Maximizing retirement income
Capital Accumulation Plan Income Tracker (CAPit) – February 2025
Capital Accumulation Plan (CAP) member outcomes for those retiring during 2024 were the highest levels we have seen since COVID. Bolstered by increasing annuity rates and positive equity market returns, a male member retiring at the end of December 2024 achieved a gross income replacement ratio of 66.5%, up from 53.2% in March 2020. A female member achieved 64.8%, up from 51.6%.
While market conditions will change, and retirement plans along with it, there are concrete ways that Canadians can maximize their retirement income. One way is through maximizing the benefits available through the Canada Pension Plan (CPP) or its Quebec counterpart, the Quebec Pension Plan (QPP). These government programs (which are included in our CAPit replacement rates) provide a guaranteed, indexed, lifetime income that helps support retirees’ spending needs. Surprisingly, however, few Canadians understand their value and know how to maximize it.
Deciding when to start CPP/QPP benefits is one of the most important financial decisions Canadians will make as they approach retirement, yet many spend little time in making the decision and frequently do not reach out for guidance.
In the new series, 7 Steps Toward Better CPP/QPP Claiming Decisions, Dr. Bonnie-Jeanne MacDonald, Director of Financial Security Research at the NIA and Eckler’s Resident Scholar, takes a research-based approach to understanding this behaviour and how it can be changed to ensure more Canadians make better-informed decisions about the optimal time to claim this important benefit.
At its most basic, there are two critical factors that most Canadians are not aware of or don’t understand. CPP/QPP is indexed to inflation which helps ensure that payments increase each year to keep pace with rising costs of living and there are incentives built into the CPP/QPP benefit formulas to encourage Canadians to delay the start of their pensions. Delaying CPP/QPP and leveraging a higher payout creates not only a larger income stream but also creates a more defined window of time during which to draw down workplace and personal savings. Retirees can then spend with more confidence in earlier retirement, knowing that they will be able to rely on a guaranteed, increasing income later in life – for life.
Helping your employees understand these key features and their value when creating an overall retirement income strategy is key to their retirement success. We encourage you to read the papers to learn more about how you can help your employees make the most of their retirement years.
About the CAP Income Tracker
The CAP Income Tracker assumes the member made annual contributions at a rate of 10% starting at age 40, will receive maximum Old Age Security and Canada/ Quebec Pension Plan payments, and will use their CAP account balance at retirement to buy an annuity. The member’s CAP account is invested based on a balanced strategy. Salary has been adjusted annually in line with changes in the average industrial wage, and is set at $73,777 at December 31, 2024.
This issue of CAPit has been prepared for general information purposes only and does not constitute professional advice. Should you require professional advice based on the contents of this publication, please contact an Eckler consultant.