Starting in January 2021, you may notice that your pay is slightly lower than it was last year. This is due to the increase in your Canada Pension Plan (“CPP”) contribution rate.
Any employed person in Canada, with income greater than $3,500 (up to the Yearly Maximum Pensionable Earnings or “YMPE”), must contribute a portion of their gross pay to the CPP. The government has increased an employee’s contribution by 0.2% from 5.25% to 5.45%. The employer makes a matching contribution of 5.45% of the eligible income. Any self-employed individual must contribute both portions (10.9%) of the eligible income.
In 2021, the YMPE will increase to $61,600, thus an individual earning in excess of this amount will pay $3,166.45 for the year (($61,600 – $3,500) * 0.0545).
CPP contributions are the epitome of forced savings. Whether or not you are a disciplined saver, these contributions will help provide an income source in your retirement.
That said, I strongly suggest mimicking increased CPP contributions with your current investment savings plan. If you have a pre-authorized contribution plan into your investments, look to increase them with every increase to your gross income. Your spending will adjust and you will adapt. You’ve proven it is possible with your CPP contributions. Other investment programs are no different.
Contact us now to discuss how we can start indexing your pre-authorized contributions plans.