Canada Pension Plan – How stable is it?

Author: Vince Olfert, MBA, CIM, CFP® – Certified Financial Planner®

Canadian workers rightly assume that the Canada Pension Plan (CPP) will be there for them when they reach retirement. In honor of this expectation we thought we would dig a little deeper into this national program. Here is what we found:

Interesting Facts:

  • It is the 10th largest pension in the world ($392 Billion as of March 31st)
  • It is run as an independent entity (not government run)
  • 10.2% of an employee’s income (up to $57,400 (2019)) goes to CPP (split equally between employee and employer)
  • There are five (5) departments that oversee 25 mandates
  • It currently has projected pension stability for the next 75 years
  • There is a lot of great information on this web-site http://www.cppib.com/en/ such as:
    • Investment Philosophy
    • Investment Performance

How much will you receive when you retire?

  • The CPP is a contributory plan. This means, it depends on how much you have put into the plan during your working career
  • The maximum CPP (2019) is $1154/mo
  • This amount adjusts annually for inflation

When should you start taking your CPP?

  • There are several factors to consider:
    • Your life expectancy
    • Your marginal tax rate when you start taking CPP
    • Your current age
    • The penalty or bonus from CPP
      • If you are below age 65 and start CPP you are penalized at a rate of 0.6% per month (7.2% per year)
      • If you are over age 65 you get bonused at a rate of 0.72% per month (8.4% per year)
      • In other words, it can pay to wait
  • If you would like to run some “what-if” scenarios, check out our web-site. https://connectwealthp.wpengine.com/resources/#cpp-calculator

CPP is currently a well-run, stable pension plan that will provide pension income for Canadian workers for a long time to come.

Connect Wealth is an independent financial planning firm that offers holistic advice to clients based on their current goals and future aspirations. We use well-established workflows and cutting edge technology to maximize financial efficiencies while simplifying the process for clients. Learn how you can maximize your financial opportunities at connectwealthp.wpengine.com

What Are Your Options?
What is the best investment plan to use to save for retirement? It used to be fairly simple; the answer was maximizing your RRSP. Do you know what is the best strategy for your situation? Do you know what your options are?

Here is a basic overview:
1. Save – The first rule of thumb to be concerned about is that you are saving money for your future. Too many Canadians are spending all of what they earn and not putting away any money for their future. A good place to start is to aim at putting away 10% of what you make.

2. Tax Efficient – Ever since the launch of the TFSA, there has been a debate by financial professionals over which investment plan is more tax efficient to use, the RRSP or TFSA? My opinion is that it depends on your situation both now and in the future and should be looked at on a case-by-case basis to see what fits best. I would be cautious if a financial advisor is always only promoting one plan type over the other, both have their benefits. (For more info on TFSAs, see my article from Sept 2013 – http://jaybrecknell.ca/demystifying-tfsa/)

3. Business Owner – If you are a business owner the question can get even more complex as you have more options. Should you use your RRSP, TFSA or instead save your retirement funds in a holding company? Since corporate tax rates are at an all time low in Canada more business owners are saving corporately versus in a RRSP or TFSA. There can be many benefits to saving corporately as it can provide flexibility to the business owner. As this can be complex it needs to be put together by a professional that understands your corporate structure and the tax and legal rules that are involved.

As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

 

Questions?

business-owners

Prepare Your Business For Sale
Only 9% of business owners have a documented transition plan in place and yet 70% of small business owners plan to transition in the next 10 years*! As a financial planner I continue to meet business owners who are planning to sell or transition their company but they do not have a plan. Typically they are either unsure of the process, so they procrastinate or the business is their baby and they do not want to let it go. It is understandable that a major decision like this is hard to make, especially without someone to assist you.

When a business owner is considering selling here are some things to consider:

1. Don’t Leave the Party Last – You see this with professional athletes when they face the question of when to retire? In my opinion you are either growing your business or it is shrinking it, there is no standing still. A lot of business owners later in their career can get into maintenance mode, which usually means the business is starting to decrease in revenues. At first the revenues may hold but after a couple of years you typically see them start to decline. If you want to maximize your selling price and be attractive to potential buyers be careful to wait too long.

2. It Takes Time – Selling a business can take you longer than you think. You need to find the right candidate to take over your business. You are looking for an individual that is an entrepreneur; remember there are more employees in the world than business owners. Also, in most transitions the current owner is asked to stay with the company to assist with the passing of the reigns. You should plan for 1-2 years to sell. This means you should be creating a plan 5-7 years prior to your planned exit.

3. Change – Every industry is faced with changes due to technology, regulatory, competition, etc. If you owned a video or record store in the 80 or 90’s, when was the best time to get out? What if the technology that Google is working on to make it so that cars drive themselves eliminate car accidents in the future. Could that affect you if you own an auto body business? What changes face your business?

4. Financials – Often times the financial statements for a business are ignored until it is too late. Yet they will play a very important role in the sale of the business. You want to make sure that your financials present the best view of your company so that a potential buyer is enticed to make an offer.

There are many things to consider when selling a business. The first is to get a professional that can assist you with putting a plan together to ensure that you maximize the value, save tax, and control when and how you sell your business. As with any financial strategy we would recommend ensuring that you have your personal situation reviewed by a professional to make sure that is done in the best way possible. If you have any questions or would like your plan reviewed feel free to contact us.

Questions?

*Source – http://www.advocis.ca/Update2014/index.html