On June 20th, as reported by Canadian Press here via the National Post, it was announced that the federal Government has reached an agreement with most of the provinces to expand the Canada Pension Plan, or CPP. Manitoba and Quebec have yet to agree.
As the Globe & Mail reported here, this is the first significant increase in CPP benefits since the program was launched half a century ago. CP also reported that Ontario plans to drop its controversial new Ontario Retirement Pension Plan (ORPP). Once fully implemented, maximum annual CPP benefits would rise by about a third to $17,478.
The seven-year phase-in is expected to start on Jan. 1, 2019, and will require workers and employers to pay higher contributions. Once implemented, the upper earnings limit would rise to $82,700 by 2025. That would replace one third of income up to the new higher ceiling, compared to the 25% that the current CPP replaces. See also Rob Carrick’s Globe article: The Reality of CPP Reform: We Can’t Afford Not to Make These Changes.
What follows is a guest blog by Boomer & Echo’s Robb Engen, which ran this weekend just before the announcement. Minor edits to reflect that have been made but as you can see Robb — who is also a fee-for-service financial planner — pretty much expected this to happen and is generally positive about the prospect. I certainly concur that for the Echo generation he represents, this is a positive step, and since I have a 24-year old daughter, am happy for her as well. (By the way, she is also the Hub’s Millennial blogger: you can see her recent posts that run here Saturdays, such as this one).
Added 1:30 pm. You can also find my take on this announcement online at FinancialPost.com, under the (highlighted) headline Why we should be celebrating the decision to expand the Canada Pension Plan. — Jonathan Chevreau Read more
How much money do you really need to retire? On sister site Financial Independence Hub today, we ran a guest blog by Boomer & Echo’s Marie Engen on this topic, something I also mentioned in a talk last week at Durham LifeLong Learning.
Here’s the link to Marie’s blog at the Hub.
I also referred extensively to this blog in a piece at Money.ca, although I couldn’t locate the actual link. As I said in the piece, when determining how much you need to retire, it all depends on your lifestyle expectations. The short answer is that a Canadian with very modest needs can get by without saving a penny. The catch is you’ll have to wait till age 65, at which quite generous Government pensions like Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) kick in.
The bad news is that if you have expensive tastes and have no employer pension, you’ll need to be a millionaire, or even a multi-millionaire to retire with the kind of lifestyle you enjoyed when working.
Those who have toiled at one or two employers with Defined Benefit pension plans can enjoy a more lavish middle-class lifestyle strictly on those pensions, CPP and perhaps some OAS. Again, if you don’t want to travel in luxury or eat out in expensive restaurants, you may not need to save much extra, although of course the more you sock away in an RRSP and ideally a TFSA, the better.
If you’re reading this, odds are you’re still working, have expectations for a more lavish retirement lifestyle and perhaps are not fortunate enough to have a DB pension, or switched jobs too often for a single one to really “take.” If you earned a decent salary along the way hopefully you maxed out your RRSP throughout, as well as your T Read more
The Financial Post provides my take on last night’s Liberal landslide, as it pertains to Financial Independence in this blog that just was published online: So long $10,000 TFSA, and other personal finance fallout from the federal election.
The gist is that we’ll likely lose the $10,000 annual contribution TFSA limits that were only hiked earlier this year but as aging boomers move into semi-retirement or full retirement, it’s likely they’ll fall into the middle tax bracket where the Liberals’ 1.5 percentage point cut should provide several hundreds of dollars of annual tax savings. There are also significant implications for an expanded Canada Pension Plan, Old Age Security and I expect that Ontario will now no longer see a need for the Ontario Retirement Pension Plan or ORPP.
Plenty of other links via my Twitter feed (@JonChevreau), which can also be viewed under the new “Social” tab over at the Hub.
UPDATE Oct 21. See the updated version of this blog at sister site Financial Independence Hub, with links to various Financial Post stories by me, by Jamie Golombek on tax bracket changes, Garry Marr on lost TFSA limits, and Fred Vettese on an expanded CPP and probable elimination of the ORPP.
Because the Financial Independence Hub is being moved today to a new server to accommodate ever-rising volumes of web traffic, for today we have taken the liberty of posting the normal Monday “Hub” blog here at sister site FindependenceDay.com. The guest blog below is on optimizing CPP benefits: the same subject as my Financial Post column that ran online today under the headline: Optimizing Your CPP is no trivial exercise. Now let’s get it from the horse’s mouth: Doug Dahmer. — Jonathan Chevreau
By Doug Dahmer, Emeritus Retirement Income Specialists
Canadians are an easy going and trusting people. Every year thousands of people, across the country, carelessly start their CPP payments and in the process are forgoing hundreds of thousands of dollars in payments to which they are entitled.
I call this “The Great Canadian Pass Up.”
To ensure you fully appreciate the value of making the right decision, before you elect to a start your Canada Pension, Emeritus Retirement Income Specialists have created a powerful tool CPP Optimizer. Give it a try here.
Most people seriously underestimate their lifetime CPP income entitlement:
Your CPP benefits are a big deal. For a couple, where both spouses have regularly contributed to the CPP plan, the lifetime CPP income they can anticipate will likely exceed $700,000. Consequently it represents an important strategic contributor to the creation of a sustainable retirement income. Therefore, decisions about this benefit need to be taken seriously.
Reliance upon “conventional wisdom” can be costly