Money: Plan Early for Your Retirement

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By Veronica Leonard

What will you live on when you are old and cannot work anymore? Canada has a number of income support programs for residents in their old age. Knowing how these programs work can help you plan your future wisely.

Old Age Security OAS
All residents of Canada can apply for Old Age Security at age 65. To be eligible, a person must be living in Canada for ten years before applying or have lived in Canada for 20 years as an adult, if they are not living in Canada when they apply.

In 2010, the maximum Old Age Security was $6,252 per year for people who had lived in Canada for forty years since age 18. The rate for people who have only lived in Canada for 10 years was $1,563 per year which is increased by $13.00 for every extra month in the country before applying for OAS. Although 65 is the usual age to apply for OAS, a newcomer may need to wait a little longer; in order to qualify they need to have lived in Canada for ten years at least.

For very low income Canadians, the Guaranteed Income Supplement GIS is added to OAS to ensure a single person has a retirement income of at least $1,180 per month or a couple have $1,912.80 per month. There is also the Allowance for the spouses of OAS & GIS recipients who are between the ages of 60 to 64. Spouses can be of either sex and include married couples or couples who have been living together in common-law for at least a year. Wealthy Canadians start to have their Old Age Security taxed back when his or her net income reaches $66,733 per year and this OAS “claw back” increases to no OAS when the annual net income reaches $108, 214.

Canada Pension Plan CPP
Every Canadian who earns over $3,500 per year is required to pay into the Canada Pension Plan (CPP). The 2010 CPP rate is 9.9 percent of employment income below $47,200. For employed people, the payment is automatically taken from their regular pay at a rate of 4.95 percent, and their employer pays the other half. Self-employed people must pay the full 9.9 percent on their net earnings after expenses. There are no CPP deductions taken off any income earned above $47,200.

CPP is calculated on 25 percent of your average Canadian income earned between the ages of 18 to 65 that is within that $3,500 to $47,200 range. Currently everyone is allowed to deduct 15 percent of their low earnings years from the final calculations. Recent changes will see this exemption increase to 17 percent by 2014. A further exemption is available to either parent for the years spent raising children below the age of seven.

If a person retires at 65 and qualifies for the maximum CPP rate, they will receive $974.15 per month (2010 rates); however, they can apply for CPP as early as 60 and receive around 30 percent less. On average Canadians receive about $505 per month from CPP either because of lower incomes or early retirement. For many new Canadians who come to Canada in their 30s or later, it is unlikely that they will qualify for the maximum CPP rate; however, recent changes in CPP regulations may make a big difference. The changes come into effect over the next three years allowing Canadians to increase the amount of their CPP by up to 8.4 percent per year in 2013 for each year between age 66 to70 that they delay applying for CPP. So someone who works until 70 before applying for Canada Pension may add 42 percent more to the amount they would have received at age 65.
Other Benefits from CPP
The Canada Pension Plan is more than a pension it is a lifelong security net. People who pay into CPP are also entitled to claim CPP Disability if they become chronically ill or disabled and are unable to work. If a person is on CPP or CPP Disability, their spouse will receive approximately half of their CPP if they die, the children of disabled or deceased CPP contributors will also receive a monthly allowance of $214.85 while they are in school.

The Family Business Trap
Many newcomers in Canada start their own business and the wife and children work for the business for low wages. This helps the business but not the individual family members because they are not contributing fully to the Canada Pension Plan.

It is also easy for a business owner to hide income under allowable business expense deductions, but they may be cheating themselves and family members out of future pension income. In 2010, a couple who qualify for the maximum CPP and OAS received an annual income of $34,520 which will increase with the consumer price index every year. Although no one would say this was enough for a comfortable retirement, it is the equivalent of having savings of $689,000 paying 5 percent interest a year. Unlike other pension plans or retirement funds that a person may invest in, it cannot be bargained away in a company takeover, stolen by dishonest investment counselors or lost in a market depression. The Canadian government also provides income tax incentives to invest in Registered Retirement Savings Plans and private pension plans to supplement CPP and OAS pensions.

Although new businesses cannot pay high wages to both parents, the exemption for child rearing allows for one of the parents to have their income from each child’s birth until their seventh birthday excluded from the calculation of CPP. This period of exemption can be used for childcare, training, or low paying work, allowing time for a business to grow or for the parent to qualify for better paying jobs.

With careful planning, CPP and OAS can be the cornerstone of your pension income.
All the figures given in this article are based on 2010 rates which increase every year. The Service Canada website ( provides current rates, charts, calculators and application forms for OAS, GIS or CPP and their call centre staff at 1- 800-277- 9914 will give advice on individual situations.


Veronica Leonard

Veronica Leonard is a freelance writer who came to Canada as an immigrant from the UK in her youth. She has also lived in South Africa and the US. As an Employment Consultant for Service Canada, she helped immigrants who were trying to build new lives for themselves. As a writer, she helps immigrant business people develop promotional and website material suitable for the Canadian market. Read more at

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