Hey there fellow handymen! As skilled tradespeople, we spend our days fixing, building, and repairing all sorts of things for homeowners and businesses. But have you ever stopped to think about fixing up your own financial future? Specifically, your retirement savings plan?
I know, I know – talking about retirement can feel like a real buzz-kill, especially when you’re young and full of energy. But trust me, the earlier you start thinking about it and taking action, the better off you’ll be down the road.
That’s where the Canada Pension Plan (CPP) comes in. This nationwide pension program is designed to provide a foundation for your retirement income, so you can keep living comfortably even after you’ve hung up your toolbelt for good.
What Exactly Is the Canada Pension Plan?
Simply put, the CPP is a mandatory contributory pension plan that provides a modest monthly income to eligible contributors and their families in retirement, or in the event of disability or death.
Every time you earn employment income in Canada (whether you’re self-employed or working for someone else), you and your employer contribute a small percentage to the CPP fund. It’s kind of like a forced savings account – except way better, because the government chips in too!
The money contributed gets invested by the CPP Investment Board, with the goal of growing the fund over time. Then, when you reach retirement age (which is currently 65, but could change in the future), you start receiving monthly payments from that big CPP piggy bank.
Why the CPP Matters for Handymen
As a hardworking handyman, you might be thinking “Hey, I’m my own boss – why should I care about this CPP thing?” Fair question! Here are a few key reasons why the CPP is just as important for self-employed tradespeople:
1. We Don’t Get Company Pensions
Unlike those cushy office jobs with fancy pension plans, we handymen are typically on our own when it comes to retirement savings. While some larger contracting companies might offer benefits, most of us are self-employed or working for small businesses without pension plans. The CPP helps fill that gap.
2. Our Work Can Take a Physical Toll
Let’s be real – hauling heavy tools and equipment, climbing ladders, and contorting ourselves into tight spaces is tough on the body. Many handymen find themselves unable to keep up the same physical workload as they get older. CPP payments can provide income when you need to scale back.
3. We Tend to be Terrible Savers
How many handymen do you know who are diligent about squirreling away money in an RRSP or TFSA every month? If you’re like most of us, savings tend to take a back seat to more immediate expenses like truck repairs, tool replacements, and job materials. With mandatory CPP contributions, at least some retirement savings happens automatically.
How Much Can You Expect from the CPP?
This is where things can get a bit dry and numbers-y, but stick with me – knowing what to expect from the CPP is crucial for planning your retirement.
The maximum CPP payment for new recipients starting in 2023 is $1,253.59 per month. However, very few people actually receive the maximum. Your personal payment amount depends on:
1) How much and for how long you contributed to the CPP over your working career
2) At what age you begin receiving payments (the longer you delay after 65, the higher your payments)
3) Whether you continue working while receiving CPP (which can increase payments slightly)
As a rough guideline from the federal government, if you have contributed to the CPP for about 40 years at average earnings levels by the time you hit 65, your maximum monthly payment will be around $1,200. Not too shabby! But also likely not enough for most of us to maintain our HNDMN lifestyles on its own.
That’s why the CPP is meant to be just one part of your overall retirement savings strategy. Think of it as your baseline guaranteed income that gets topped up by other sources like:
- Personal savings/investments (RRSPs, TFSAs, etc.)
- Income from continued part-time/reduced work
- Other pension plans or employment pensions if you’ve worked other jobs
- Funds from selling your business/assets
- Good ol’ fashioned frugal living and budgeting
The key is to start contributing to the CPP as early as possible, even when you’re young and retirement feels light years away. That’s because those early contributions have more time to accrue value and investment growth within the CPP fund.
How to Contribute to the CPP as a Handyman (HNDMN)
“But Josh,” you might be thinking, “I’m self-employed – how does this contribution thing even work for me?”
Excellent question! When you’re an employee, both you and your employer automatically split the CPP contribution (4.95% each of your annual earnings between $3,500 and $64,900). But for self-employed folks like us, we have to cover the full 9.9% contribution ourselves.
Now before you start sweating, keep in mind there are some special considerations that help ease the burden for the self-employed:
1) You can deduct your CPP contributions when calculating your annual taxable income. So it’s kind of like a tax break.
2) You only contribute on your net business income after expenses. Not your total revenue.
3) If your income fluctuates, contribution levels fluctuate too. Bad year? Pay less. Good year? Pay a bit more.
To make your CPP contributions, you simply calculate 9.9% of your previous year’s net self-employment income and include that amount when filing your personal tax return each spring. The CRA will calculate exactly how much you owe based on your income details.
Getting More from the CPP: Top-Up Options
For some handymen, the regular CPP payments might not be enough to finance the retirement lifestyle you’re dreaming of. Luckily, the CPP also offers a few top-up options to boost your income:
1) CPP Post-Retirement Benefit (PRB)
This little bonus allows you to continue making CPP contributions (and grow your payments) even after you’ve started receiving your CPP retirement pension. It’s almost like a “double-dip” into the CPP fund.
To qualify, you just need to be between 60-70 years old, receiving your CPP already, and still earning employment income. Then you can elect to contribute to the PRB. Pretty sweet deal if you plan to keep on working those HNDMN jobs well into your golden years.
