Why Canada Pension Plan Shouldn't Be Your Only Plan
Written by Caroline Cakebread

Wednesday, October 31st, 2018

You might think that the Canada Pension Plan (CPP) is an actual "pension plan" – after all, that's what it's called. But if you're relying on government benefits like the CPP to fund your retirement, then you probably need to rethink that plan.

Can You Live on Your CPP Payments? Probably Not

The maximum CPP benefit you can earn is just $1,134.14 a month. Could you live on that? Probably not. And the truth is that most people don't contribute enough to earn the maximum, especially if they've spent time in school, taken time off to raise kids, or if they're self-employed. In that case, the average payment is more like $666.56 a month – not even close to what most people need to live in retirement.

You'll also probably be eligible for Old Age Security (OAS) payments of up to a maximum of $596 a month – add that to CPP, and you're doing better. But it still won't likely be everything you need.

CPP is One Piece of the Retirement Puzzle

This isn't to say that government benefits like CPP and OAS shouldn't be part of your retirement plan – they should definitely factor in. But they're only meant to be one part of a bigger plan – one that balances government benefits, personal savings, and if you're lucky enough to have one, a workplace pension plan.

Given that only 38% of Canadian workers are covered by a pension at work, the pressure is on to make sure you're independently saving as much as you can for retirement. The good news is that the government has a few great tools to help you figure out how much you need and to help you save.

Three Tools to Help You Plan for Retirement:

The Canadian Retirement Income Calculator: This tool from the Canadian Government helps you figure out how much CPP/OAS you have coming to you in retirement, and how it fits with your other savings. Gather your CPP statement of contributions and other financial information and allot some time to go through the whole thing.

Retirement Savings Plan: RSPs are key retirement savings tools for Canadians. Contributions are tax deductible, which helps you reduce the amount of tax you pay. And you don't pay tax on earnings in your RSP until you withdraw from the plan.

Tax-Free Savings Account: As long as you stay within your contribution limits, funds contributed to your TFSA grow and can be withdrawn tax-free. It's a great way to save and make sure that capital gains, investment income, and interest all go back into your pocket when you retire.

Take Advantage of Every Tool You Have

So even though the Canadian Government won't pay your bills when you retire, they do make it easier for you to save on your own. Take advantage of everything available and make sure you're fully prepared for retirement.


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