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Canada Pension Plan

When you are working, you contribute to the Canada Pension Plan based on your earned income.

Once you are age 60 or older, you can apply to receive payments.  The amount you receive is based on your earnings history, and possibly your personal situation.

The next few posts will answer a few questions about CPP.  It's important that you understand the program basics, where to find information about both the program in general and your situation specifically, and the role CPP payments will play in your future.

Today's post answers a few basics about the program:

1. How do I contribute?  CPP contributions are deducted from your pay, if you are employee.  If you are an employee, you contribute half of the amount (which is based to your salary) and your employer contributes the other half.  If you are self-employed, you contribute both halves.  Self-employed individuals send the CPP amount in with their income tax payments, or installment payments (depending on your payment schedule with CRA)

2. Where does the contribution money go?  There is a CPP investment fund.  The fund received contributions and makes payments.  There is a large pool of money in this fund that is invested and generates returns of it's own that helps to meet payment needs.  You can find out more about the CPP investment fund here.

3. What is the CPP supposed to do for me?  CPP is intended to provide a monthly payment to you once you stop working.  The amount you will receive is based on your contributions while working, how many years you contributed and how old you are when you start receiving payments.  CPP payments are made as long as you are alive.  CPP payments are adjusted to inflation every year.

Random associations:

Today is National Pot Pie Day.  These are two chicken pot pies from Sweet & Savoury Pie in Waterloo.  If you live close, I highly recommend stopping by and trying a pie!

When you are hard on yourself about any mistake, including financial mistakes, it can help you find a solution or it can hold you in a place of stress, worry and continued mistakes.

There are often a number of ways to fix mistakes, including financial mistakes.

For today, consider starting with the poem Do not trust the erasrer by Rosamond S. King.  One of the most important parts of changing your finances is changing your mindset.  Developing solutions or changing behaviour with the same mindset that got you to where you are is unlikely to get you out of where you are.

Making decisions can be difficult on a regular day.  Grieving a loss isn't a regular day.  Making decisions can become more difficult, more exhausting and the stakes may be higher.

When you're grieving and faced with decisions, it's important to understand your current situation is, what decisions need to be made immediately and which decisions can (and possibly should) be made later.

The best decision may be to wait to make a decision.  How to do you that?  You decide on a short-term plan that deliberately allows room to make a long-term decision when you have more time, energy and clarity.  This looks like putting an inheritance, severance payment or separation settlement into a savings account and letting the bank know that you are not making any other decisions for 12 months (so please don't ask if you would like to speak to a wealth advisor or buy a GIC).

To read more on making decisions while grieving, read Noushin Ziafati's interview with myself, Sandra Fry and Ti Zhang here

Fixed expenses- the money that you’ve already spent based on the choices that you’ve made.  These expenses are scheduled to go out at a regular time in a roughly regular amount.  The exceptions to the ‘regular time, regular amount’ rule are costs to maintain your house (if you own) and your car.  These expenses are less predictable in a short time period, but ARE predictable over a longer time period.  The other truth about these expenses is that they WILL happen.  If you own your home, you can put off some maintenance for some amount of time, but you can’t put maintenance off forever.  Same with your car- the first few years of a new car are often pretty low-expense on the maintenance side.  Then expenses will rise.  Plan for this; it’s not a surprise.  You own the thing, you need to maintain the thing.  Your fixed expenses are not the only required costs that you have, however, if you want to organize your spending & saving in a sustainable way, you need to know what you’ve already committed to and what expenses you can make day-to-day choices on.   

To find these expenses, take a look through your bank statements and credit card statements for the past 12 months.  You are only looking for 'regular time, regular amount' expenses.  Don't total all of your spending; some cateogries that occur regularly are going to be omitted in this exercise because the amount varies enough that the category will throw off you feeling in control of your money.

Use the chart below as a guide: expenses listed on the left are fixed expenses- that's what you're looking for in this step.  Expenses on the right are variable- leave those off for now.  There's a few situation-specific exceptions that may make sense to you- if you use a meal delivery service, that's a fixed cost- you know how much is leaving your account to cover that decision.  Using the meal service moves it from a variable (grocery) to fixed (contract) expense.  If you commute for work, and know your gas costs, maybe it should go on the fixed expense list.  Be careful about adding too much to the fixed list, unless you really wanted a full budget experience!  If you do, great- use both sides of the chart and brak out all your transactions for the past 12 months.  If you want a faster solution, focus only on your fixed expenses.

