Are you a stay-at-home parent? Did you take time off of work or work less so that you could look after young children?
If so, you've come to the right place. You could increase your CPP retirement pension. You could even be eligible for other CPP benefits that come with child-rearing provisions.
To learn more about the CPP child-rearing provisions, keep reading. We'll cover everything you need to know about both of these and how to know if you're eligible for one or both.
What Is the CPP?
The letters 'CPP' stand for "Canada Pension Plan." It is a retirement and disability pension that gives a monthly benefit for Canadian citizens. This benefit is also taxable.
The pension replaces part of your income when you retire or claim disability.
If you meet all of the qualifications, you'll receive a pension from the CPP for the rest of your life. However, you must meet the following two criteria to be eligible for the retirement CPP:
- You must be 60 years old or older
- You must have made at least one contribution to the CPP in your lifetime
To become eligible for the disability portion of the CPP, you must have verified documentation.
This contribution can be from work that you did in Canada or from receiving credits from a former spouse or common-law partner.
In order to reap the benefits of the CPP, you must apply. This is not an automatic process.
Government officials begin processing your application once they've received your completed application form. If you applied online, it will take about 7 to 14 days for your pension plan to be approved (or denied). If you delivered your application to a Service Canada Centre or sent it by mail, it will take officials about 120 days to approve (or deny) it.
Be sure to apply well before you want your pension to start. This will give the government ample time to send you your pension payments. Once they approve you, they will pay you sometime during the month of the start date that you choose while applying.
How Much Can I Earn From the CPP?
The amount that you get from the pension plan depends on several factors:
- Your average lifetime earnings
- The amount you contributed to the CPP across your lifetime
- The age you started the retirement pension plan
Keep in mind that your lifetime earnings will affect how much you contribute to the CPP. This is because the amount put into the CPP is a percentage of your earnings. The more you earn, the higher a number that percentage ends up being.
Usually, Canadians will start their retirement pension at the age of 65. However, you can start as early as 60 years old.
The earlier you decide to receive your pension, the smaller your monthly amounts will be. This being said, there is no added benefit if you wait until after the age of 70 to start your pension plan. The maximum amount you can earn per month is reached at the age of 70.
For the year 2019, a person starting their retirement pension at the age of 65 received a maximum of $1,154.58 per month. However, the average was actually $679.16. Again, the amount that you could receive depends on the factors that we discussed.
Plus, you could receive extra money from one of the provisions of the Canada Pension Plan.
When Should I Take CPP?
You might think that taking CPP at the age of 60 is the right choice simply because it means that you're getting payments sooner, but this isn't necessarily true. The right age for withdrawal is different for everyone.
As you're thinking about the future, you should keep this payment information in mind:
- You can draw Canada Pension Plan benefits as early as age 60 or as late as age 70
- For every month that you draw before the age of 65, your monthly payment will be reduced by 0.6%
- For every month that you draw after the age of 65, your monthly payment will be increased by 0.7%
The first thing that you'll want to think about is your life expectancy. We know it's weird to consider, but it's a legitimate worry. You don't want to work the rest of your life.
Consider that the average life expectancy for Canadian men is 80 years, while the average life expectancy for Canadian women is 84 years. Although, both life expectancies are expected to rise.
Taking your payments later may be a greater amount, but those who take payments sooner have already been collecting for several months before. This is why mortality is so important to consider.
The best thing to do is think about your family history. Based on this, your current financial situation, and your current health situation, you should consider what age is your sweet spot.
Would you rather collect smaller payments for a longer period of time or collect bigger payments for a small period of time?
You should also consider your working wage. Some people work as well as collecting pension payments.
In fact, because you can work while receiving benefits, many people start collecting at the age of 60 and work part-time until the age of 65. This gives them a boost for a few years to help them get ahead financially for the years to come.
Considering your life expectancy can help you decide which side to gamble. If you don't think that you're going to live for very long, you may want to collect your pension closer to the age of 60. However, if you have great genes and feel like you're going to live for a long time, you may want to collect your pension closer to 70.
It's a tough call to make, especially if you're unsure what your personal life expectancy may look like.
If you're currently living with a restricted income, it may be best to cash in on your benefits as soon as possible. Depending on the difference in the amounts, you may actually improve your quality of life while you're still able to appreciate it.
How Should the CPP Fit Into My Retirement Plan?
