CPP helps you retire but it’s not a retirement plan

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Everyone wants to retire one day. So, back in 1966, Canada’s government stepped in by helping to create a national pension system to supplement Old Age Security (OAS) – the Canada Pension Plan (CPP).

CPP was different. Unlike OAS, which is universal, CPP is only available to workers who pay into the program – a small amount is deducted from wages or self-employment income to pay those old enough to receive CPP.

This worked fine during a period when a large percentage of Canadians could count on some form of post-retirement pension from an employer. But things started changing in the late 1980s, as many companies trimmed pension programs in the face of rising costs.

These days, Canadians are increasingly responsible for saving money for their own retirements. And, as people are now living longer, some may soon spend as many years in retirement as they did working.

You could be one of them. And government and employer-sponsored programs may not be enough to keep up with all your financial needs.

Not everyone realizes CPP was not designed to replace all of your income when you retire. But that’s the reality. So it’s safer to think of CPP as a supplement that will pay for some basic needs, while your other retirement savings cover the rest.

Government of Canada numbers show the average CPP retirement pension is around $8,500 per year. Meanwhile, the basic annual OAS payment is around $7,200 and Stats Can’s Survey of Household Spending, conducted in 2016, says average yearly household expenditures – including income tax – total $62,183.

So a retired couple receiving the average CPP pension, and qualifying for the maximum OAS, can cover about half their income needs.

Which means CPP can help you age in place, but you’ll still need to have your own savings and investments to ensure you can pay for food, clothing, other living expenses, health care, travel and leisure activities.

Fortunately, there are lots of options to start saving for your retirement – and many, like Registered Retirement Savings Plans (RRSPs), certain annuities and fund investments, and Tax Free Savings Accounts (TFSAs) can defer taxes on the money you invest until you start drawing on it after you retire.

So, while it’s up to you to decide how you’ll save those extra funds for retirement, you’ll benefit from starting the process sooner than later.

CPP Investment Board, Investing Today for Your Tomorrow.

The content on this site is provided for information purposes only. CPPIB is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.
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