How much can you expect to receive from CPP when you retire?

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The Canada Pension Plan (CPP) is a contributory social insurance program of key importance to Canadians’ retirement planning since its 1995 debut. Along with Old Age Security, it is one of Canada’s few public retirement schemes. All Canadians are entitled to receive their Old Age Security (OAS) benefit. People in the lowest income brackets may also receive an additional Guaranteed Income Supplement (GIS) benefit. If you want to learn more about the 2019 max CPP payment or this year’s payment schedule, we’ll cover what you need to know.

Max CPP 2019

In order to receive the maximum possible CPP payment, you would have needed to max out your CPP contributions for several years prior. For new beneficiaries, the maximum 2019 CPP payout is $1,154.58 per month. For employees and employers, the maximum CPP contribution is $2,593.30. The maximum CPP is $5497.80 for self-employed people. Self-employed people are required to pay both employee and employer portions of CPP. Every year, the max CPP contributions and benefits change.

While the max CPP payout is significant, the average CPP benefit for 2019 stands much lower at $679.16 per month. As one might expect, most individuals have not contributed enough to receive the full CPP payment. In 2019, employees over the age of 18 and earning more than $3,500 per year must pay CPP. For Quebec residents, you pay into the Quebec Pension Plan (QPP). Employer and employee  equally share CPP contributions, based on the employee’s income to a maximum determined by the Federal government. In 2019, CPP contributions are 5.1% of the employees’ gross earnings to the determined maximum. Employers match the contribution. These are the dates when the Canadian Pension Plan will be paid out in 2019.

CPP payment dates

  • January 29, 2019
  • February 26, 2019
  • March 27, 2019
  • April 26, 2019
  • May 29, 2019
  • June 26, 2019
  • July 29, 2019
  • August 28, 2019
  • September 26, 2019
  • October 29, 2019
  • November 27, 2019
  • December 20, 2019

 

With the CPP payment schedule and contribution numbers in mind, let’s figure out how much CPP you could expect to receive when you retire and if you can live on it.

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How Much Will I Get?

Your CPP benefit that you will receive each month in retirement is based on your contributions during your career. In a sense, CPP is very simple. When you contribute to the Canadian Pension Plan your money goes into a fund that’s used to pay out CPP in your retirement.

You can share CPP payments with a lower income spouse or partner. If you end your marriage or partnership, they can be split. If one spouse or partner was didn’t work or worked part-time, there is a provision for “child rearing” that will take the lower earning years into account. Your CPP income is considered fully taxable at your marginal rate. You can request that income tax be deducted from each payment to avoid a big tax shock at the end of the year.

Average & Max CPP

You can begin receiving CPP at age 60, but you will sacrifice up to 36% of your pension permanently if you decide to draw it early. Your payment is reduced by 0.6% for every month before your 65th birthday. That’s 7.2% per year.

On the other hand, if you delay receiving your CPP until age 70, your payments will be permanently increased by 0.7% for every month after your 65th birthday you delay, or 8.4% per year. If you wait until age 70, you will receive 42% more. No additional increases are earned after

Your CPP pension amount is based on your contribution history. A “general drop-out” provision excludes certain months with low earnings, and if you were out of the work force for a number of years due to child care responsibilities or worked part-time, you can ask for a “child rearing” consideration. You can get more information here. Normally, people start receiving CPP the month after their 65th birthday.

Average & Maximum CPP Monthly Payments

For new beneficiaries, the average CPP payment as of March 2019 can be found below. This doesn’t cover less-common scenarios, such as survivor or disability benefits.

Type of pension or benefit Average monthly amount for new beneficiaries (as of October 2019) Yearly Average Amount Monthly Maximum amount (2020) Yearly Maximum Amount (2020)
Retirement pension, age 65+ $679.16 $8,149.92 $1,175.83 $14,109.96
Retirement pension, delayed to age 70 $964.40 $11,572.89 $1,669.68 $20,036.14

Average OAS Monthly Payments

Old Age Security pension payment amounts are determined by how long you have lived in Canada after the age of 18. Payments are based on marital status and income. No matter your marital status, the maximum monthly OAS for 2019 is $607.46, and the maximum annual income permitted to receive the OAS pension is $125,937.Guaranteed Income Supplement for low-income CanadiansGuaranteed Income Supplement (GIS) gives a monthly non-taxable additional payment to Old Age Security. GIS is means-tested based on income. Next year’s payment is based upon the net individual or family income reported on your tax return. You can find more information on GIS here. Qualifying for Maximum CPPTo get the maximum CPP payment, you need to make the maximum CPP contribution for several years. The Federal Government adjusts the Year’s Maximum Pensionable Earnings (YMPE) annually. This is the basis for both CPP and pension contributions. In 2019 the YMPE was $57,400. To max out your CPP, you must have earned the YMPE for many years with no periods of unemployment.If you can delay collecting your CPP payment until after age 65, you will receive a higher monthly payment. Exponent offers many  investment strategies that can become part of your overall financial plan.CPP & OAS EligibilityYou will need to apply for CPP payouts, as it does not start automatically. To qualify, you must

  • Be no less than 1 month past your 59th birthday.
  • Intend to begin receiving CPP within the next 12 months.
  • Have worked in Canada and made at least one valid CPP contribution.

 

Additionally, you will also need to apply for OAS before receiving it. Because it is funded by the Federal government; you do not pay into it directly. In order to qualify for OAS you must

  • Be 65 or older.
  • If you currently reside in Canada, you must have lived here at least 10 years since turning age 18.
  • If you reside outside of Canada, you must have resided in Canada at least 20 years since turning age 18.
  • Be a Canadian citizen or legal resident at the time your application is approved, or before you left Canada to reside elsewhere.

 

OAS is considered fully taxable income at your marginal tax rate. OAS is income-tested. Should your income be higher than $123,386, you will not qualify to receive OAS.Is CPP alone enough for retirement?Should you receive the average CPP payment in addition to OAS, you will receive $1,286.62 each month (in 2019 figures). Per year, that’s $15,439.44 gross. If these are your only sources of income,  you might also qualify for GIS payments. You can estimate how much you might need to retire with this free retirement calculator. Additionally, the calculator will advise you if you’re saving enough for retirement or if you should to save a little more money.With a frugal lifestyle and paid-off house, you might squeak by on CPP and OAS alone. When CPP was created, most workers remained with the same employer and could anticipate a company pension plan when they retired. Now, most employers do not offer pension plans, and employees seldom stay with the same employer over their careers. You’ll need additional planning.

Situation Maximum monthly GIS amount Maximum annual income to receive GIS
If you’re single, widowed or divorced pensioner $907.30 $18,408 (individual income)
If your spouse receives full OAS pension $546.17 $24,336 (combined income)
If your spouse does not receive full OAS pension $907.30 $44,112 combined income