700
- 2019 $57,400
- 2018 $55,900
- 2017 $55,300
- 2016 $54,900
- 2015 $53,600
- 2014 $52,500
- 2013 $51,100
- 2012 $50,100
Plenty of variables affect your ability to earn the maximum CPP benefits. Maybe you joined the work force late, dropped out for a period of time, or retired early. Low income earners may not hit the YMPE level often enough to get the highest possible CPP retirement benefit. Business owners who choose to pay themselves dividends don’t need to contribute to CPP, but that means they won’t be eligible to receive benefits either.
When To Take CPP?
Perhaps the most common question about CPP is when to take it. The standard age to take CPP is at age 65. Indeed, Service Canada will proactively send out a notice a few months before your 65th birthday advising you to apply for CPP and giving you an estimate of your expected CPP payments.
But you can take a reduced CPP payment starting as early as age 60. If you do elect to take CPP early, you’ll receive 0.6 percent less for every month you receive it before age 65. That means, for those taking CPP at age 60, a reduction in their CPP payments by 36 percent. Reductions aside, there could be good reasons to take CPP early – namely if you need the income sooner than 65, or if you expect to have a reduced life expectancy.
Conversely, you can enhance your CPP payments by deferring your pension up until age 70. The advantage of waiting is you’ll receive a 0.7 percent increase for every month you defer CPP past age 65. Taking CPP at age 70 results in a 42 percent enhancement to your pension. The biggest reason to defer CPP is to protect against longevity risk – the risk of outliving your money. The trade-off is using your own personal savings to tide you over until the enhanced CPP payments kick-in later in life.
Note there is no benefit to defer CPP beyond age 70, so get your CPP application in on time to avoid delays.
CPP is a complicated system but one that is crucial to retirement planning for many Canadians. It’s important to understand how much CPP you will receive in retirement, and to know how difficult it is to receive the maximum CPP payments. Most CPP beneficiaries receive much less than the maximum, with the average being around 60 percent – so that’s good to know going into your retirement income planning.
You can find out an estimate of your CPP benefits by looking at your Statement of Contribution online at your My Service Canada Account, or request a paper copy by calling Service Canada.
CPP payments are indexed to inflation, with the latest increase going up by 2.4 percent. CPP payment dates are scheduled toward the end of every month and automatically deposited into your bank.
Finally, a big consideration is when to take CPP and how the payments fit into your retirement plan. Do you expect to live a long life? Will you work until age 65? Do you have sufficient personal savings to last until your CPP payments kick-in? Will you take CPP at age 65, or elect to take your pension earlier or later?
Readers: How does CPP fit into your retirement income plan?
Yes, I know it’s not even December yet but I’m going “that guy” – the first to share his 2022 financial goals. First, a quick trip down memory lane.
I’ll never forget attending a ceremony to be recognized for 10 years of service at the University along with dozens of other employees receiving awards for 5 to 50(!) years of service. As I sat there I remember thinking, if I’m still here in five years to receive my 15-year recognition then something has gone horribly wrong in my life plan.
Two months later we embarked on our epic 32-day trip to Scotland and Ireland. After this life changing trip I decided to put in my notice for the end of the year and pursue my entrepreneurial dreams.
It has been two years since I quit my job as a post-secondary fundraiser and turned my long-time online side hustle into a full-time business. Aside from *waves hands at everything* the transition has gone even better than I imagined.
I work side-by-side with my wife, who handles all of the new client communication, scheduling, invoicing, and so much more so I can focus on what I do best – writing, planning, and working one-on-one with our existing clients. It’s a dream come true. Best of all, we’re there for our kids when they leave for and come home from school.
The result is a wildly successful business that does not compromise a healthy work-life balance. We’ll put that to the test next year (fingers crossed) when we can hopefully resume travelling. I may or may not have shed a tear when our youngest daughter got her first dose of vaccine yesterday.
We had five financial goals or money moves to make this year. The first was to catch up on unused contribution room in my wife’s TFSA. Our goal was to contribute $50,000 but we’ll end up short of that by about $6,000. Life is about trade-offs and we opted to spend that $6,000 on some backyard landscaping instead.
I’m current with my TFSA contributions and so we were easily able to take care of our second goal of maxing out my annual TFSA limit of $6,000.
Our third goal was to continue investing aggressively inside our corporate investing account. We already have a healthy cash float for our business, and our expenses are quite low after we pay ourselves, so we’re able to invest excess profits inside the corporation. Our goal was to invest $48,000 in 2021, but business revenue was better than anticipated and we were able to invest $70,000.
