Ever feel like you don’t trust the government? Not sure how CPP, the Canada pension Plan, applies to you, if you should take it early, or if it even going to be around? Check out the vlog above for the answers.
Dave: Do you ever feel like this? “Right up front. No mistakes [inaudible 00:00:06] this match, right? You haven’t overruled anything. No mistakes whatsoever.” “[inaudible 00:00:13]please.” “Answer my question. The question, jerk.” Me, too. Hopefully you don’t get too frustrated, like Johnny, over the government, and the title of today’s presentation is Let’s Take Your CPP Worries Away With Some Q and A, so you feel less like John McEnroe and this gentleman, a little more like these people, who are sitting on a beach, they are enjoying themselves, and really not too worried about Canada Pension Plan.
[00:01:00]: First of all, with regards to the biggest frustrations that a lot of people have regarding CPP, they don’t really understand it. They have a vague idea of what it is, but they don’t understand exactly how it applies to them. They’re also concerned about whether they should take it age 60, 65. They’re not sure early versus wait, and in addition, a very important concern is whether CPP is actually going to be around, whether it’s going to disappear at some point in time.
[00:02:00]: That is going to lead to some suspicions that they’re going to get, end up getting over your lifetime really get hosed by the government. If the candidate pension plan ends up disappearing, then obviously you’re really screwed, and then as a result, it’s going to contribute to you not having any semblance of financial security. As a result, what I’m going to help you with today is first of all, just an understanding of how CPP can work for you, provide a little bit of a framework in terms of how you can think about taking CPP early versus taking it later, and also sustainability, let you know how long the CPP is, the candidate pension plan is actually going to be around for.
Your lifetime benefit as a result of this is understanding that things are actually fair, that you’re not being fleeced by the government. Secondly, having a sense of confidence just as far as the pension plan and sustainability is concerned, and third, having that what we can call the brick in the wall, that foundation in terms of security, certainty, and your financial freedom. Let’s get right into it.
[00:03:00]: First of all, question number one, what’s the maximum CPP benefit for 2016. Let’s ask Billy, because Billy knows. Billy is a real keener, and he knows that it’s $1092.50 per month. Now, the next question a lot of people are wondering is “Am I going to receive that maximum candidate pension plan?” The answer, Billy, is the average person actually only collects 50% of the maximum CPP?
Why is that? Why will I most likely not receive the max candidate plan? It has to do with how many years that you contribute. As Billy explains here, you have to, you can be working between age 18 and 65. Basically what that means is that’s 47 years, and let’s just say for example you don’t start working at 18, but you go to school for a few years and you start working at age 25. Well, 25 to 65 is 40 years. You have to contribute the max for 39 of those 40 years. You can start to see how on an actuarial basis it may be very difficult to make sure that you are contributing the maximum to your CPP.
[00:04:00]: Now, question number 4, how do I make the maximum contribution to CPP for this year, which is 2016, and the answer is, Billy, $54,900, which means that if you earn more than that, you can still contribute only up to 54 nine. If you earn less, you’ll be contributing less, on a pro rated basis, according to what you earn.
Now, question number 5, how do I find out how much CPP I’m entitled to? The answer is you go to this website, which is esdc.gc.ca candidate pension plans statement. It’s the SOC, statement of contributions, and once you go there you can see your statement, and there will be every single year you contributed. There’ll be an M beside the years that you contributed the maximum, so you’ll be able to tell. Just add those up and say, well, I’ve contributed for example 20 of the 39 years, so I’m entitled to maybe somewhere around half, for example. Very invaluable tool, so make sure you go to that website and find out exactly how the CPP applies to you.
[00:05:00]: Question number 6, should I take CPP at age 60 instead of 65, even if I’m still working? Excellent question. Billy is not a hundred percent certain, but he knows the break-even is actually age 74. Here’s some work that I actually did for one of my clients recently. In comparison, starting CPP at age 60. For this particular couple we figured out that at age 60, in 2016, they were actually, so this year, going to be collecting 9,229 dollars, and all the way through, up to age 65, if they collected early, you can see there are zeroes over here, up to age 65, but over here, they’re going to collect about $50,000. After tax, because they’re still working, it’s probably going to be somewhere around $30,000 extra cash in their hands compared to if they were going to contribute, wait until age 65.
[00:06:00]: To balance that off, we’ve go 18,947, which is combined CPP and Old Age Security. 2021, at age 65, if they waited, they’d make 23,787, so almost 23 eight, so you’ve got close to a $5,000 difference if you actually wait.
