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3 Retirement Benefits in Canada | CPP OAS GIS, How Do They Work? | Retirement in Canada - YouTube
Channel: Thomas C Chan - Financial Services
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hey welcome back it's thomas here i
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just realized i've been sharing in this
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platform for a year and a half now
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and this is my seventh video thank you
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for being here with me
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there's a lot that i learned since
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starting my youtube journey and that's
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why i decided it's time to update some
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of my most valuable videos
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i will do a full upgrade on both the
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graphic and the audio
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plus i also want to give you a more
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updated number so in today's remastered
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project
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i will go over canada's top free pension
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plan
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cpp canada pension plan oas
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oa security and gis guaranteed income
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supplements
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i'll go over the details again and share
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how you
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can get up to eighteen hundred dollars
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per month
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even if you know my old videos from the
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way back i think you'll get a lot more
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value out of this one
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but if you're new here again my name is
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thomas and this channel is to help
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canadians to make better choices on
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retirement wealth and insurance my goal
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is to make sure you can take one or two
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ideas home and start making better
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financial decisions today
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so if you find this video valuable make
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sure you click the subscribe button
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below
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let's get started canada pension plan
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known as the cpp was designed back in
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1965 with a goal
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to provide canadians with 25 of their
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retirement income
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but since our living standard has grown
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and evolved
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the government has actually enhanced the
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cpp
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they aim to provide with one third of
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your retirement income
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the good and the bad side about the cpp
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is that it has a mandatory plan
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meaning that everyone who is 18 years or
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older
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and employed will need to contribute
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into that cpp
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right now in 2021 the maximum cpp
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benefit you can receive at age 65
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is 1203 dollars but the truth is
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not a lot of people will get that so the
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average cpp
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amount that canadians get is around 690
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a month to qualify and start receiving
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the cpp payment
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you must be at least 60 years old and
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have made at least one valid
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contributions to the cpp
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the amount you get is based on the
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average earnings throughout your work
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life
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your contribution and your age what some
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people
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don't like about the cpp is that the
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money is automatically taken from the
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paycheck
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if you're a person who is good at saving
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their own money it can be
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a bit of a drawback but since the cpp
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isn't guaranteed income
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it makes sense to maximize it as much as
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possible
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so how can you do that to maximize your
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cpp benefits
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let's first get a deeper understanding
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of how the cpp works
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there are three parties involved one the
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employee contributes
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up to 5.25 of the salary after the first
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3 500
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and second there's the employer side
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who will match it for another 5.25
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percent
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and lastly we have the canada pension
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plan investment board
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which will invest money accordingly
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according to a recent report
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the fund plus the return can still
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sustain the plan for the next
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75 years so let's say if you make 3 500
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or less a year
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both you and your employer don't have to
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pay into the cpp that year
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this is also called the basic annual
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amount another number you need to know
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is the yearly
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maximum pensionable earnings this number
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gets updated every year
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and in 2021 the ylpe
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is at sixty one thousand and six hundred
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dollars
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therefore as long as you make anything
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between thirty five hundred
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and sixty one six hundred both you and
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your employer
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have to pay into your cpp that being
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said
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if you are self-employed you have to pay
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both the employee
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and the employer portion into the cpp
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let's look at an example
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tom is self-employed and is making 50
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000
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per year 50 000 minus the first 3 500
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as 46 and five hundred dollars he needs
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to pay both portion in cpp
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which is ten point five percent so it
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needs to contribute forty eight hundred
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and eighty two dollars for his cpp
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the maximum cpp contribution per year is
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up to fifty and 96 dollars but starting
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in 2020
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that's a tier 2 contribution for high
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income earners
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they can contribute more on top of the
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normal cpp
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so they can get a higher retirement
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benefits there are ways to maximize your
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cpp benefits
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first is the contribution length between
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the age of 18
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and 65 only 39 out of the 47 years will
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count towards to the cbp calculation
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and that's because the investment board
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will automatically
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exclude the eight years of your life
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where you earn the least amount
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the government does this because they
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recognize that you will have less income
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in some years so they give you a bit of
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break what's more
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if you're a mother you get 7 years off
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cpp
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after you got a baby so to get the
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maximum you have to max out the
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contribution limit for
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39 years another thing to consider
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is the age you start getting your cpp
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benefits the standard age
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is 65 but you can start as early as age
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60 or as late as age 70. the age you
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start
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has an effect on your benefits if you
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start at age 60
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your monthly payouts will be lower if
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you start at age 70
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it will be higher here's an example if
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tom's cpp benefits a thousand dollars
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per month at age 65
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it decides to withdraw cpp at age 60
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instead
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the amount he gets will be 36 percent
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lower
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so in this case it will be 640
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per month and if he decides to get it
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later at 70
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then he gets 1420 per month
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which is 42 more so the question is
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should tom take it at age 60 65
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or age 70 yes you get less payout at the
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age of 60
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but you get five years earlier but if
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you take it out later
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you will get a more guaranteed return
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the bottom line is
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whether you should take out the money
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early or wait until age 70
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depends on your unique situation if you
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are unsure
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when you should get your cpp time to ask
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yourself
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are you being healthy what is your
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current financial situation
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and what's your plan for retirement for
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example if you're healthy and expect to
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live a long life
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or have access to other sources of
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income you might choose to start
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receiving your cpp retirement pension
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later
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and you prefer to work less or you want
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the money now to pay off debts
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or to fund your retirement plans you
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might choose to start receiving your
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pension
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before the age of 65. unlike the cpp
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oa security or oas for shorts does not
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require your contribution
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instead the benefits are funded by the
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canadian government
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and the earliest to receive oas benefits
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is at age 65.
