Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.
The Canada Pension Plan (CPP for short) is a contributory social insurance program that has played a vital role in the retirement plan for many Canadians since its inception in 1995. It is one of a few public retirement sachems in Canada, another being Old Age Security. All Canadians receive the Old Age Security (OAS). For people in the lowest income brackets, there is also a Guaranteed Income Supplement (GIS) that is geared to income. If you're curious to know the 2020 max CPP payment or find out this years payment schedule, here’s everything you need to know.
Although the max CPP payout is substantial, don't necessarily count on that. The average CPP for 2019 was a much lower $679.16 per month, after all. This is because not all individuals have contributed enough to receive the full CPP payment. In 2020, employees earning more than $3,500 per year, and who are over the age of 18 must pay CPP. If you live in Quebec, you pay into the Quebec Pension Plan (QPP). CPP contributions are split equally between employer and employee, based on the employee’s income to a maximum set by the Federal government. In 2020, CPP contributions are 5.25% of the employees’ gross earnings to a set maximum, and employers match it. Here are the dates that the Canadian Pension Plan will be paid out in 2020.
Now that you know the CPP payment schedule and what how much you can contribute, let’s take a look at how much CPP you can actually expect to receive when you retire and if it’s enough to live on.When it comes to retirement planning, the sooner you start, the more time your money has to grow. Get started now and in just five minutes we’ll build a personalized investment portfolio to help meet your goals.
How Much CPP will I get?
The amount of CPP you will receive each month upon retirement is based on your contributions during your working life. The way CPP works 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.
CPP payments can be shared with a lower income spouse or partner. They can be split in the case of relationship breakdown, and if one spouse or partner was out of the work force, or worked part-time, there is a provision for “child rearing” that will factor the lower earning years into account. CPP is considered income, and fully taxable at your marginal tax rate. To avoid a big tax shock at the end of the year, request that income tax be deducted from each payment.
Average & Max CPP
You can start taking CPP at age 60, but you will lose up to 36% of your pension permanently if you take it early. It is reduced by 0.6% for every month before your 65th birthday you start taking your CPP. That’s 7.2% per year.
Conversely, 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. There’s no further increase after age 70.
Your CPP pension amount is based on how much you contributed, and how long you paid CPP. There is a “general drop-out” provision that excludes certain months with low earnings, and if you were out of the work-force for a number of years due to child care duties to young children, or you worked part-time, you can request a “child rearing” consideration. You can get more information here. Most people start receiving CPP the month after their 65th birthday.
Average & Maximum CPP Monthly Payments
The average CPP payment for new beneficiaries (someone receiving CPP payments for the first time) as of January 2020 is as follows. Of course, there are other scenarios possible, 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 Amounts
The payment amount for the Old Age Security pension is determined by how long you have lived in Canada after the age of 18. Payments are based on your marital status and level of income. Regardless of your martial status the maximum monthly OAS for 2020 is $613.53 and the maximum annual income allowed to receive the OAS pension is $128,137.
Guaranteed Income Supplement for low-income Canadians
Guaranteed Income Supplement (GIS) provides a monthly non-taxable top-up to Old Age Security. GIS is income-tested. The next year’s payment will be calculated based in the net individual or family income reported on your income tax return. You can get more information on GIS here.
|Situation||Maximum monthly GIS amount||Maximum annual income to receive GIS|
|If you're single, widowed or divorced pensioner||$916.38||$18,600 (individual income)|
|If your spouse receives full OAS pension||$551.63||$24,576 (combined income)|
|If your spouse does not receive full OAS pension||$916.38||$44,592 combined income|
How to qualify for maximum CPP
To receive the maximum CPP, you would have to be making the maximum CPP contribution for many years. The federal government sets the Year's Maximum Pensionable Earnings (YMPE) every year, which is the basis for both CPP and pension contributions. In 2020 the YMPE is $58,700. To max out your CPP, you would have to be making more than the YMPE for a significant number of years with no periods of unemployment.
If you can delay starting your CPP payment for even a couple of years after age 65, you will receive a higher monthly payment. Wealthsimple has a number of investment strategies that can form part of your overall financial plan.
CPP & OAS Eligibility
You must apply for CPP. It does not start automatically. To qualify for CPP you must
Be at least 1 month past your 59th birthday.
Intend for your CPP to start within the next 12 months.
Have worked in Canada and made at least one valid CPP contribution.
You must also apply for OAS. It does not start automatically. It is completely funded by the Federal government; you do not pay into it directly. 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 income and is fully taxable at your marginal tax rate. OAS is income-tested. If your income is more than $123,386 you do not qualify to receive OAS.
Is CPP alone enough for retirement?
If you receive the average CPP payment, plus OAS, you will have $1,286.4 per month (going by the most recent figures). That’s $15,436.8 per year, gross. If these means of public retirement income are your only sources of income then you may also qualify for some GIS. You can get an estimate of how much you might need to retire by using this free retirement calculator. The calculator will also tell you if you're saving enough for retirement or if you should aim to put away a little more money.
If you live very simply, and your house is paid for, you might squeak by on CPP and OAS alone by living a very simple lifestyle. When CPP was created, most workers stayed working for the same employer, and looked forward to a company pension plan when they got the gold watch and retired. Now, many employers no longer provide pension plans, and employees rarely stay with the same employer their entire working life. It’s better to have a backup plan.