Don Maycock...advising you to and through retirement!

2019 CPP and OAS Updates

Canada Pension Plan (CPP)

You are eligible to begin receiving your Canada Pension Plan (CPP) as early as age 60. The base CPP payment is different for everyone because it's based upon how many years you've worked, how much you've contributed each year plus many other factors. To determine your amount, go to the Government of Canada website, login and on their main page select the row entitled "Estimated monthly CPP benefits". An example is shown to the right.

Once you know your base amount, your next decision is to decide when to start CPP. For every month you defer the start, the initial pension increases as follows. 

Between age 60 to age 65: For each month you defer starting, you receive an additional 0.6% which works out to a 7.2% annual increase,
Between age 65 and age 70: For each month you defer starting, you receive an additional 0.7% per month which works out to an 8.4% annual increase.

Please note that once you begin to receive CPP, it increases quarterly based upon the increase in the Consumer Price Index (CPI).

It's important to consider when to start your CPP as it's fully taxable. This means that if you are still working, it's added to you gross income and you'll likely be paying a higher percentage in taxes. 

On page 1 of the downloaded page, you'll see that at age 65, the maximum CPP payment is $1,154.58. Using the rule above, for each month before age 65, you get 0.6 percent less which works out to a 36% reduction at age 60. So in this case, if you were 60 and wanted to start CPP, your payment would be $738.93 monthly.
 
CPP Contributions are Increasing for workers!
CPP was originally designed to replace 25 per cent of your income in retirement but effective in 2019, it's being designed to replace 33.3 per cent. Therefore with this new policy change, CPP contributions are increasing. This increase will be reflected in your CPP deductions from your paycheck.  The 2019 increase goes from 4.95% to 5.1% and will increase each year thereafter until it reaches 5.95% in 2023. These changes won't have any effect on current retirees. This policy change is targeted to be fully implemented by the year 2065, a 47 year phase in.

 

Old Age Security (OAS)

Unlike CPP, you don't contribute to Old Age Security (OAS) as it's taken out of general tax revenue. You are eligible to begin at age 65 but can defer to as late as age 70. The deferral increases your initial OAS by 0.6% per month (7.2%) per year or 36% more compared to age 65. Once you begin, it increases quarterly based upon the increase in the Consumer Price Index (CPI)
 
OAS is fully taxable.
 
On page 2 of the downloaded page, you'll see that a 65 year old starting OAS, receives $601.45 monthly.

If you haven't started CPP or OAS yet, I think there are two key takeaways.

1) Find out what your estimated CPP payment is projected to be.
2) Find out what your estimated OAS payment is projected to be. 

For clients that take advantage of the retirement income planning service I offer, we use this data in the Retirement Income Planning projections to give you a better idea of how much income you can safely withdraw annually and not run out of money. Click below to learn more about how I determine your Sustainable Withdrawal Amount in retirement!

 

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