CPP expansion too late for Baby Boomers


Last June, the federal government and provincial governments agreed in principal to an expansion of the Canada Pension Plan (CPP). Currently, the maximum payout you can get from the CCP at age 65 is $13,110 a year. The expansion of CPP could mean an annual income of $20,000, although it would take many years to reach that level. That might appeal to Millennials, but it’s not such great news for Baby Boomers.

Under the proposal, increases in CPP would be phased in over seven years, starting in 2019. The bottom line is that for people who are at age 55 now, this change will not have much impact on their retirement. If you are just starting your career or are in your 30s and 40s, it will have a much greater impact because you have much longer to contribute to the plan. So this CPP expansion comes too late for Baby Boomers who are retiring en massenow and will continue to do so for the next 15 years.

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Tax Tip

If your Registered Retirement Savings Plan (RRSP) is quite large, you might consider drawing down your RRSPs between the age of, say, 63 and 65 (this is just an example of a retirement date) and allowing your CPP (which is tax advantaged compared with RRSP withdrawals) to continue growing.

As a rule, you should avoid paying the Canada Revenue Agency any more than you must, but especially in retirement, when a lower tax bill will allow your standard of living to remain as high as possible. Drawing out monies from an RRSP, non-registered/open account, or a Tax-Free Savings Account will have very different tax consequences, and you must be aware of this prior to any redemption.

New important tax numbers for 2017

* The Basic Personal Amount is now $11,635.

* The 2017 RRSP limit is $26,010 based on 18% of 2016 income, less any pension adjustment.

* CPP rates remain unchanged.

* The TFSA contribution limit is back down to $5,500 per adult and is frozen at that level. The total maximum contribution room available per adult since the inception of the TFSA is now $52,000 (provided you were 18 in 2009 and haven’t contributed anything to a TFSA). The TFSA has become as very important tool in retirement planning as it gives people another option to make a large tax-free withdrawal in retirement (for example, a special bucket-list holiday) without pushing your income or your tax bill way up. This could easily save a couple $10,000 to $20,000 if their pension incomes are high.

Take some time to see how this may affect you going forward. When you receive your Notice of Assessment, see if you can set up a pre-authorized deposit to keep your RRSP building without having to contribute a big lump sum in February when you may not have the funds to do so. It is much easier to contribute monthly and stay current. The last day to contribute to RRSPs to be eligible for a tax deduction for the 2016 tax year is March 1, 2017.

Courtesy Fundata Canada Inc.© 2017.Bruce Loeppkyis based in Surrey, B.C. and is registered with Portfolio Strategies Corporationas a mutual funds person. This article is not intended as personalized advice.

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