Canada Pension Plan with Doug Runchey | E094

Financial Planning For Canadian Business Owners

Jason talks to Doug Runchey, owner & operator of DR Pensions Consulting; he's a foremost authority when it comes to understanding CPP.

Episode Highlights:

• 2.06: Doug started his consulting career 10 years ago on Canada pension and all the age security, but primarily Canada pension.
• 03.38: You pay for Canada Pension Plan if you have earnings from employment or self-employment. Those are the only two incomes that you can make in CPP contributions.
• 07.34: Talking about the CPP rates, Dough says that the benefits were going to go up from the 25% earnings replacement formula to a 33.33% earnings replacement formula. And that's what has resulted in the most recent increase basically being staged over five years. From 2019 through 2023 an increase of 1% for each of employer and employer, up from 4.95% to 5.95%.
• 13.10: If a person is working from the age of 18 to 22-23 in school, barely earning any money, and that is counting against his/her average, that's not great, says Jason.
• 17.07: If you are going to stop working and you would have drop out. You can end up with a better calculation of your average income by following few simple methods.
• 18.29: The first step in the process of the calculation is to bring all of your lifetime earnings up to a current year value. In the way that occurs is whatever year your benefits start, you take the average YMPE for the five years ending with the year that your benefits start, says Doug.
• 20.25: A pension is 50% higher if you wait five years. That is, government backed and guaranteed for life.
• 22.52: If you have worked five more years until 70, you can take those five years of maximum earnings, replace five years of zero or lower earnings and increase your average lifetime earnings significantly, says Doug.
• 31.27: The CPP retirement pension, as we say started at 65 or as early as 60 prior to that. If you become disabled while you are working, there is a disability benefit under CPP.
• 35.00: If you have got your own corporation and you have the choice to pay yourself a salary or pay yourself dividends, then if you pay yourself. Salary. You are paying the CPP contributions both as the employer and as the employee, so you are paying both halves of it out of the company somehow. But if you pay yourself dividends, you don't pay CPP contributions, then you don't have a pension at the end of it, says Doug.

3 Key Points:

1. Dough talks about the contribution rates in the Canadian Pension Plan, what are the contribution rates today and where are they scheduled to go?
2. Doug explains if you want to take your CPP earlier than age 65, there are a couple of things happening. First of all, your calculated CPP, meaning your 25% of your lifetime earnings are calculated at the time you take your benefits.
3. If you don't take your CPP and you keep working beyond age 65, you can use each year of earnings to replace one of your earlier years of lower earnings, explains Doug.

Tweetable Quotes:

• "The contributions are the only incoming money to the fund except for the reinvestment of those contributions and that's all managed by us." - Doug
• "Even if you are paying a fairly high tax rate on your CPP because you are still working. And you are the sources of income. Doesn't mean you still don't take it early." - Jason

Resources Mentioned:

LinkedIn – Jason

Facebook – Jason Pereira's Facebook

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