We talk about finances all the time, and one of the biggest financial decisions is probably your retirement savings. That’s more critical when you’re older but way easier to accomplish when you’re younger. Now, this is not a shot against the current government, but a comment about government programs overall.
There are a few things the government does really well. Included in that list is the military, foreign affairs and the passport office which is just incredibly efficient and well-run. But generally, any government programs are not very effective, and you will always be able to do better, and do more on your own, without waiting or hoping the government will come to your rescue. They won’t – and by the time you’re done waiting for a bailout package, or meaningful help from the government – you’ll be dead, honestly.
There is no place where that is clearer than with our Canada Pension Plan: The CPP pays a maximum of $884 to you in retirement. Let’s use this $884 maximum, even though the average pension benefit recipient gets $481.
Let’s take the lowest working person in the country. We’ll take someone who works from age 18 to age 65 and makes $2,000 a month. So this is a person who never gets a promotion, never gets a raise, and never improves on that income – someone who literally makes a small $2,000 a month throughout their entire working life.
Until retirement, every month, this person has $42.28 deducted from their pay towards CPP. The employer portion is the same, because employers match the deduction. So, for this person, every pay period, $84.56 goes towards their CPP in order to get a maximum of $884 each month after retirement. Simple math so far?
Now, if this person took that same $84 a month and invested it, at a 10% return over their lifetime, they would have $1,084,000! That translates to a monthly pension of $9,033! Let me say that again: Taking the same CPP deduction of someone who makes $2,000 a month for life, and investing it on their own, would have a pension of over $9,000 a month, AND he or she would leave an inheritance of over $1 million to their family.
THAT is why I want you to pay yourself first every month, and have some savings deducted right off your pay where you won’t miss it. What would you rather have? The $884 CPP, or your own $9,000 each month?