Why You Won’t Get as Much From CPP as You Expect

CPP Specialists, Calgary

Why You Won’t Get as Much From CPP as You Expect

Most retiring Canadians are surprised to find out that their CPP cheque is a lot smaller than they were expecting. Why is this so? Mainly, because they do not understand how it works. Why is it that they do not understand how it works? Because it’s difficult to understand and the government is changing the rules often and the government doesn’t do a very good job of educating the public.

Even though it’s an employee/employer co-contributing plan it’s up to you to know how to really benefit from it.

How does it work?

It is based upon your contributions from the age of 18 - 65. If you make more than a minimum amount of money ($3500) you will pay 5.10% of your paycheque to CPP premiums and your employer will also match 5.10% to the plan (Total of 10.2%). Each year, CRA sets a limit as to how much of your earnings you contribute to the plan. In 2019 that limit is $57,400.00. 

Basically, if you earn $57,400 in 2019 you and your employer will pay the maximum into your CPP pension. Here’s how this calculation works: 

Earnings: $57,400

Basic Exemption: $3500

Balance: $53,900

($57,400 - $3500 = $53,900 X 10.2% =  $5497.80 (Total contribution to your CPP)

If you did this every year of your working life between the ages of 18-65 you will qualify for the maximum CPP pension at age 65. Your first thought may be, “well how many people can do that for 47 years”? Not many! Here’s some good news. The government allows you to subtract 17% of your lowest earning years. Based on 47 working years from the age of 18-65, they will let you drop from the calculation 8 of your lowest earning years. In this case, your CPP pension cheque will be based on your best 39 years of employment.

How can you ensure a HIGHER CPP pension?

The first step is to sign up at the Service Canada website so that you can monitor your “statement of contributions”. This will allow you to audit your past information for accuracy and help you craft an action plan to ensure you can optimize your future CPP paycheque.

The second step is to see if there are any ways you can ensure a higher contribution amount. For example, if you and your spouse are self-employed in the same business, you may want to split your incomes more evenly to ensure that each of you is earning the YMPE (Years Maximum Pensionable Earnings). 

Another strategy is to look at paying extra CPP contributions on “other earned income” such as a side job. If you had 3 part-time jobs that paid you under the $3500 basic exemption, your employer may not deduct CPP contributions. You can complete a form at tax time to pay additional CPP contributions on that income. A man emailed us recently wondering if he can pay CPP contributions on his income he is earning while working overseas. His employer isn't required to remit CPP contributions on his behalf but he can do his own contributions. In most cases, this is a good idea, so that you can top up your future CPP paycheque. There are restrictions as to what type of income this applies to and there is a form to complete as well. Rental income, investment income or capital gains are not calculated in your CPP contributions because they are not earned income.

If your business is incorporated you may want to ensure that you take at least the YMPE of $57,400 as salary and pay the CPP deductions in order to maximize your CPP paycheque when you turn 65. If you take income from your business as dividends then you will not be paying CPP contributions on that money, as it is not “pensionable earnings”. If you are taking dividends from your business rather than a salary with regular payroll deductions, I would strongly suggest having a Corporate Retirement Strategy where you are putting money away in an investment account.

The Canada Pension Plan is a good pension plan. It is operated by an arms-length investment board. You can visit their website at cppib.ca. According to their most recent actuarial report from 2016, the CPP program is sustainable for another 75 years. Read the report.

If you wait too long to audit your CPP, you may find that it’ s too late to do anything. The closer you get to taking your CPP the fewer options you have to optimize it. 

There are numerous nuances to CPP and everyone needs to make an informed decision based upon their unique needs.


Want to retire in the next few years? Book a complimentary meeting with us so that you can retire with confidence.


If you would like some help understanding how CPP works and how you can Optimize it, even if you are several years away from qualifying for it, I would suggest attending one of our workshops


Retirement Income & Investment Advisors,

Willis & Nancy Langford








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