“I’ve been working since I was 16,” she says, explaining that her family didn’t have a lot of money, so she paid for everything from clothes and toiletries to her post-secondary education.
It’s unlikely most Canadians will be able to pay for their retirement on just CPP and OAS alone, say advisers and financial planners Cindy Marques and Elke Rubach. But the two programs are more generous than most people think, and CPP is about to become even more generous, providing as much as a full third of your pre-retirement income when you hit 65.
Understanding how CPP and OAS work is key to retirement planning and knowing how much you may get. The CPP — a mandatory pension plan financed by contributions from employees, employers and self-employed individuals — was always meant to provide some but not all retirement income to Canadians when it launched in 1965. Until fairly recently, CPP replaced a quarter of your average work earnings — that’s if you contributed the maximum throughout the lifetime of your working years.
But in 2019, the CPP enhancement was introduced, which means that in exchange for making higher CPP contributions, you could get up to 33 per cent of your pre-retirement income when you hit 65. The changes are being phased in slowly: the payouts are already increasing, but no one will receive the full increase until 2065.
Starting in 2024, there is a second phase of the enhancement with the introduction of a higher limit that allows you to invest an additional portion of your earnings into CPP. It’s called the year’s additional maximum pensionable earnings.