For reasons that would not seem sane to anyone who doesn't check this forum every day, I'm trying to model the value of the CPP to see if it's worth contributing to it when given the choice. This includes the employer contributions, which affects you directly if you own your employer or indirectly if you can't negotiate a higher salary because the employer is paying this cost.
If anyone who knows more can find anything wrong with this that would be great to know
Basics:
Maximum monthly CPP payment, in 2012, when retiring at 65: $987
Annual contributions including employee and employer for maximum eligible earnings in 2012: $4500+
Ages: starting at 25, retiring at 65
Cost of an annuity worth $987/month in 2012, with inflation indexing: $200k-250k (guessed from indirect sources)
The model:
Instead of paying into the CPP, invest $4500/year for 40 years at a 3% real after-tax rate of return
End up with $339k, adjusted for inflation
Buy an annuity paying $1673/month with inflation indexing?
The result:
The CPP is worth up to 42% less than investing yourself, with conservative estimates? That almost seems to put it in the same range of financial quality as universal life insurance. If you plug in some slightly higher rates of return you can get as much as 5x the income by investing yourself.
If anyone who knows more can find anything wrong with this that would be great to know
Basics:
Maximum monthly CPP payment, in 2012, when retiring at 65: $987
Annual contributions including employee and employer for maximum eligible earnings in 2012: $4500+
Ages: starting at 25, retiring at 65
Cost of an annuity worth $987/month in 2012, with inflation indexing: $200k-250k (guessed from indirect sources)
The model:
Instead of paying into the CPP, invest $4500/year for 40 years at a 3% real after-tax rate of return
End up with $339k, adjusted for inflation
Buy an annuity paying $1673/month with inflation indexing?
The result:
The CPP is worth up to 42% less than investing yourself, with conservative estimates? That almost seems to put it in the same range of financial quality as universal life insurance. If you plug in some slightly higher rates of return you can get as much as 5x the income by investing yourself.