Super_Geo

10-22-2007, 02:41 PM

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 (http://www.hrsdc.gc.ca/en/isp/pub/factsheets/retire.shtml) ... 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?

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 (http://www.hrsdc.gc.ca/en/isp/pub/factsheets/retire.shtml) ... 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?