Hopefully, most of you have a clear (or somewhat clear) retirement plan. You may have set a year or an amount goal as to when you're going to retire.
If you haven't done so already, you need to get started. The sooner you make a retirement plan, the better off you'll be in the future when you reap the money from your retirement savings and pension plan.
Think about what you plan to do during retirement and calculate your expenses. Will you stay at home all day or travel all around the world? Will you downsize your home or have a shared vehicle?
Think about what your lifestyle will look like and calculate what you believe your expenses will be. Then, you can think about the income/pension needed to sustain that lifestyle.
The CPP Child-Rearing Provision
This provision is meant to assist those who stayed at home full-time or part-time to care for a younger child.
If you had to take time off of work or worked less in order to care for a younger child, you could be eligible for an increased retirement pension as well as other benefits that come with the provision.
Why the Child-Rearing Provision Exists
You may be wondering why taking some time off of work or ceasing work for a short period of time makes you eligible for more money. It sounds too good to be true.
Well, let's think about our discussion on how your monthly retirement pension is calculated. It takes into account your lifetime earnings and the amount that you put into the CPP throughout your life.
Remember that the former affects the latter, too. The more money you make, the more money you put into the pension plan.
Now, think about the individual who is stalling or reducing their work hours to care for a young child. They're reducing or completely cutting off their earnings at that point. Therefore, they're reducing or cutting off their contributions to the pension plan. This leaves people who had to care for these young children with a lower monthly pension payment than others.
This is why the child-rearing provision exists. It provides additional monetary support for those individuals who have had their payments reduced because of the time in their life that they gave to a younger individual.
Qualifying for the Child-Rearing Provision
The following are the qualifications for the child-rearing provision. You must meet all of the qualifications:
- You had a child (or multiple children) born after December 31st, 1958
- You had lower earnings than you would have had because you were a primary caregiver of a dependent child who was under 7 years of age. The term "primary caregiver" refers to the individual who is considered to be the most responsible for the daily needs of the child (or children).
- You or your spouse (or common-law partner) received Family Allowance payments or qualified for the Canada Child Benefit. Keep in mind that you only have to qualify for the Canada Child Benefit. This does not mean you had to have actually received the payments.
If you do qualify for the child-rearing provision, you will receive a pension amount as determined by the following conditions:
Condition 1: When calculating how much you will get in CPP benefits, the government will not count the months in which you had lower or no income due to the fact that you were caring for a younger child.
Condition 2: Instead, you will receive a pension credit based on your average earnings during the five years prior to the birth (or adoption) of the child that you were caring for. That is if the pension credit is worth more than the amount that you earned during that time.
By implementing both of these conditions, government officials are able to support those who were financially affected by having a child. These credits will negate any effect that not working had on your CPP pension amount.
Applying for the Child-Rearing Provision
If you think that you qualify for the child-rearing provision, you should apply at the same time that you apply for any other CPP benefit. This can be done through your My Service Canada Account. If you don't have an account, then you should register for one.
In order to apply, you'll need to fill out a few documents. On the application for CPP retirement pension (ISP1000) and the application for CPP Disability Benefit (ISP1151), you should complete the child-rearing sections. These are sections 11A and 11B.
However, if you're applying for other CPP benefits, you should complete the child-rearing provision form (ISP1640) separately.
You'll need the following information to fill out these forms:
- The child's name
- The child's date of birth
- The child's Social Insurance Number
- The child's birth certificate
- The child's proof of entry date if the child was born outside of Canada
If you've already applied for another CPP benefit, you can still apply for the child-rearing provision. Go to your My Service Canada account and complete the child-rearing provision form (ISP1640).
Then, mail this completed form to Service Canada. The address is listed on the form.
Why You Should Apply
If you apply for and are approved for the child-rearing provision, it could change your retirement experience. There's no use in putting up with a lower monthly payment simply because you chose to spend time raising your children.
Apply for the child-rearing provision and get the monthly payment that you deserve.
More Financial Tips
There you have it. You know all about the CPP child-rearing provision. We highly recommend that you apply for this benefit if you think that you qualify. You could greatly increase the amount of money that you receive monthly in retirement.
Give yourself the money you deserve. Don't cut yourself short by missing out on this opportunity.
If you're looking for more financial tips, tricks, and advice, head on over and check out the rest of our blog. We offer information on most anything related to finances in Canada.