“While the magnitude of the coming change doesn’t bother me, it is the speed of the change I’m worried about.”
- Peter Diamandis, Co-founder & Chairman of Singularity University
The last few years have exposed us to a pandemic, inflation, economic uncertainties, and global political instability, etc. These are perplexing times. Today, things change at an exponential pace. During these times, it would not be surprising if you stopped to ask, “how will my grandchildren succeed?” Will they be able to purchase a home, will there be enough for tuition, and how will they be able to deal with the cost of living?
If you are like most grandparents, you want to make sure your kids succeed.
If you have enough for retirement, your grown children do not need help, and you want to contribute to the future of your children’s legacy, one way to do so is to use a part of or all of your Canada Pension Plan (CPP) to put towards your grandchildren’s future.
The Canada Pension Plan is an earnings-related social insurance program. It forms one of the two primary components of Canada’s public retirement income system, the other being Old Age Security. The Canada Pension Plan is funded through contributions from employees, employers, and the self-employed. CPP benefits are paid to eligible contributors and their families when they retire, become disabled or die.
Canada Pension Plan (CPP) benefits are payable at age 65. Most people choose to start receiving their CPP pension at age 65, but you can choose to start receiving it as early as age 60. However, if you start receiving your CPP pension before you reach 65, your monthly payments will be reduced by 0.6% for each month you receive them early. If you choose to, you can defer your pension and increase your monthly pension by 0.7% for each month after age 65 that you defer it.
You can use your CPP benefits to contribute to a Registered Education Savings Plan (RESP) for your grandchildren, which will help with the increasing education cost and potential debt load your grandchildren may face annually. The money contributed to an RESP grows tax-deferred, and the government will also provide grants of 20% on the first $2500 of your RESP investment.
Another option is to use your CPP benefit to purchase a life insurance policy while your grandchildren are still young and healthy. As a grandparent, you can grant ownership of the life insurance policy to the parents and the policy can be transferred tax-free to the grandchild later.
Since a significant part of the cost of insurance is based on the life insured’s age and health, the insurance for your grandchild may be very inexpensive. Having the right insurance policy in place this early will allow the coverage and cash value to increase and compound annually over a long period. Specifically, having the right policy in place means your assets will grow tax-sheltered, be accessible tax-free during the child’s lifetime, generate tax-free income, and allow for tax-free transfer of assets to your children or grandchildren.
CPP is an important resource for retirees, and grandparents can use it to create a legacy for their families. We can help you understand your options and work with you to make the most of your CPP. Let’s talk about how you can use your CPP to benefit your loved ones.
