Examining retirement figures for 2023
In the financial world, it's important to keep track of key dates and figures, many of which are updated annually. For example, every January the Canada Pension Plan (CPP) updates its numbers, with those who already collect CPP receiving a 6.5% inflation adjustment for the year. If you're yet to collect CPP, there will still be an increase, but the contribution rate has risen from 5.70% to 5.95%, meaning both you and your employer will need to contribute more.
If you're self-employed and contribute to CPP, you'll need to add both components to your pension, which now totals 11.90%. Meanwhile, the maximum pensionable earnings have increased to $66,600 for 2023, with the 5.95% contribution rate applying to income up to this figure. Once you've earned this amount in 2023, you'll have maxed out your CPP contribution. The maximum CPP benefit has also increased, with the highest monthly benefit at age 65 now standing at $1,306.57.
Old Age Security (OAS) is another area where adjustments are made, but unlike CPP, OAS is updated quarterly, with new figures every January, April, July, and October. As of January, the maximum monthly pension for those aged 65 is $687.56, with a 10% bonus for Canadians over 75, whose maximum monthly pension now stands at $756.32.
There is also a clawback for OAS, where the government reduces your pension if your income is above a certain threshold. For the 2022 tax year, this threshold is $81,761, with the government reducing your OAS by $0.15 for every $1 above that amount. If your income is above $134,626, your entire OAS will be clawed back. The current threshold for 2023 income is $86,912.
If you're still saving for retirement, it's important to note that the last day you can contribute to your RRSP and use the tax deduction on your 2022 tax return is March 1, 2023. Your RRSP limit is based on your income, with the formula being 18% of your previous year's earned income less the pension adjustment. In 2023, the maximum limit for this formula will be $30,780, with any unused RRSP room carried forward to the next year. You can check your RRSP room by looking at your Notice of Assessment or logging into your CRA account online.
The TFSA limit has also increased for 2023 to $6,500, with everyone over the age of 18 receiving the same limit. The total TFSA contribution room is $88,000, and new to 2023 is the Tax-Free First Home Savings Account (FHSA), which will be available from April 1, 2023. This account is designed to help first-time homebuyers save for a house and allows for contributions of up to $8,000 per year. A total of $40,000 can be added to the FHSA during the lifetime of the account, with contributions being tax-deductible and tax-free when withdrawn to purchase a home.
It's important to speak with your financial professional to ensure your plan is updated for 2023, as understanding these key financial figures and dates can help you make informed decisions about your retirement savings and investments.
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The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of CG Corp., and may differ from the opinion of CG Corp’s. Research Department. Accordingly, they should not be considered as representative of CG Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or CG Corp. assume any liability.
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