Making the Most of Your Canada Pension Plan (CPP)

When planning for retirement, the Canada Pension Plan (CPP) is one of the top places that people look to in order to provide for themselves in their golden years.

Though everyone in Canada who is employed is required to contribute to the CPP, simply making contributions without knowing what they mean for your eventual benefit payouts can lead you to having a big shock when it’s time for you to retire.

Benefit Payment Levels

Though the maximum monthly benefit for individuals aged 65 in 2016 was almost $1200 per month, the average monthly benefit was only just over $550 per month. Those two numbers are pretty dramatically different, and shocking to most people. Obviously everyone doesn’t get the maximum payment, and many receive considerably below the average.

The amount of monthly benefit payments is based on how much an individual contributes to the system. The more you contribute over your working life, the higher your payments will be. There are a few factors involved in the final determination of how much the CPP payment will be during retirement, and the earlier that you’re aware of the steps that you need to take in order to get the highest level of CPP benefits, the more able you will be to prepare accordingly.

There are two criteria that you must meet in order to qualify for the maximum benefits from the CPP.

1. Amount

When you’re between the ages of 18 and 65 and you contribute to the CPP, you increase the benefits that you’ll receive later down the line. If you want to get to the maximum benefit then you have to contribute higher amounts during your working years.

There’s an important number to know here – the Yearly Maximum Pensionable Earnings (YMPE). This is the figure that the CPP uses to determine whether or not you contributed enough in order to qualify for the higher levels of benefits. In 2016 the YMPE is $54,900. If you make less than that in a given year, then you won’t be able to reach the maximum contribution level. If you make more than this level then you’ll notice that your CPP payments stop coming out of your paycheck at some point in the year, whenever you hit the maximum contributions level for that year.

2. Number of Years

You not only have to contribute the right amount of money during the year, you also have to contribute for enough years in order to qualify for the highest benefits in the CPP. You must contribute into your CPP for a minimum of 83% of the years that you are eligible. For the vast majority of people, eligibility is from ages 18 to 65, or a total of 47 years. That amounts to 39 years that contributions have to be made in order to qualify for the highest level of CPP benefits.

Keep in mind that those years that you’re eligible to work include any years that you might be training, working on a college degree, or staying home to raise a family. So even if you take four years to go to college, if you’re a typical person who is not disabled then you’re still going to need to make those contributions for 39 years. If you retire early, before age 65 (though depending on how old you are that number could likely go up by the time you retire) then you’re still required to pay in for the same 39 years. There are only a few ways that you can lower the number of years that you’re eligible, and again those don’t apply to the vast majority of people.

Determining Your Benefits

It’s not a simple matter to qualify for the highest level of CPP benefits, though if you can qualify for that highest level you’ll have a solid foundation for your retirement years.

To learn more about where you stand today with regards to the CPP, you can call Service Canada at 1-800-277-9914 and request a CPP Statement of Contributions. Armed with the information from your statement and the knowledge of what levels you want to get to in order to reach your retirement goals, you’ll be able to make the changes that you need to in your contributions in order to get more out of your retirement.

With your statement in hand, you’ll be able to figure out which years you’re eligible for contribution between the ages of 18 and 65, and you’ll also be able to see how much money you put into the CPP during those years. Any years that you contributed the maximum will have a letter “M” assigned to them. The number of M’s determines the percentage of the maximum benefit that you get. Thirty-nine M’s means that you’ll get the maximum benefit. Twenty M’s means that you’ll get about half of the maximum, and so on. Partial contributions to factor in, so keep that in mind.

The CPP is on a sliding scale, so you’ll most likely get some percentage of whatever it is that you put into it. While you might not get the highest level of benefits, you will likely get something. The best thing that you can do for your future is to put in the time into figuring out where your benefit levels are so that you can plan for what your retirement might look like and make the most of your money.

For more information on Canada Pension Plan, disability insurance or life insurance contact Morgan National Corporation today at 1-866-595-3533.