Tuesday, April 10, 2007

Canada Pension Plan #1

The Canada Pension Plan (CPP) has an interesting story behind it. Started back in the 1960s, the intention was to ensure that all working Canadians put away something for retirement. It is funded by pay check deductions at the workplace. Over time, Canadians became concerned that the pension plan would not be sufficient to meet all the pension payments due to the aging population and growth in the number of pensioners. The contribution rates were increased, and extra money was invested with the goal of making ends meet in the future. In recent years, the concern about the sustainability of CPP seems to have diminished due to increased pay check deduction rates imposed on those who earn income, and a move toward building up the plan assets and investing the extra cash. Plan assets are growing.

The average CPP received by retirees in 2006 was $5,677 per year ($473 per month). The maximum CPP received in 2007 was $10,365 per year ($864 per month). These amounts are indexed for inflation. In 2007, CPP pensions were increased by 2.1 % to match the Canadian Price Index. The annual increase for inflation is a nice feature. CPP income is taxable.

When I decided to take early retirement at age 55, I "guessed" that my CPP would only be paid out at 50 percent of my starting rate. This was part of my safety factor. In addition, I expected to use CPP income for non-essentials such as owning a boat, an expense we did not have prior to retirement.

1 comment:

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