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in 2021 the maximum oas you get
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is 618 regardless if you marry a lot
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the amount goes up a bit every year due
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to inflation
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but keep in mind there are couple
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requirements to receive the benefits
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first you have to be a canadian citizen
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or permanent resident and live in canada
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for more than 10 years
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between the age of 18 and 65. in order
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to get the full amounts you need to live
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in canada for 40 years
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you can estimate how much oas you get by
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taking the number of years you live in
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canada
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and dividing by 40 then multiply that
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number by the maximum oas amount
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possible that year
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for example if you live in canada for 10
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years
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10 hour 40 is 25 so you will get
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25 of the 618 which is about 154 dollars
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a month
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nowadays the benefit is quite
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straightforward it's an automatic
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enrollment
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as long as you file your tax on time
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usually it starts at age 65
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but same as cbp you can wait until the
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age of 70.
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and if you wait your oas payment goes
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0.6
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more each year there's one thing that
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can lower
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your oas benefits too if your income is
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higher than 79 000
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the government will start reducing the
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oas benefit by 15
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and if you have net income of 128 000
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or more your oas is fully called back
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and reduced to zero
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keep this in mind especially if you get
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your oas at age 65
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while you're still working it can create
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scenarios where you earn too much
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and your oas is called back you might
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think
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that number seems high who makes 120 000
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in their retirement
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but don't forget cpp pension plan from
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your work
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rrsp and interest generated from the
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investments
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are all considered taxable income and
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that's why
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the best retirement strategy is to plan
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way early
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before you actually retired the strategy
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is to melt down your rrsp
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and pension plan so it doesn't affect
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your oas benefits
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and you can have a chat with me using
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the link below the last benefit
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is gis the guaranteed income supplement
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is designed to provide minimum support
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to people who have extremely
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low income there are two requirements to
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receive the gis one you must first
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qualify for the oas and two your net
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annual income must be lower than
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eighteen thousand dollars and six
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hundred assuming you're single
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the closer your income gets to zero the
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higher the gis you receive
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the maximum gis benefits per month are
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916 dollars
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meaning you get this if you have no
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income at all
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if we combine both the gis and oas
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together
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you can possibly get roughly around
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fifteen hundred and twenty nine dollars
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and the gis portion is tax free but keep
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in mind
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not a lot of canadians can get the full
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amount of the gis
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pretty much all income except the oas
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will affect the gis benefits
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pretty much there are only two types of
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people to qualify for the full amount
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neither you are that broke or you're
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super rich enough to hire a team of
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accountants to help you with the tax
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planning
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now the key question is can you really
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retire if you're solely dependent on the
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government benefits
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or how much do we need to live okay
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during retirement
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statistic canada reports an average
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canadian household spends
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800 on food 1600 on housing
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300 on clothing a thousand dollars on
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transportation
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300 on health care another 300 on
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recreation
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and lastly another 300 on other stuff
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and that's around 4 600 per month for an
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average canadian family to maintain the
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lifestyle if the average cpp
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plus the oas benefits are around 1300
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for one person
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and if both couple are retired which
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means 2 600
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bring to the table that means we still
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need another thousand dollars after tax
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money
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extra per person per month so where do
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these a thousand dollars come from
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and the answer comes from savings and
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investment that you plan
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now let's have a look at how much money
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you need to save
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we'll use rules of four percent to see
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how much we need to live comfortably
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during retirement
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we'll divide the difference by four
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percent which gives us three hundred
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thousand
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so you want to be more conservative
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times that amount by
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1.2 this should give us a group of a
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room
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if we have this money in the bank
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account with an average of four percent
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return per year
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it should produce a thousand dollars
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cash flow per month
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can you see why the government urges to
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prepare for retirement early
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is because most people can't live with
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the government benefits alone
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to set up your retirement rights use tax
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shelter accounts like tax free saving or
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rrsp
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the reality is a lot of people think
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retirement planning
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is important but it's not urgent to them
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study shows that life expectancy is
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going up
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yet fewer and fewer people are
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contributing to their retirement plans
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it's never about how much you put in is
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how about how early
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and how consistent you want to do it
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here are a couple of tips on how you can
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build up your retirement fund
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first understand your current spending
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today and estimate what's likely to be
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during retirement
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next is to put your savings into a plan
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that works for you on autopilot
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it takes less time and efforts and all
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you need to do is review it from time to
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time and adjust along the way
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i know there's no one-size-fits-all
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solution everyone has their own
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definition of retirement life
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but we should and need to do better in
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taking control of our financial
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situations
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our government do help us in covering
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some of the basic costs during
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retirement
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but to lift the retirement you envision
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it requires some planning
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alright let me know if you like this
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remastered version and of course if you
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found this video useful
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be sure to click the subscribe button
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and turn on the notification to get more
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videos that help you maximizing your
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finance
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this is thomas and i will see you in the
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next video
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