Today in Canada there are more than 5 million people between the ages of 50 and 60 as reported by Statistics Canada. With a shorter horizon to retirement, those over 50 are wise to consider their retirement plans. Supplementing any personal savings and possible employer pensions, the Canada Pension Plan (CPP) provides an ongoing revenue stream in later years. ‘How much will I get?’ is an important question when looking at CPP as part of your overall retirement planning.
What is CPP?
Started in 1966, CPP is a pension benefit managed and paid out monthly by the federal government to eligible recipients. In Quebec, the program is operated as the Quebec Pension Plan (QPP). The standard age to start the pension is 65 – but you can choose to start receiving it as early as age 60 or as late as age 70.
Initially, payments were intended to replace about 25 percent of an individual’s pensionable earnings in retirement. Recent changes have increased the program payouts, now replacing closer to 33 percent of a senior’s average earnings pre-retirement.
If you qualify, you will receive the CPP retirement pension for the rest of your life. The amount paid to each individual varies. It’s based on what they have contributed to CPP during working years and for how long those payments were made.
The program is especially valuable to those who do not have significant personal savings or employer pensions. While not a huge payout – with a current maximum of $14,445 annually for those who qualify — CPP can be a lifeline for those living on a tight budget.
How does The Canadian Pension Plan work?
While it’s just another number on a pay stub for many employees, the CPP contribution becomes an important one when you are nearing retirement age. Your employer – or your business if you are self-employed – is required to make regular payments on your behalf. You may not have noticed the payment deducted from each paycheque, but at the end of your working career, those contributions count.
The amount of monthly CPP you will receive is based on your average earnings throughout your working life, your contributions to the CPP, and the age you decide to start your CPP retirement pension.
The earlier you start taking CPP, the lower the monthly amount you will receive. So if you decide to start later you’ll receive a larger monthly amount. The maximum monthly amount you can receive is reached when you turn 70. And there is no benefit to waiting until after age 70 to start receiving CPP.
How do I apply?
It’s important to note that CPP payments do not ‘kick in’ automatically. You have to apply to receive CPP. And you should submit your application before you want your pension to start.
To qualify you must be at least 60 years old and have made at least one valid contribution to CPP. Those recognized contributions can be from work performed in Canada or from credits received from a former spouse/partner when a relationship ended.
When should I apply?
There are many factors to consider when deciding to take or delay your CPP retirement pension. These include your financial situation, your plans for retirement, and your health.
For example, if you’re healthy and you anticipate living for many more years, or if you have adequate alternate income sources, you could defer receiving your CPP retirement pension until you are older. This will result in a larger monthly pension which could help ensure you have sufficient funds in later years.
But for those who need the increased income now to pay off debt or leave work earlier, you may choose to start receiving your pension before age 65. This will result in a smaller monthly payment which can help meet immediate needs. CPP can be a lifesaver if you have little or no other income.
Age considerations are important given the following factors used to calculate payments:
- If you start taking CPP before age 65, payments will decrease by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36% if you start at age 60
- If you start after age 65, payments will increase by 0.7% each month (or by 8.4% per year), up to a maximum increase of 42% if you start at age 70 (or after).
Whenever you decide the time is right to start CPP, you can set a target date when you apply, and payments should start within the month you choose.
Is CPP taxable?
CPP is fully taxable under Canada Revenue Agency rules. The amount you receive will be added to your annual income for tax purposes and you will be taxed at your applicable ‘marginal rate’. So if your highest income tax bracket is 30 percent, you’ll pay $3,000 on $10,000 worth of CPP.
Bear in mind that taxes are not withheld at source on CPP payments. Unlike a typical paycheque, nothing is pre-paid to taxes. To avoid stress at tax time, you can request that taxes be withheld by the government in advance so you receive a reduced CPP payment each month. Or you can set aside tax money from each CPP payment to ensure you aren’t ‘caught short’ at personal tax time.
How do I find out how much CPP I will get?
You can get an estimate of your monthly CPP retirement pension payments by logging into the federal government website under your My Service Canada Account. If you don’t have an account, you can register for one.
You can also check your contribution level by accessing your ‘statement of contributions’. That’s available from Service Canada online or at 1-800-277-9914. That statement will list all the years you are eligible to contribute from age 18 to 65. And it will show how much you contributed in each of those years.
For years when you contributed the maximum, it will have the letter ‘M’ assigned. Totalling the number of M’s informs whether you qualify for the maximum. It takes 39 M’s to get the maximum payout. If you have 20 M’s you will get approximately half the maximum. However, that can vary if you get any partial credits along the way.
How to calculate CPP?
As noted earlier, the amount of your payment will depend on various factors, including:
- The age you decide to start your pension
- How much and for how long you contributed to the CPP
- Your average earnings throughout your working life.
- Other special considerations.
You can find out more at the following link about how much you could receive.
The government site also provides information about the amount of your CPP retirement pension.
The Canadian Retirement Income Calculator can help you assess your future financial security.
What if you continue working in your 60’s?
You qualify for the CPP Post-retirement benefit if you work while receiving your CPP retirement pension while under age 70 and decide to keep making contributions. These contributions will go toward post-retirement benefits that can increase your retirement income.
Each year you contribute to the CPP will result in an additional post-retirement benefit. The benefit is automatically applied the following year. The accumulated benefits, which increase your CPP monthly payout, will then be received for your lifetime.
However, you can choose to stop your post-retirement contributions when you reach age 65. And even if you’re still working, your contributions will stop entirely when you reach age 70.
How much CPP will I get at 60?
At age 60, your CPP amount primarily depends on your contributions and your average annual earnings.
What is the average CPP payment?
In January 2021, the average monthly CPP benefit was $619.75 per month. If you’re a new beneficiary, the maximum you could receive (starting at age 65) is $1,203.75.
What is the maximum CPP?
In 2021, the maximum CPP payment was $1,203.75/month, or $14,445.00/year.
Will CPP benefits increase?
CPP rate increases are calculated once a year based on the Consumer Price Index (CPI). The increases come into effect each January and are legislated to ensure that benefits keep up with the cost of living. The rate increase represents the percentage change year over year.
2022 CPP Payment Dates
Here are the CPP payment dates in 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 28, 2022
- October 27, 2022
- November 28, 2022
- December 21, 2022