[00:07:00]: Here’s where the decisions come in. Here’s where the conversation comes in. We were exploring the fact that they were going to have perhaps around 25 and 30, actually 30 thousand plus cash in the bank, and they were bouncing around the idea they may actually want to spend that money. They may want to go on a trip around the world, or they may want to buy his and her Harleys, or whatever it might be, they wanted to do some of the things that they wanted to do early in retirement. These people actually might be leaning towards taking it early, whereas some other people I’ve spoken with, we’ll have the discussion and we’ll talk about the increasing costs of health care, and they’re a little more conservative people, and they don’t want to necessarily spend too much in the early years of retirement, so they’d rather have a large cash flow, and once they hit that break-even point at 74 years, they’re actually going to be in a better position in regards to CPP. They’re going to have increased cash flow for the rest of their life.
I’ll give you an example, which is age 77. You take it at age 60, you might only receive 40 thousand. At age 77, versus 49 thousand, so a $9,000 difference can actually be fairly significant, so you’ll want to make sure you find out these details, so you can actually even start the conversation.
[00:08:00]: Question number 7, can I take age 60 while I still am working? Billy knows the answer to that one. The answer is yes. You can take it age 60, but what you want to do is, if you’re still working, you still need to contribute while you’re working, and at the same time you’ll actually be taking out. Now, once you hit age 65, because you’re working extra years, you’re putting more contributions in, you’ll actually end up getting more, a higher CPP amount once you do hit age 65. It’s a little bit of a bonus there, but you do have to additionally contribute.
Now, question 8, is CPP going to disappear? A lot of fear, a lot of concern on a lot of people’s minds. Billy knows, the answer is no. Here’s a report just recently put out by the Chief Actuary of Canada. The CPP is going to be sustainable over the next 75 years, so don’t listen to the things that you read and that you hear with regards to CPP going broke over the next ten or twenty years. If you’re within ten years of retirement right now, or you’re already retired, you should be okay with regards to CPP.
[00:09:00]: A 75 year projection period is quite a long time, and part of the reason is that they’ve actually diversified the investment portfolio a lot better. It’s not just stocks and bonds anymore, but they’ve used a lot of alternative investments. They’ve used farmland, they’ve invested in hedge funds, they’ve invested in private equity, they’ve invested in other real assets and things like that, and so they’ve really diversified the portfolio to lower the risk and actually up the returns. They’ve done a fantastic job. Yay, Canada Pension Plan Investment Board.
To sum everything up, just do a little bit of a recap, what I let you know you’re going to receive today, is first of all, just give you a little bit of an understanding of how CPP works for you. Hopefully I’ve done that for you. Secondly, provide you with a little bit of a framework on how you should be thinking if you should decide to take early CPP or not. Third, just to let you know exactly how sustainable CPP is.
[00:10:00]: Your lifetime benefits potentially as a result of this is that you’re going to get a little bit more confidence that first of all you’re not fleeced by the government, that CPP is actually going to be stable throughout the rest of your life, and also provide you with what we would say is maybe another brick in your wall as far as retirement security, certainty, and financial freedom, and just really be able to build that foundation for you, a little piece of the puzzle.
[00:11:00]: How did I do? Let’s compare. Let’s see how well my presentation was to one of the greatest events in Canadian history. Let’s check it out. “You have to control it. They have Howarchuk, Lemieux, and Gretzky all center ice. It looks as though Howarchuk will draw the assignment against Bykov. Howarchuk wins it, and here’s Lemieux poking at the center. Lemieux ahead to Gretzky. [inaudible 00:11:16]a two on one to Lemieux and on goal. He shoots, he scores!.”
As you can see, I didn’t come anywhere close to one of the greatest events of all time, but this is a talk about Canada Pension Plan, and I had to spice it up a little bit, so hopefully you’ll understand. Next, be sure to download my ebook, which is The Top Five Most Frightening Danger Signs Facing Retirement Investors Today. It’s located just to the right of your screen here on the website. Here is a sample of what it actually looks like. You can’t miss it.
[00:12:00]: The reason you’re going to want to read this book is it’s going to detail something that applies to every single person that goes into retirement, the most important retirement concerns. I’ve been doing this for 23 year. The things that people tell me over and over and over again, what they want is what I actually put in the book, that frustrate and keep you up at night with regards to your retirement, cause a little bit of stress. What we’re going to do, what I have done, is provide you with some solutions, in terms of making sure that you don’t outlive your money, how to handle the situation that 50 percent of people over age 50 actually get themselves into, which is how to handle these family banker type situations, how to ensure that your retirement is as secure as it can be.
There’s an instant download. Just enter your email into the box here and I’ve also provided a little bit of a free bonus offer to the first 25 who download, just as a thank you for watching this video, and as a thank you for visiting the website. Again, thanks so much. We’ll definitely see you next time.