Super_Geo
I never really thought about it until now, but the Canadian Pension Plan seems to be one of the worst ways to save for retirement possible.

I've been working full time since last summer (I was 22 then, just graduated from school) and made enough to max out my CPP contribution ($1989.90). Unless something goes wrong and I end up flipping burgers, I will be paying at least that amount for the rest of my working life.

I won't be able to collect until I am 65, so that means I will be contributing ~$2000/year for 43 years, a total of $86,000.

But you would have to be an idiot not to get interest on your money, so let's be conservative and assume that you can get a 8% annual return (assuming inflation is 2%/year, that'd be a real increase of 6%/year). Here's how it would look if it were to grow at 6% a year:

Year 1: $2000
Year 2: $4120
Year 3: $6367
...
Year 5: $11,274
Year 10: $26,362
Year 15: $46,552
Year 20: $73,571
Year 30: $158,116
Year 40: $309,524
Year 43: $375,015

And that's assuming a pretty modest 8% interest rate. Nevermind years where prime will be >10% and you can easily get returns in the 10-15% range with basicaly no risk.

Ok, now that I'm 65 and ready to kick the bucket and I've given the government over a third of a million dollars (by a modest estimate), what are they going to give back to me?

The MAXIMUM pension payment as of 2005 is $828.75/month ... or $9945/year! That's a return of 2.65% annual return on the $375,015 that I should have to my name at this point... and that's not even taking into account the fact that the government would keep the $375K principle after I die.

Is there a way to opt out of the CPP?

Canmorite
We did basically the same math in one of our classes. The CPP is a piss-poor investment/saving vehicle.

What I want to know is, do the CPP funds get invested in safer investments like fixed-income or does it just sit there...

Mixalot27
Nobody wants to pay CPP, just like nobody wants to pay income taxes. Only way to get out of it is to move out of Canada or work for cash.

The CPP is a poor investment because of the baby boomers. We have a severely aging population and the work force is lower than it has been in the past. Therefor people entering the work force these days have to pay several times (I think around 7 times) as much in contributions as previous generations did. And in the end we will only receive the same as the previous generations, if even that. So yeah its a poor investment but not much you can do about it. Its more of a social welfare program than an investment.

analbumcover

I was thinking about this the other day, i didnt know there was a max you can recieve from your pension monthly... i thought it was based on how much you made throughout your life + fluctuation of interest rates... this is absolutely terrible and i dont think there i anyway to opt out

Mangina

You're comparing the pension of today, where you should be comparing the pension that you will get when you retire.

liquid1010
Plus... 8% is really not all that modest. I agree that CPP is garbage, but saying 8% is the simple baseline for a risk-averse investment is not accurate.

Xtrema

Which will be nothing. Because the principle is that people working are paying into CPP while people retired withdrew from CPP.

# People retired > # People working and getting worse year after year and birth rate slows and old people lives longer and longer.

If you're under 40 and paying CPP now, don't expect to get much back when you hit 65.

You don't have a choice but to pay it unless you make you money purely off investments. If you earn wages, you have to pay. It's the law just like taxes. Welcome to the socialist side of Canada.

msommers
I vaguely remembering hearing that your return per month is based on your last few years of your total income. The problem is that people making more are expected to save more and are given a smaller return, conversely the ones who made less get a greater return per month. For some reason I remember this happening with my grandparents (one an artist, the other working for the city HR). Don't quote me on this though, I should ask them tonight.

richardchan2002

And this number is going to be zero. I'm sure that after we've paid into the CPP for all those years, it'll be gone before we get a chance to withdraw from it.

snowboard
divdends babbbbbbyyyyyyy

sxtasy
just another tax with some bullshit name

01RedDX
CPP and EI are mandatory deductions, right? You can tell your employer not to withhold income tax (which you will have to pay at tax time) but you can't do that with CPP and EI. Pretty sure.

odin7

True that :) I don't pay a dime into the CPP.
Also, paying yourself through dividends makes it easier to contribute to RRSP.

Canmorite

How would you go about convincing your employer to do that?

eljefe

Buy the company.

snowboard

Haha yep.
I'm a contractor so i pay myself in divedends.
save a bunch of money on shit like cpp.
but then i just spend it on other things.
i need a saving plan. fuck. haha

Super_Geo
But why is the CPP fucked? The baby boomers? Wouldn't they have had to work for an entire lifetime first (so there should've been an influx of working adults for a generation before they all got old) before collecting their pension?

Antonito
Wasn't there some big deal where CPP lost a bunch of money on their investments?

em2ab

You might be thinking of the Enron crash in the USA.

l/l/rX
the only way to opt out of the CPP is to own your own business.

BigMass

and pay yourself with dividends, because if you draw any salary you have to pay CPP on it regardless. The only thing you can opt out of if you own your own business and draw a salary is EI.

Xtrema

http://www.statcan.ca/english/kits/animat/pyca.htm

Check that out and you'll understand why CPP is fucked.

The boomers are hitting 65 is record number (the widest part of the curve). That would drain all resources as they die off in the 30 years that follows.

On the other hand, the population that is paying into CPP is lesser as birth rate drops.

CPP's reserve is created by the boomers. But once they start to draw, reserves will be depleted and soon it'll be nothing.

So make sure your retired parents are enjoying as much pension and old age benefit as they can. Because we wont' get any.

TomcoPDR

You can't get EI if you own your own business.

Ben
I'm just happy they have maximums on it, Christ, if I was paying into it all year long I'd be choked!

Zero102
Just consider the cpp another tax and start your own retirement fund. Everybody here is right, you are paying into a social welfare program and not a retirement fund since the entire thing will have been spent long before we retire.
Take every $ you put into CPP and put 2 into an RRSP, then you are set for life. Even if you can't put that much away, start smaller, take it easy, then even if CPP is still around you will have 2 incomes (although they will deflate your CPP collections for this, you are still better off).

I just recently started saving for my retirement after doing some quick math...
I have 45 years until I retire, 8% interest doubles roughly every 9 years, that is 5 doubling periods, or 2^5 times as much money as I put in (32x). Put $3000 away now = $100,000 when you retire. Of course each year it shrinks, but I am presently stashing away $4k/year in an RRSP, I should retire with a couple million in the bank. $4k/year is peanuts. Sorry if you are making minimum wage, the best people in this world never get a break, but if you aren't, $4k/year can be scrounged a lot of ways, and a little saving now means a lavish retirement later.


Of course, this doesn't account for inflation, but that is nearly impossible to predict, and all of your assets will inflate as well and they aren't taken into consideration so.... it evens out-ish.

88jbody
as soon as my 649 #'s hit I'll be set for retirement :thumbsup: