Retirement planning: How much will your CPP benefits be?

Canadian Pension Plan benefits can play a key role in your retirement planning. If you've been wondering how much your pension's going to be, and when you'll become eligible to start receiving benefits, this article will help you understand the basics.

How are my CPP deductions calculated?

All working Canadians over 18 years of age are required to contribute 4.95% of their pensionable earnings up to $54,900 per year (less the basic CPP exemption amount of $3,500). This works out to $2,544.30 a year, an amount that's then matched by your employer. (If you're self-employed, you're technically both the employer and employee, so your maximum contribution is set at 9.9%, or $5,088.60.)

How long do I have to contribute to CPP?

You're required to make CPP contributions as long as you're working, or until you turn 65. After that, if you choose, you can continue to contribute until you're 70. Choosing to continue contributing for these five additional years will allow you to earn a partial replacement of earnings in retirement, a disability benefit, a survivor benefit for your spouse or dependent children, and a death benefit.

How much will my benefits work out to?

The amount you'll receive from CPP when you retire will depend on two things: how many years you've contributed, and how much money you've earned during that time.

The CPP chart below shows current monthly averages for retirement pensions, post-retirement benefits, and survivor, disability and death benefit amounts.

Type of CPP pension or benefit Average monthly amount for 2016 Average yearly amount for 2016 Maximum monthly amount for 2016 Maximum yearly amount for 2016
Retirement pension at age 65 $664.57 $7,974.84 $1,092.50 $13,110.00
Post-retirement benefit at age 65 $8.32 $99.84 $27.32 $327.84
Disability benefit $933.82 $11,205.84 $1,290.81 $15,489.72
Survivor's pension — 65 and older $339.39 $4,072.68 $655.50 $7,866.00
Children of disabled CPP contributor $234.87 $2,818.44 $237.69 $2,852.28
Death benefit lump-sum   $2,296.85   $2,500.00

As you can see, the average Canadian will receive approximately 61% of the maximum pension amount.

While your full retirement pension is available at age 65, you can still claim a partial pension if you're 60 or above, or delay your pension past your 65th birthday to receive a higher amount later on.

If you claim your pension early (after your 60th birthday but before you turn 65), it can be reduced by up to 36% (based on a rate of reduction of 7.2% per year or 0.6% per month). Conversely, deferring it past your 65th birthday (for up to five years) will increase your benefit amount by up to 42% (8.4% each year or 0.7% per month).

Who qualifies for post-retirement benefits?

The post-retirement benefit is available if you work while receiving your CPP retirement pension, are under the age of 70, and continue to contribute to CPP. Your additional CPP contributions will go towards the post-retirement benefit, which will increase your retirement income.

What about disability and death benefits?

As a CPP contributor, disability benefits are available if you become disabled and can't work on a regular basis (a benefit may also be payable to your children). When you die, survivor benefits may be paid to your estate, surviving spouse or common-law partner, and your children. The CPP death benefit provides a one-time payment to (or on behalf of) the estate of a deceased contributor.

Why do CPP benefit amounts fluctuate?

CPP pension benefits are adjusted to the Consumer Price Index (CPI) each January. That's why the CPP maximum monthly pension has grown dramatically from $19.97 when it was first introduced in 1967, to today's maximum monthly pension of $1,092.50.

If you'd like to know more about your projected CPP pension benefits, you can request a CPP pension statement through Service Canada.

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