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A Portrait of Seniors

With “old age” now expected to last for 20 years or more after age 65, the characteristics and experiences of seniors are varied and will become even more so as the baby boomers started turning 65 in 2011.

Statistics Canada’s 2007 Report

  • Between the years 2006 and 2026, the number of seniors is projected to increase from 4.3 million to 8 million.
  • The senior’s share of the population is expected to increase from 13.2% to 21.2%.
  • Over the next 20 years, individuals aged 65 to 74 and the 85 plus group will both nearly double in size.
  • Aging is associated with a decline in general health but this perception of aging is changing with 40% of individuals aged 65 to 74, “the young seniors”, describing their health as very good or excellent.
  • Baby-boomers have higher levels of education, improved health, longevity and lifestyle expectations than previous generations.
  • This “new reality” requires Life Insurance Agents to encourage Canadians to start planning for retirement as early as possible in their life cycle.

Canada Pension Plan (CPP)

  • CPP provides earnings related pensions for working Canadians and came into effect Jan. 1, 1966. It is portable and covers all employed individuals 18 to 69, except casual workers.
  • Contributory earnings cover earnings between a floor (year’s basic exemption) and ceiling (year’s maximum pensionable earnings).

Combined CPP Contributions

  • Employer and employee must contribute 9.9% of contributory earnings for 2012.
  • Employer and employee pay equal amount – i.e., 4.95% each in 2012. Self-employed individuals pay 9.9% of contributory earnings.
  • Contributors receive a statement of contribution earnings or can apply for their record annually.
  • All CPP contributions are tax deductible by the employer.
  • CPP benefits are taxable to the recipient.
  • Benefits must be applied for by the contributor, survivor, spouse/common law partner or children.

Maximum Contributory Period

  • 18 years of age and over.
  • Up to the age of 60 to 70 years, depending on when the individual decides to receive retirement benefits from the plan.
  • Pension is reduced if the individual retires before age 65.
  • In 2012, monthly reduction is 0.52%, 0.54% in 2013, 0.56% in 2014, 0.58% in 2015 and 0.6% in 2016.
  • The individual can delay receiving CPP retirement benefits to a maximum 70 years of age. There are no stipulations to extend the time period from 65 to 70.
  • Delay in receiving CPP benefit will increase the monthly pension by 0.64% in 2012, (0.7% in 2013).

Pension Adjustments for Early and Late CPP Pensions

Age CPP pension commences

Pension Adjustment (2011)

New Pension Adjustments

2012

2013

2014

2015

2016 and thereafter

60

-30%

-31.2%

-32.4%

-33.6%

-34.8%

-36%

65

0%

0%

0%

0%

0%

0%

70

+34.2%

+38.4%

+42%

+42%

+42%

+42%
 

Regular CPP Retirement Benefits

Maximum retirement benefits:

Year 2012:

$986.67 per month

 

$11,840 per year

Pension can be split between the spouses/partners if both are age 60 or over.

CPP Income Splitting Formula

CPP splittable portion

=

 

=

 

=

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Questions

Here are some questions that relate to retirement planning. The answers to the questions and rationales are at the end of the e-newsletter.

1. Fred is self employed and earned $60,000 in 2012. The YMPE is 50,100 for the 2012 CPP year and the YBE is $3,500. Fred’s contribution as an employee of his company is 4.95% to CPP. How much is contributed in total by Fred and his company to the CPP for Fred in 2012?

  1. $2306.70
  2. $2479.95
  3. $4613.40
  4. $5593.50

2. Shania wants to retire early when she turns 62 years old in 2012. If she waited until age 65, she would be entitled to a CPP pension of $986.67. What is her approximate monthly CPP pension if she retires on her 62nd birthday?

  1. $802
  2. $987
  3. $809
  4. $816

3. Happy and Sad have lived together for 8 years and been married for 5 of those 8 years. Happy has made CPP contributions for 40 years. This year Happy received $1,000 of pension income. How much will each approximately receive after income splitting?

a. Happy $960

;

Sad $40

b. Happy $938

;

Sad $62

c. Happy $900

;

Sad $100

d. Happy $500

;

Sad $500

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Answers

1. – c. $4613.40

Rationale:

YMPE $50,100 – YBE $3500 = $46,000 Contributory Earnings

 

$46,000 x 9.9% = $4,613.40

Reference: LLQP Module 10

 
2. – a. $801.97 or $802

Rationale:

0.52 x 12 months = 6.24% reduction per year

 

6.24% x 3years = 18.72% reduction

 

(100%-18.72% = 81.28%) x $986.67 = $801.97 or $802

Reference: LLQP Module 10


3. – c. Happy $900 ; Sad $100

Rationale:

 = 20%

 

$1000 x 20%= $200 Split 50/50 between Happy and Sad

 

$1000.00-$200.00 = $800.00 must remain with Happy

 

Happy

Sad

 

$800

$100

$100

 

 

$900

$100

Reference: LLQP Module 10

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We at Foran and Advocis extend our wishes for your LLQP exam writing success.

Yours sincerely,

Doug Planche, CFP, CLU, CH.F.C., F.L.M.I.,
Senior Vice President
Foran Financial Institute

Doug Planche is the instructor for the Foran LLQP 4-Day Exam Preparation Seminars. For information on the Foran LLQP seminars, please contact Foran Financial Institute at 1-800-565-0374 or visit www.foranfinancial.com.

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Additional study aids

Preparatory Seminars and Practice Exams

LLQP Prep Seminars – A comprehensive four-day classroom-based seminar intended to prepare you for writing the certification and final licence exams: $545+ taxes
Contact Foran Financial at: 416-947-1922 or 1-800-565-0374.

Please contact Advocis Member Services at 1-877-773-6765 for more details.

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