Basic Information about Canada Retirement Plans

Basically there are two kind of retirement income in Canada: public and private. The public retirement income is from the Government of Canada which provides these pension benefits: the Canada Pension Plan (CPP) retirement pension, the Old Age Security (OAS) pension, the Guaranteed Income Supplement (GIS), the Allowance and the Allowance for the Survivor. The private retirement income comes from the savings and investments you accumulate during your working years that include: money in savings accounts, investments in stocks and bonds, Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs), and Tax-Free Savings Accounts.
The information below will explain four major retirement plans which are: OAS, GIS, CPP and RRSP.

OAS (Old Age Security)
OAS pension is a monthly income from government that available for most Canadians age 65 or older. You are eligible to receive OAS if your age is 65 or older, you are living in Canada and have lived here for 10 years after turning 18, or you are not living in Canada but have lived here for 20 years after turning 18. You can apply for OAS 6 months before you reach age 65. If you live in Canada for 40 years after turning 18 you will get a full pension, if not you’ll get partial pension. For October 2011 the average amount OAS received is $ 508.35. If there is any increases in the cost of living, government will increase the pension payment.
Your OAS pension will stop: if you did not live in Canada for at least 20 years after you turned 18 and if you are out of the country for more than six months after the month of your departure, or if you make a request to have your pension stopped, or when you die.
The Old Age Security pension is taxable income, like most other retirement income. Pensioners who earn individual net income of $66,335 or more as of 2009 (including the Old Age Security pension) have to repay part of their pension benefits.

GIS (Guaranteed Income Supplement)
The GIS is provided to OAS pensioners with little or no other income. Not like OAS, GIS is not taxable. The single recipient of GIS will receive lower amount than both spouse recipients. The yearly income of applicant and or spouse can not exceed certain limit. For October 2011, if you are single and your income per year is below $ 16,368 you will get GIS monthly of $ 491.40 (average amount). If you are a married couple, both of you are retired and both of your income does not exceed $ 21,648, the average amount each of you will get monthly is $ 309.05 (source: servicecanada.gc.ca).

CPP (Canada Pension Plan)
CPP is a contributory, earnings-related social insurance program. The CPP program mandates all employed Canadians who are 18 years of age and over to contribute a prescribed portion of their earnings income to a nationally administered pension plan. If you are an employee, the employer contributes 4.95% for you and you yourself also contribute 4.95% in paying the pension plan. But if you are self employed you have to contribute 9.9% to CPP. The minimum pensionable earning for year 2006 is $3,500 and maximum is $ 42,100. If your annual salary is $ 30,000, the CPP contribution is $ 30,000 - $ 3,500 x 0.0495 = $ 1,312 /year, and your employer contributes the same amount, so the total contribution is $ 2,624.
As an example, if you have lived and worked in Canada most years between the ages of 18 and 65 (47 years) and earned about the average Canadian wage ($40,500 in 2004), at age 65 you would receive a CPP retirement pension of about $814.17 a month. So if you have worked for only 20 years the amount you get is less 30% to 40%.
To calculate the exact amount how much you will get from OAS, GIS and CPP you can go to servicecanada.gc.ca.

RRSP
RRSP (Registered Retirement Savings Plan) is an investment account designed primarily for saving toward your retirement years. RRSP is regulated by the Canadian government and have special tax benefits. RRSP can help you maintain your standard of living when you retire, because you can’t rely only on government pension. RRSP is available through chartered banks, trust companies and other financial institutions. By law, when you turn 71 your RRSP must be converted to other retirement income form like RIF (Retirement Income Fund). When you die your RRSP is paid to your beneficiary (spouse or anyone you have designated). The earlier you accumulate RRSP the more balance you’ll get. For example with the total amount invested is the same, but look at the difference in results.
Total RSP balance after 40 years of $500 annual contributions equals $77,381.
Total RSP balance after 20 years of $1,000 annual contributions equals $36,786.
The calculation based on 6% rate of return (source: tdcanadatrust.com).