Retiring is an exciting time. However, before you make a pension choice, you will need to consider your needs as well as the needs of your pension partner and other concerns such as the state of your health, personal savings, family circumstances, life insurance investments, Canada Pension Plan and Old Age Security benefits.
At Mondelis, our extensive background in dealing with a variety of pension needs can be a great asset to your overall pension planning.
Canada Pension Plan (CPP) is one of the cornerstones of retirement income planning. Here are the maximum benefits at age 65 for the past seven years:
2015 – $1,065.00 per month
2014 – $1,038.33 per month
2013 – $1,012.50 per month
2012 – $986.67 per month
2011 – $960.00 per month
2010 – $934.17 per month
2009 – $908.75 per month
Don’t count on the maximum.
When you look at the average payout of Canada Pension Plan, it’s just a little over $550 per month, which is a long way from the maximum. In other words, not everyone gets the maximum. At the most basic level, the amount you get from CPP depends on how much you put into CPP.
How to get the maximum?
Why is it that so many people do not qualify for the maximum amount of CPP? The best way to answer that is to look at how you get the maximum retirement benefit. Eligibility to receive the maximum CPP benefit is based on meeting 2 criteria:
- Contributions – The first criteria is you must contribute into Canada Pension Plan for at least 83% of the time that you are eligible to contribute. Essentially, you are eligible to contribute to CPP from the age of 18 to 65, which is 47 years. 83% of 47 years is 39 years. If you did not contribute into CPP for at least 39 years between the ages of 18 to 65, then you won’t get the maximum. If so, then you might get the maximum but there is another consideration.
- Amount of contributions – Every year you work and contribute to CPP between the age of 18 and 65, you add to your benefit. To qualify for the maximum, you must not only contribute to CPP for 39 years but you must also contribute ‘enough’ in each of those years. CPP uses something called the Yearly Maximum Pensionable Earnings (YMPE) to determine whether you contributed enough. Here’s the YMPE figures for the current and past years:
2015 – $53,600
2014 – $52,500
2013 – $51,100
2012 – $50,100
2011 – $48,300
2010 – $47,200
2009 – $46,300
Basically, if you make less than $53,600 of income in 2015, you will not contribute enough to CPP to qualify for a point on the 39-point system. For those of you that make more than $53,600, you will probably notice that part way through the year, your pay cheques will go up a little. This happens because you have paid the maximum amount of CPP for the year and no longer have a CPP deduction.
As you can see, it’s not easy to qualify for full Canada Pension Plan especially with the trend of people entering into the workplace later because of education and people retiring earlier. Planning your retirement needs and income requires some understanding of how much you will get from CPP. At Mondelis we will take the time to personalize your planning and ensure you understand all of your options.
Contact us today to learn how we can assist you with maximizing your Canada Pension Plan (CPP).