Andrew Button is a freelance financial writer with extensive experience writing about stocks, real estate and managed products. His portfolio consists mainly of blue chip dividend paying stocks and index funds. He has completed the Canadian Securities Course and passed the CFA Level 1 exam. Follow Andrew on Twitter: twitter.com/AJButton2
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In a recent article, I estimated the average Canada Pension Plan (CPP) benefit at age 60 in 2024. I came up with the estimate by taking the average amount for new recipients at age 65 and using the CPP formula to determine what that would translate to for new recipients at age 60. Both the data for 65-year-old recipients and the formula were publicly available on government sources when I wrote the article.
Using the government’s $831 per month average for new 65-year-old recipients, plus the “7.2% lower for each year before 65” formula, I worked out that the average Canadian taking benefits at 60 earns $531 per month. I figured that was close to the true average for a Canadian taking CPP at 60, but I also saw a potential flaw in my approach: it assumed that the average Canadian taking benefits at 60 was identical to the average Canadian taking benefits at 65. If the two groups were different in ways other than the age at which they first received benefits, then my estimate could be wrong.
So, I started looking for other ways to estimate the average CPP benefit at age 60 in 2024. Eventually, I found one: an online calculator published by TheGlobe and Mail. Using this calculator and some estimates that reflect Canadian population averages, I came up with the following estimate.
$532
The Globe and Mail‘s calculator showed a $6,383 annual estimate of newly taken CPP benefits at age 60. That’s $532 per month. Some inputs I entered into The Globe and Mail’s calculator included the following:
The hypothetical beneficiary is 60 years old today.
They take benefits this year.
They earn 61% of the maximum pensionable amount.
They face a 2.5% inflation rate.
They plan to earn 8% per year.
I looked at various online data sources to determine that “61%” is about the average percentage of the maximum Canadians pay into CPP. Specifically, I got this from dividing the average CPP at age 65 ($831) by the maximum CPP at 65 ($1,364) and assuming the same percentage is paid by someone taking CPP at 60.
Another approach I took was the average Canadian salary ($63,000) as a percentage of the maximum pensionable amount ($68,500), or 92%. That produced an estimate of $828 per month, which seemed unlikely to be accurate, as it was nearly identical to the federal government’s estimate for someone taking CPP at age 65. So, I went with with the lower one.
How to supplement your CPP
As you can see, my estimate of average CPP at 60 using The Globe and Mail’s calculator is nearly identical to the one I worked out using my previous method. This strengthens my conviction that the average Canadian taking CPP at 60 earns somewhere between $530 and $535 per month. If you want more retirement income than that, you can consider investing your savings in a Registered Retirement Savings Plan (RRSP). Dividend stocks tend to be good assets for RRSPs because they pay regular cash income.
Royal Bank of Canada (TSX:RY) stock is a good example to work with here because it has both dividends and the potential for capital gains. RY’s yield is 4.05%, which means that a $100,000 position in the stock pays out $4,050 per year. You could pay up to a 48% tax on that if your tax rate is 50% (the dividend tax credit reduces the actual tax a little; there are provincial credits that reduce it further, but I’ll ignore those for the sake of simplicity).
By holding your RY stock in an RRSP, you pay no tax until you retire, nor will you pay a capital gains tax. So, let’s say you realize a 10% gain on your RY stock in addition to your 4.05% dividend. That’s a 14.5% total return, and none of it is taxable this year. If you’re 60, you can keep on deferring the withdrawal of funds for another 11 years! In the end, you can end up as a 71-year-old receiving a hefty Registered Retirement Income Fund pension that dwarfs your CPP income.
However, Canadians should understand that the CPP amount reduces by 0.6% every month for those receiving the pension before the age of 65. So, the CPP reduces by 36% for someone starting the payment at age 60, suggesting the average payout will be around $485.
Starting in January 2024, there will be a 4.8% increase in pension payments. This adjustment applies to all pensioners, including those receiving survivor pensions and deferred pensions.
This strengthens my conviction that the average Canadian taking CPP at 60 earns somewhere between $530 and $535 per month. If you want more retirement income than that, you can consider investing your savings in a Registered Retirement Savings Plan (RRSP).
If you forgo CPP at 60 and wait until 65, your benefits will always rise by between 39 per cent and 56 per cent. Starting CPP at 60 is the right move if you have health issues that suggest a limited number of years in retirement, or you need the income pronto.
Latest payment adjustment – July to September 2024
Based on changes in the Consumer Price Index (CPI), OAS benefits have increased by 0.7% for the July to September 2024 quarter, for an increase of 2.8% over the past year, from July 2023 to July 2024.
The average CPP Investments salary ranges from approximately $68,182 per year (estimate) for a Sales Representative to $432,500 per year (estimate) for a Senior Portfolio Manager.
Year's Maximum Pensionable Earnings under CPP for 2024 increases to $68,500 from $66,600 in 2023. The Canada Revenue Agency has announced that the Year's Maximum Pensionable Earnings under the Canada Pension Plan (CPP) for 2024 will be $68,500 – up 2.9% from $66,600 in 2023.
Simply put, if you expect to live past age 74, your accumulated benefits will be higher if you wait until age 65. The breakeven age for taking your CPP at age 65 compared to age 70 is approximately 82 years old.
That is, the CPP retirement benefit will replace a maximum of 33% of earnings up to the YMPE. This represents a maximum annual pension of $17,500 under the new program. The maximum amount of income covered by the CPP will increase from $55,900 to about $82,700 when the program is fully phased in by 2025.
To qualify for the maximum, you must not only contribute to CPP for 39 years but you must also contribute 'enough' in each of those years. CPP uses something called the Yearly Maximum Pensionable Earnings (YMPE) to determine whether you contributed enough.
Use your statement of contributions to get your pensionable earnings for each year then divide that amount by that year's maximum pensionable earnings. Next, you multiply that amount by the average maximum pensionable earnings for the five-year period leading up to the year when you intend to start drawing CPP.
You can still work if you are receiving a CPP retirement pension, without reducing the pension amount. In fact, you could increase it by means of the CPP post-retirement benefit. If you work while receiving your CPP retirement pension and are under age 70, you can still make CPP contributions.
Canada Pension Plan Death Benefit (CPP/OAS) Seniors|Income and Financial Support The Canada Pension Plan offers a death benefit, up to a maximum amount of $2,500, to be paid out if the deceased has been a CPP contributor.
How much pension do you need to live comfortably? For a quick estimate, try the '50-70' rule. This suggests that you should aim for an annual income that is between 50% and 70% of your working income.
Introduction: My name is Msgr. Refugio Daniel, I am a fine, precious, encouraging, calm, glamorous, vivacious, friendly person who loves writing and wants to share my knowledge and understanding with you.
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