I don't want to pay into the CPP...

[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]

Originally posted by 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?

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]

Originally posted by Super_Geo

The MAXIMUM pension payment as of 2005 is $828.75/month ... or $9945/year!

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]

Originally posted by Mangina


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

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.

[rc2002]

Originally posted by Mangina


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

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]

.

[odin7]

Originally posted by snowboard
divdends babbbbbbyyyyyyy

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

[Canmorite]

Originally posted by odin7


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

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

[eljefe]

Originally posted by Canmorite


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

Buy the company.

[snowboard]

Originally posted by eljefe


Buy the company.

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]

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

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.