Retirement 101: Canada Pension Plan (CPP)

You've seen the CPP deductions on your pay stub, but what will it really mean when you retire? Here's how the Canada Pension Plan works and what to expect.

By Bryan Borzykowski

Ever wonder why you're not taking home more money per paycheque? Besides having taxes deducted from your pay, you're also contributing to the Canada Pension Plan (CPP). You may wish you could use that money now, but you're paying into a retirement savings plan run by the government. So some of that money will eventually find its way back to your bank account. So how does CPP work? We'll tell you.

Who's eligible?
Anyone who's made at least one contribution to the CPP can claim a government pension. You can start taking money as early as 60 and as late as you want.

How much will I make?
The biggest determinant of pay is age. If you start withdrawing when you're 60 you'll make less than if you start withdrawing when you're 70. The maximum amount one can receive in 2012 is $986.67 per month. The average monthly payment in 2011 was $512.64.

If you start receiving CPP payments when you're 60, you'll get 36 per cent less than if you start collecting when you're 65. If you start getting payments when you're 70, you'll make 42 per cent more than if you began getting paid at 65.

Does CPP provide other benefits?
Yes. The plan offers other benefits -- disability, survivor, children's and death.

• Disability

If you get a severe disability, one that's long lasting and will likely result in death, you can collect CPP. The maximum monthly amount for 2012 is $1,185.50, while the 2011 average was $820.96.
• Survivor

The spouse of a deceased Canadian can claim some of his or her CPP payments. The payments are paid every month until the surviving spouse dies. The maximum monthly amount paid to survivors over 65 is $592; the maximum amount paid to a survivor under 65 is $543.82.
• Children's 

Benefits can be paid to a child if the parent becomes disabled or dies.
• Death

A one-time benefit of a maximum of $2,500 can be paid to the surviving spouse or to the estate upon death.

Are CPP payments inflation adjusted?
Every January, CPP benefits are adjusted for cost of living increases, as determined by the Consumer Price Index.

How can I find out how much I've contributed?
Every CPP-paying Canadian should receive a statement of contribution every year that details how much you've paid into the plan. If you haven't received it, request it. The statement also says how much you'd receive if you were eligible to claim CPP today.

This is just some of the important information you need to know about the Canada Pension Plan, but there's a lot more to read on Service Canada's website. Start with the CPP frequently asked questions page. To find out more about rates, look at the CPP payment rates page. Also check out the main CPP page on Service Canada's site.

Make sure you read as much as you can. CPP will likely make up a big chunk of your retirement savings, so you need to know how much you're entitled to.

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