Once you've totalled your fixed expenses for a month, including due dates, line those up against your income deposits.  You'll start to see where they line up, and where they're giving you trouble.  You'll also start to see how much money is available from each pay period/ income deposit to cover your variable expenses.

If organizing your finances has moved to the top of your priority list, that’s great news.  If you’re feeling confused & frustrated about your finances and would rather pull your own eyelashes out instead of dealing with them, but, it’s a new year and tips are everywhere you turn, I’m glad you’ve read this far.

The majority of work that I do with clients involves the foundational work related to money in/ money out.  You need to know these numbers before you start making changes.  You need to know what’s happening now to make effective choices that will move you to a better place over time.

If you need a new look at your money and are ready to do some math, this post will give you a framework for understanding where you are now and what changes will improve your situation.

Step One: knowing how much is coming in and when

You need to know how much is deposited to your bank account and when that happens.  When we try to untangle our finances, we often talk about our salary.  In this context, that is not a useful number.  None of can make choices on the full amount of our salary.  There are deductions before any money lands in our bank account.  Sometimes the deductions are large. And valuable.

I recommend that you look back at a payslip from 2022- look for the net amount deposited, or if you have your last payslip, find the year-to-date (YTD) net amount.  That will tell you how much lands in your bank account.  This is the amount that you need to focus on when you’re asking questions about what’s affordable.

Draw out the timing of the deposits so that you can compare your deposits to when your expenses happen.

See the chart below for a list of common deductions and an explanation of the benefits to you.  Need more clarification on what's happening in your specific situation?  Contact Sara for an appointment by booking an initial consultation here 

or send an email

check back on Jan 23 for Step Two: finding your fixed expenses 

Next up in 2023 numbers that matter:

Canada Pension Plan contributions: $3,754.45 for employers & employees/ $7,508.90 for self-employed Canadians.  This is a noticeable hike; it's part of a multi-year plan that was approved by the provinces & feds in 2015.  Good news- there is also increased benefits that are funded by this increase.

EI premiums: $1,002.45 for employees on max insurable earnings of $61,500

Canada Pension Plan payments: max monthly retirement payment (age 65) $1,306.57.  A note that the average Canadian receives 56% of the max amount - $731.68/mnth.  CPP pays a number of other benefits, including post-retirement benefits, disability and survivor benefits.  For the entire list of CPP & QPP benefits, click here

Welcome to 2023!

Here are some of the new numbers to get you started:

RSP:

- if you use the first 60 days for your 2022 contribution- 18% of your earned income to a max of $29,210

- if you're done with 2022 contributions and moving into 2023- 18% of your earned income to a max of $30,780 

TFSA:

- new 2023 room- $6,500

- total room if you've never contributed, were 18 or older in 2009 & lived in Canada- $88,000

You can find your personal contribution amounts in your myCRA account online (RSP & TFSA) or on your Notice of Assessment (RSP only).  Remember that the amounts you see online can lag your actual contribution amounts- the information from the institution to CRA isn't instanteous.  If you have scehduled monthly contributions, or just made a lump-sum contribution, make sure you subtract that amount before making another contribution.

Inflation adjustment for income tax brackets & benefit amounts: 6.3%

Basic personal amount- this is the amount that you can earn without paying any federal tax.  New for 2023- $15,000 for those earning less than $165,430 (net), gradual reduction for those between $165,430-$235,675 (net) and $13,521 for those about $235,675

I love the practicality of this podcast in general, this episode in particular.

Nora covers her own terrible thing and what helped her, and includes other's stories of what helped and what they appreicated most in their hardest times.

Is this episode only about how money helps in terrible times?  No.  Money is mentioned several times and I want you to hear that from people who have experienced unplanned deaths and other sudden changes.  I also want to hear about the other needs that people whose lives have been upended have and how you could step closer to be a support and bring some peaceful moments to families who have had an experience that they wish never ever happened.

Need personalized advice on what's affordable or how to adjust to increased expenses?  

Adjustment Plan- intro call/ planning session + summary letter/ check-in session at 3 mnths - $1200 incl HST