Our fourth goal was to max out our kids’ RESP contributions ($5,000) and we have done that again this year. A related goal was to rebalance this account, which is 100% invested in equities, by adding bonds. I have not done this yet. That may have been wise in hindsight but the fact is we need to dial down the risk in this account as my kids are now one year closer to needing the money for post-secondary.
The fifth goal was more of a change in philosophy. Before the pandemic I thought it would make sense to start paying down the mortgage more aggressively by 2021, but when the interest rate on our variable mortgage fell to 1.45% I decided to forego any extra mortgage contributions and focus on the other four priorities above.
2022 Financial Goals:
What this means to me is having the flexibility to work and earn less without feeling the pressure of maintaining a high savings rate. The truth is our rich life includes more travel and active leisure, and less time spent in front of a computer working on a spreadsheet or on Zoom calls.
We don’t know yet what 2022 will bring in terms of the ability to safely travel outside of Canada as a fully vaccinated family. I am forever an optimist and have tentatively booked trips to Maui, Italy, and the U.K. (all refundable).
Financially, our 2022 goals will look a lot like this year’s goals.
- Finish catching up on my wife’s unused TFSA room ($37,500)
- Max out my annual TFSA room ($6,000)
- Invest excess profits in the corporate investing account (~$48,000)
- Max out RESP contributions ($5,000) and rebalance for real this time
- Roll the extra $6,500 ($44,000 to TFSA in 2021 – $37,500 to TFSA in 2022) into our travel budget
We can achieve this by continuing to pay ourselves at our regular rate, while intentionally earning less business revenue (taking on fewer clients and fewer writing assignments). Since it can be hard to say no to new business, we’ve already blocked out our calendar for most of April and most of July (when we presume to be travelling).
You can see where this is going. If we’re successful next year then 2023 will shape up to be our first Coast FIRE year where we are only contributing $6,000 each to our TFSAs, plus $5,000 to the kids’ RESP.
I’ve done the math to know that we can just let the rest of our investments ride without ever adding to them again. We’d have the option to spend that extra $31,500, or reduce the amount we pay ourselves, or some combination of the two.
More likely, our business will still continue to do well and so we can keep adding excess profits to our corporate investing account.
That’s the plan, anyway.
This Week’s Recap:
I recapped our trip to Boston in the last edition of Weekend Reading.
Is free trading really free? I explore the issue of trading fees in my latest MoneySense column.
On Young & Thrifty I look at whether stocks are more risky than real estate.
Promo of the Week:
If you’re a business owner then you need to take advantage of the American Express Business Platinum Card and all of the perks that come with it.
New cardmembers can earn 80,000 Membership Rewards points when they spend $6,000 in the first three months. If you keep the card past the 14 month mark and make one purchase then you’ll earn an additional 25,000 Membership Rewards points.
I transfer Membership Rewards 1 to 1 to Aeroplan where I value Aeroplan miles at 2 cents per mile*. That means your initial 80,000 welcome bonus points can be worth up to $1,600.
*Note that I recently redeemed Aeroplan miles for four business class tickets from Calgary to Rome. The tickets would have cost a whopping $33,000 in cash, which means I got an incredible 10.5 cents per mile value out of those Aeroplan miles.
You’ll also get hotel perks and airport lounge access.
The $499 annual fee may be tax deductible as a business expense.
Costco ended its credit card relationship with Capital One and is forging ahead with CIBC. Our friends at Credit Card Genius breakdown the new details on what the CIBC Costco MasterCard is going to offer.
Has the pandemic ended the dream of retiring abroad? Jon Chevreau says it can still be done.
The odds of you picking a single stock and it becoming one of the big winners of the future are not in your favour. Read why this is the stock picker’s bear market.
Investing is easy just buy shares in companies you know and use every day. pic.twitter.com/vbJalyws0S
— Boomer and Echo (@BoomerandEcho) November 24, 2021
With assets everywhere seemingly overvalued Nick Maggiulli (Of Dollars and Data) shares why this will not last.
PWL Capital’s Justin Bender explains the key concepts of asset location:
My own view is that most DIY investors should ignore asset location and intentionally hold the same asset mix across all accounts for simplicity.
Millionaire Teacher Andrew Hallam tells investors: Don’t worry, be happy.
“Take comfort knowing this: most wealthy retirees didn’t earn their fortune with a single home run. Sure, stories of fast fortunes grab our attention. But they aren’t the norm. Instead, most people grow wealthy because they spend far less than they earn, they invest responsibly…and they’re patient.”
An enjoyable read from Wealthsimple Magazine on the five simple rules to be the absolute worst stock picker.
