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.
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.
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.
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Savings Account: As long as you stay within your contribution limits, funds contributed to your TFSA grow and can be withdrawn tax-free.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.
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.
This article or video (the “Content”), as applicable, is provided by independent third parties that are not affiliated with Tangerine Bank or any of its affiliates. Tangerine Bank and its affiliates neither endorse or approve nor are liable for any third party Content, or investment or financial loss arising from any use of such Content.... The Content is provided for general information and educational purposes only, is not intended to be relied upon as, or provide, personal financial, tax or investment advice and does not take into account the specific objectives, personal, financial, legal or tax situation, or particular circumstances and needs of any specific person. No information contained in the Content constitutes, or should be construed as, a recommendation, offer or solicitation by Tangerine to buy, hold or sell any security, financial product or instrument discussed therein or to follow any particular investment or financial strategy. In making your financial and investment decisions, you will consult with and rely upon your own advisors and will seek your own professional advice regarding the appropriateness of implementing strategies before taking action. Any information, data, opinions, views, advice, recommendations or other content provided by any third party are solely those of such third party and not of Tangerine Bank or its affiliates, and Tangerine Bank and its affiliates accept no liability in respect thereof and do not guarantee the accuracy or reliability of any information in the third party Content. Any information contained in the Content, including information related to interest rates, market conditions, tax rules, and other investment factors, is subject to change without notice, and neither Tangerine Bank nor its affiliates are responsible for updating this information.
Tangerine Investment Funds are managed by Tangerine Investment Management Inc. and are only available by opening an Investment Fund Account with Tangerine Investment Funds Limited. These firms are wholly owned subsidiaries of Tangerine Bank. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.