Canada Revenue Agency: How Much Are You Paying Into CPP?

Did you know that according to the Canada Revenue Agency, the average monthly CPP payment is just $672.87?

| More on:

The Canadian government has a pension plan for retires known as the Canada Pension Plan (CPP). This is a monthly, taxable benefit that aims to replace a part of your income on retirement.

In order to qualify for the CPP, you would have had to make at least one contribution to the CPP and need to be over the age of 60.

The CPP payout amount is based on an individual’s average earnings throughout his/her working life, contributions to the CPP and the age at which one avails the pension. The standard age for CPP payouts is 65, though it can begin by the age of 60 and can be delayed until the age of 70.

So should you start your CPP at the age of 60, 65 or 70? In case you start CPP payments at the age of 60, the amount will be reduced by 0.6% every month or 7.2% every year. This means pension payments will be reduced by 36% compared to the pension amount of a 65-year old.

Conversely, payments will increase by 0.7% every month or 8.4% every year in case you delay pension payouts after the age of 65 and up to the age of 70.

Maximum pensionable earnings are $58,700

In 2020, the maximum pensionable earnings are $58,700. The basic exemption stands at $3,500 with an employee contribution rate of 5.25%, which indicates that the maximum amount an employee can contribute to the CPP per year is $2,898.

In 2020, the maximum monthly amount for Canadians starting CPP payments at the age of 65 is $1,175.83 and the average monthly amount is $672.87.

The CPP is gradually being enhanced as of 2019, which means individuals will receive higher benefits on higher contributions. Until 2019, the CPP replaced 25% of your average work savings. The enhancement suggests that the CPP will grow and replace 33% of the average work earnings received after 2019.

Further, the maximum limit that is used to calculate average work earnings will increase by 14% by 2025. The CPP enhancements will increase the maximum retirement pension by up to 50% for those who make these contributions for 40 years.

CPP payout is insufficient

The CPP may be insufficient for most individuals. The average monthly expenses for retirees is about $2,400 and they will need another stream of income to support their lifestyle. You will need to support CPP payouts with the old age security program (OAS), workplace pensions and personal savings.

This shows investors need to max out their Tax-Free Savings Account (TFSA) contributions every year. The TFSA contribution limit for 2020 is $6,000 and investors can look to add low cost, well-diversified ETFs such as the iShares S&P/TSX 60 Index ETF (TSX:XIU) to their portfolio.

XIU has exposure to large-cap Canadian companies. It’s the largest and most liquid ETF in the country and has returned 14.6% in the last year. Since its inception, XIU has generated annual returns of 7.2%.

XIU is rebalanced quarterly and the ETFs top five holdings include Royal Bank of Canada, Toronto Dominion, Enbridge, Bank of Nova Scotia and Canadian National Railway that account for 7.9%, 7%, 5.7%, 4.6% and 4.5% respectively of the ETF.

The two largest sectors in Canada- Financials, and Energy dominate the XIU and account for 35.8% and 17.8% respectively of the fund. The fund’s exposure to large-cap companies makes it a low-risk investment. XIU also has a trailing dividend yield of 2.7%, making it a top pick for income investors.

Should you invest $1,000 in Constellation Software right now?

Before you buy stock in Constellation Software, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Constellation Software wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway and Enbridge. The Motley Fool recommends BANK OF NOVA SCOTIA and Canadian National Railway. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Caution, careful
Dividend Stocks

3 New Red Flags the CRA Is Watching for TFSA Holders

Sure, investing can be tricky, and the CRA is always watching. But there's a way around high-risk trading.

Read more »

sale discount best price
Dividend Stocks

This Monthly Dividend Stock at $53 Is Too Cheap to Ignore

There are plenty of great dividend stocks on the market to consider buying, but this monthly gem is just too…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

The Best Canadian ETFs $1,000 Can Buy on the TSX Today

If you're looking for ETFs that can turn $1,000 into strong cash flow, then these are the ones I'd go…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

Where I’d Invest my TFSA Savings in the TSX Today

If you want the stability of defence with the growth from tech, this is the ideal stock.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Invest $7,000 in My TFSA to Earn $50 in Monthly Income

High-yield stocks like Freehold Royalties, which is yielding more than 9%, are prime candidates for your TFSA.

Read more »

dividend growth for passive income
Dividend Stocks

4 Canadian Dividend Stocks to Buy and Hold for the Next 20 Years

These dividend stocks can certainly stand the test of time, and have already done so for many investors.

Read more »

Stethoscope with dollar shaped cord
Dividend Stocks

I’d Put My Entire $7,000 TFSA Into This Single Dividend Stock

TFSA investors can consider putting their $7,000 limit into a top-performing TSX stock in 2025.

Read more »

Happy golf player walks the course
Dividend Stocks

How I’d Turn $5,000 Into a Passive Income Stream This Year

These two high yield TSX stocks offer secured payouts, making them top bets to start building a passive income portfolio…

Read more »