3 Retirement Benefits in Canada | CPP OAS GIS, How Do They Work? | Retirement in Canada

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

Channel: Thomas C Chan - Financial Services

Views: 371,274

Keywords: cpp, oas, gis, canada pension plan, old age security, guaranteed income supplement, how much will cpp pay, how much will oas pay, when to take cpp, cpp explained, retirement in canada, guarentee income suplement canada, old age security explained, retirement benefits in canada, gis canada, retirement benefits canada, what is cpp, cpp canada, oas and gis, retirement planning, how much do i need to retire, canadian pension plan explained, retirement planning canada, thomas chan

Id: gIV1C8nDYdA

Length: 13min 10sec (790 seconds)

Published: Sun Jun 20 2021