Steadyhand’s Tom Bradley says investors should be wary of the next big thing in ETFs.
Finally, why millions of Canadians are planning to choose self-employment, and how to make that transition.
Have a great weekend, everyone!
It might seem counterintuitive to spend down your own retirement savings while at the same time deferring government benefits such as CPP and OAS past age 65. But that’s precisely the type of strategy that can increase your income, save on taxes, and protect against outliving your money.
Why Take CPP at age 70?
Here are three reasons to take CPP at age 70:
1. Enhanced Benefit – Take CPP at 70 and get up to 42 percent more!
The standard age to take your CPP benefits is at 65, but you can take your retirement pension as early as 60 or as late as age 70. It might sound like a good idea to take CPP as soon as you’re eligible but you should know that by doing so you’ll forfeit 7.2 percent each year you receive it before age 65.
Indeed, you’ll get up to 36 percent less CPP if you take it immediately at age 60 rather than waiting until age 65. That alone should give you pause before deciding to take CPP early. What about taking it later?
There’s a strong incentive for deferring your CPP benefits past age 65. You’ll receive 8.4 percent more each year that you delay taking CPP (up to a maximum of 42 percent more if you take CPP at age 70). Note there is no incentive to delay taking CPP after age 70.
Let’s show a quick example. The maximum monthly CPP payment one could receive at age 65 (in 2021) is $1,203.75. Most people don’t receive the CPP maximum, however, so we’ll use the average amount for new beneficiaries, which is $714.21 per month. Now let’s convert that to an annual amount for this example = $8,570.
Suppose our retiree decides to take her CPP benefits at the earliest possible time (age 60). That annual amount will get reduced by 36 percent, from $8,570 to $5,485 – a loss of $3,085 per year.
Now suppose she waits until age 70 to take her CPP benefits. Her annual benefits will increase by 42 percent, giving her a total of $12,169. That’s an increase of $3,599 per year for her lifetime (indexed to inflation).
2. Save on taxes from mandatory RRSP withdrawals and OAS clawbacks
Mandatory minimum withdrawal schedules are a big bone of contention for retirees when they convert their RRSP to an RRIF. For larger RRIFs, the mandatory withdrawals can trigger OAS clawbacks and give the retiree more income than he or she needs in a given year.
The gradual increase in the percentage withdrawn also does not jive with our belief in the 4 percent rule that will help our money last a lifetime.
You can withdraw from an RRSP at anytime, however, and doing so may come in handy for those who retire early (say between age 55-64). That’s because you can begin modest drawdowns of your retirement savings to augment a workplace pension or other savings to tide you over until age 65 or older.
Tax problems and OAS clawbacks occur when all of your retirement income streams collide simultaneously. But with a delayed CPP approach your RRSP will be much smaller by the time you’re forced to convert it to a RRIF and make minimum mandatory withdrawals.
With careful planning (and appropriate savings) your retirement income streams by age 70 could consist of CPP and OAS benefits, small RRIF withdrawals, plus – the holy grail – TFSA withdrawals, which do not count as income and won’t affect means-tested benefits like OAS.
3. Take CPP at age 70 to protect against longevity risk
Here’s where the counter-intuitiveness comes into play. Most default retirement projections will have you taking CPP at age 65 (or earlier) while delaying withdrawals from your RRSP and/or LIRA until age 71.
As I suggested above, the idea is to spend down some of your RRSP before age 70 to fill the gap left by deferring your CPP benefits. Good luck getting your commission-paid advisor to buy into this approach. I doubt many advisors would like the idea of spending down your savings early in order to maximize retirement benefits from CPP.
“Spend your risky dollars first because they may not be there for you in your 80s, depending on how your investments do. A bigger CPP cheque, however, will definitely be there for you.” – Fred Vettese
Spending down your RRSP in your 60s while deferring CPP until age 70 is like converting your risky assets (personal savings in the stock market) into a guaranteed income stream for life.
Related: 5 ways to save your retirement
Think about it. Will you still have the required mental faculties at age 80 or 90 to continue managing your own retirement assets? Or would you prefer to enjoy spending those assets in your 60s and 70s, knowing you still have an enhanced (and guaranteed) income stream to last a lifetime?
If your biggest fear in retirement is outliving your money then why not design your retirement income streams to protect against that very fear? Instead, most retirees take their CPP benefits the first chance they get – leaving additional money on the table and giving up a portion of that longevity risk protection.
Let’s hear it: Retirees, when did you take CPP? Soon-to-be retirees, have I given you a compelling argument to take CPP at age 70?