Retirement basics in Canada

The government of Canada has a great little tool to determine how much you will need to retire and how much you will need to save to achieve this. The tool also allows you to calculate your retirement income depending on the age you want to retire at.

I found it very interesting for my case. The tool looks at all possible sources of income: CPP, OAS, RRSP, TFSA and employer pension scheme.

The majority of Canadians don’t have an employer-provided pension. These are very expensive for companies, but they are the golden ticket for employees.

All Canadians are entitled to CPP and OAS when they retire. The rules and amounts are different for these 2 government programs.

The Canada Pension Plan – CPP- is a program based on age and the contributions to the Canada Pension Plan via employment or self-employment. You can apply for CPP if you are 60 years-old. Note if you apply when you are less than 65, your pension will be discounted. On the other hand, if you apply after turning 65, your pension will be increased.

Service Canada will look at your contributory period and the amount contributed. Some periods with zero or little earnings will be dropped under the “drop-out provision”. If you had children and stayed home to raise them, these periods can also be dropped under the “child-rearing provision”.

The average monthly amount is about $665.00. The maximum current amount is around $ 1 100 per month.

Old Age Security -OAS- is not linked to the CPP contributions. To receive OAS, you need to have lived for at least 40 years in Canada. The OAS is subject to a “means test”. If you exceed a certain threshold of income, you will have to repay some or all of it. The maximum current monthly payment is $ 570.00.

If you receive OAS, are single and earn less than $ 17 000 per year, you are eligible for the Guaranteed Income Supplement -GIS-. A couple has to earn less 23K a year to be eligible.  The maximum monthly payment is in between $ 510.00 to $ 775.00 depending on your situation.

As you see, all these amounts are really modest. It is crucial to build our own retirement savings!

Now that I am well into my mid-thirties, I have become even more aware of how crucial this is. The government calculator has estimated I need to save $ 500 per month if I want to retire comfortably at 65.

Right now, I am not saving that much, as I am still repaying my debt and my car. In the next 2 years, I will be able to do this. In the meantime, I am saving as much as I can and top-up my contributions with potential bonuses and 2 additional paychecks a year.


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