2) CPP Retirement Pension Supplement
If your CPP payments look a bit lean compared to what you were hoping for, you may be able to get a federally-funded monthly top-up called the Retirement Pension Supplement.
This supplement is aimed at lower-income retirees, with full amounts going to single folks with annual incomes under $19,608 or couples with combined incomes below $33,976 (numbers current for 2023). The supplement then phases out as your retirement income increases beyond those thresholds.
Applying for Your CPP Pension: What to Expect
You’ve contributed all those years, your 65th birthday is approaching – now it’s finally time to start cashing in on those CPP payments!
The application process is relatively painless. You can apply for your CPP retirement pension:
- Online through your My Service Canada account
- By mail with a printed/written statement
- In person at a Service Canada office
You’ll need to provide some basic info like your Social Insurance Number, birth certificate or other ID docs, your estimated retirement date, income tax records, and bank details for depositing the payments.
The government recommends applying around 6-12 months before you want to start receiving payments. That gives them plenty of time to process everything and avoid delays.
Don’t stress if you missed applying right at 65 – you can apply later and still receive payments retroactively up to one year, plus interest! Or if you want to delay taking CPP until after 65 to get higher payments, you can postpone it all the way until age 70.
CPP for Your Family Too
One of the coolest things about the CPP is that it doesn’t just cover you – it can provide support payments to your loved ones too under certain circumstances:
1) CPP Survivor’s Pension
Should the unthinkable happen and you pass away before retirement, the CPP has your back by providing a monthly survivor’s pension for your spouse or common-law partner.
In 2023, the maximum survivor’s pension is $695.50 per month, plus an additional flat-rate benefit of $200.72 for each dependent child under 18 (or 25 if they’re full-time students). Not a fortune, but it can make a big difference for your family’s financial situation during an incredibly difficult time.
2) CPP Children’s Benefits
Even if your spouse isn’t eligible for survivor’s benefits, the CPP will still pay out a monthly flat rate to dependent children under 18, or between 18-25 if they’re full-time students and financially dependent on you at the time of death.
The current children’s benefit rate in 2023 is $264.53 per child, per month – money that can be used for their living expenses, care costs, or further education.
3) CPP Disability Benefits
Let’s hope you never need them, but CPP disability payments could be a lifeline if you become unable to continue working due to a severe and prolonged disability.
After contributing CPP premiums for a certain period, you may qualify for a monthly taxable disability benefit to replace some of your lost earnings. The payment amounts fluctuate annually, but for 2023 the maximum is $1,472.34.
Disability benefits include payments for your children too, plus other credits to help make up for the pause in your CPP contributions during your disability.
Breaking It Down with Dennis the Handyman
All these CPP details can seem a bit dense, so let’s illustrate how it might look in a typical HNDMN’s life with an example:
Meet Dennis, a self-employed handyman making about $50,000 per year in net business income. At age 25, Dennis starts making his required CPP contributions from that $50K income – let’s say around $5,000 in contributions for that first year.
He does this diligently every year, paying into the CPP on his handyman income of $50,000 – sometimes a little less in leaner years, sometimes a bit more in flush years.
When Dennis hits 65, he’s paid maximum CPP premiums for about 40 years. Based on his earnings over that period, he receives the average CPP retirement benefit of around $1,200 per month.
Dennis doesn’t feel quite ready to fully retire yet at 65, so he keeps doing handyman side jobs for extra income over the next few years. He continues paying a bit into the CPP Post-Retirement Benefit to top up his monthly CPP payment a little more.
Then at 68, Dennis decides to wind down to just very part-time handyman work. At this point his CPP and PRB payments make up the majority of his income, supplemented by some side jobs and his modest personal savings.
A few years later at 72, Dennis passes away after an amazing well-lived life. While it’s incredibly difficult for his wife Janice, she is grateful to receive a CPP survivor’s pension of around $700/month to help cover expenses in her widowed retirement. Their two children, still in college at the time, also receive CPP children’s benefits of around $260/month each until graduating.
Key CPP Tips for Handymen
To wrap up, here are some key tips to get the most out of the CPP as a handyman:
• Start paying into CPP as early as possible, even if income is modest, to maximize contributionS over your career.
• If incorporated, still pay yourself enough salary to contribute CPP premiums each year rather than just taking dividends.
• Don’t underreport or skip out on CPP contributions – it will bite you at retirement.
• Consider the PRB top-up if you’ll keep working after 65 to grow your payments.
• Time your application so CPP kicks in around when you want to start winding down.
• Understand CPP credits and benefits for disability or death.
• View CPP as your baseline retirement income floor to build further savings on top of, not your only income.
The key is starting early and being diligent with your contributions throughout all those working years. After a long career of backbreaking handyman labor, having that reliable CPP foundation can make for a much more comfortable retirement.
At the end of the day, the CPP is a pretty sweet deal that we’re all paying into as hardworking Canadians. Don’t let that handyman “fly by the seat of my pants” mentality screw you out of the full CPP benefits you deserve!
Any other CPP questions, don’t hesitate to ask in the comments below. And to all my fellow handymen, best of luck in securing your own golden years of retirement bliss. You’ve earned it!