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Two Great Options for Canadian Retirement Planning

Jun 10, 2008
Like several other Canadian policies, its retirement plan is also people-oriented and aims at giving maximum benefits to the country's residents. In fact, Canadian Retirement Planning is one of the most important platforms on which the financial freedom of its people depend. Hence the options which the retirement plan offer, is in the best interest of its people.

Canada has two very beneficial options for people who are planning for retirement. These options are the Canada Pension Plan (CPP) and the Old Age Security (OAS) option. Let us look briefly into both these plans and see how they work in the best interests of the Canadian citizens.

The Canada Pension Plan (CPP): The CPP is Canada's plan for working people that requires them to contribute a portion of their income or salary and for employers to match the amount of their employee's contribution. For Self employed individuals, they pay the entire amount of the contribution into the fund. This plan was implemented during ex-Prime Minister Lester Bowles Pearson and is now governed by the Human Resources and Social Development Canada in all regions except Quebec, where a different plan, named as the Quebec Pension is being used.

The plan takes a contribution of 4.95% of the gross salary or income of the worker, if the earnings lie between $3,500 and $43,700. The total contribution made by the person cannot exceed $1,989.90. When the worker makes this contribution, the employer or the individual (if self-employed) will match the contribution.

The accrued benefits of this plan are then disbursed to the individual starting from the age of 60 years in a reduced and phased manner. From the time that the individual attains 65 years of age, the payment is divided in lots of 25% of their maximum total average contribution within the past 5 years.

The Old Age Security (OAS): The OAS is a security pension program for Canadians. The program runs in the monthly format. The program has a basic value of $502.31 in a single month. When the taxation time approaches, the earners are expected to turn back a part of their Old Age Security. The portion to be paid back is calculated at 15% of the total income. This returning back of income is known as the claw back. The clawing back is designed in such as manner that if the person has an income of $104,02, the whole amount will be clawed back.

The OAS plan is used to obtain a monthly full or partial pension whichever is earlier decided by the pensioner. It is also a flexible plan in terms of nationality. Foreign citizens are also entitled to this program provided that they have lived three fourths of their life in Canada in that past ten years or agree to live in Canada after they took the plan.

These two retirement plans are both taxable. These plans apply to any Canadian citizen who is 18 years and above and is an active earner, employed or self-employed. Consider which of these plans best apply to your case and which of the plans will benefit you in the future and grab the opportunity of investing in something that will make sure you are well-provided for in the future.
About the Author
The author is a contributing researcher for Retirement Planning Software and is an authority on topics involving Canadian retirement planning.
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