By Sheryl Smolkin

Have you noticed that your most recent pay cheque is higher than usual? That could be because you have paid the maximum in Canada Pension Plan (CPP) and (EI) Employment Insurance Premiums for the year. 

The total amount you must contribute to CPP in 2015 is:

($53,600 [maximum earnings] – $3,500 [basic exemption]) x 4.95% = $2,479.95 

This amount is matched by your employer.

Similarly, the annual Employment Insurance (EI) maximum earnings are $49,500 with an employee contribution rate of 1.88%. Therefore the maximum EI contribution you have to make this year is $930.60. Your employer must remit 1.4 times the maximum premium you pay up to $1,302.84.

These annual maximum CPP and EI contributions apply to each job you hold with different employers. So if you leave one job during the year to start work with another company, your new employer also has to deduct EI premiums without taking into account what was paid by the previous employer. This is the case even if you have paid the maximum premium amount during your previous employment.

Also, if you have several part-time jobs or a part-time job in addition to your full time position, your secondary employer is also obligated to withhold CPP and EI premiums based on your earnings regardless of how much your primary employer is deducting. If as a result, you over- contribute to either program, you will be credited with excess when you file your income tax return for the year.

That means if you earned $50,000 in the first half of the year, by early July your pay will go up by 6.83% or about $131.45 per week. If your annual salary is lower, your “Withholding Tax Freedom Day” will occur a little later in the year. But whenever it kicks in, it will feel like you suddenly got a healthy raise.

So what are you going to do with your windfall? How about joining Saskatchewan Pension Plan (SPP) and setting up a monthly deposit equal to the amount you would have paid to the government?

Depending on your income level, you could easily contribute the $2,500 SPP max in the second half of the year. Beginning January 2016 you could elect to continue contributing at a reduced level throughout the coming year. Or in the alternative, you could take a break until later in 2016 when you have again paid the maximum CPP and EI to start saving again in SPP.

A key feature of SPP is that how much you contribute and when is completely up to you. You can change your method or level of contribution at anytime.

 Choose from any of the following methods:

• by mail (A contribution form is required )

• in person or by telebanking at your financial institution

• by phone using your credit card (1-800-667-7153)

• online from this website

• directly from your bank account on a pre-authorized contribution schedule (PAC)

Contributions to SPP are permitted up to an annual maximum of $2,500, subject to your  available RRSP room. And because SPP contributions (like contributions to an RRSP) are tax deductible, if you are making regular contributions, you could file a Form T1213 Request to Reduce Tax Deductions at Source so your employer remits a lower amount of income taxes during each pay period.

That means that while you can not only build a retirement nest egg in your SPP account once you no longer have to contribute to the CPP and EI programs, you will actually have more disposable income every month.

By Sheryl Smolkin

It seems to me that I live and breathe retirement planning every day. I read about retirement planning. I write about retirement planning. And I frequently visit our money online to reassure myself that one of these days my husband and I will actually embark on the retirement we have planned for.

After reading numerous personal finance blogs, books and articles I have concluded that people who have good “financial hygiene” from a young age are the ones that are most likely to be successful over the long haul in saving for retirement.

Therefore, over the next several months in a three part series, I will discuss 30 ways you can grow your retirement savings, from before you start your first job until after you’ve locked your office door for the last time.

1. Invest in yourself: In order to get a well-paying job with future prospects of growth you will need some form of post-secondary education and on the job experience. In addition, you will need to continue enhancing your skills and abilities throughout your life. Jobs for life have become the exception rather than the rule, and you are your own career manager.
2. Develop a financial plan: Regardless of how much money you have to live on and what your personal or family expenses are, you need a budget. Allocate amounts to rent, utilities, food, other recurring expenses, discretionary spending and savings. Then stick to your budget and revise it annually, or more often as required.
3. Decide how much you will need: When retirement is 30 or 40 years away, it is impossible to accurately figure out how much money you will need. However, financial planners typically calculate that most people will need 50% to 70% of their income while working to retire on. You can start with a somewhat arbitrary number when you are young and adjust it as you get closer to retirement age.
4. Calculate how much to save: There are many retirement savings calculators online that will help you calculate how much you have to save to generate the annual income you need to fund your retirement. It is important to select a conservative annual rate of return both before and after retirement and keep in mind that a 65 year old can expect to live an additional 20 years or more.
5. Start saving early: In your 20s and 30s saving for a wedding or a car or a house or your children’s education may be at the top of the list. Nevertheless, the earlier you start saving for retirement, the greater the power of compounding and the smaller the amount you have to save on a regular basis to reach your goal. The Saskatchewan Pension Plan allows you to save up to $2,500 per year between ages 18 and 71.
6. Have an emergency fund: Over your working career, there will be periods in which you are out of work or unexpected expenses arise. Financial planners typically suggest that you have an easily accessible, liquid emergency fund of at least three months’ pay. In this way, your longer-term savings goals will not be permanently derailed if you have temporary setbacks. A Tax Free Savings Account is a great place to invest your money as funds withdrawn in one year can be replaced in the following year without any penalty.
7. Avoid consumer debt: There is good debt and bad debt. An affordable mortgage to buy a family home is good debt. High interest credit card bills are bad debt. Your rule of thumb should be that unless you can pay off your credit card in full each month, don’t use it. Airline points and cash back deals on credit cards are tempting, but if you are on a tight budget spending cash only can help to inhibit over-spending.
8. Forget the Joneses: As your family grows and your income increases, it may be tempting to buy more tech toys, a bigger house or take more expensive vacations. But you don’t have to keep up with the Joneses. If over extending yourself means you go into debt and have to forgo saving for retirement, you could be heading for Freedom 85. And you won’t be satisfied with a modest lifestyle when you do retire.
9. Save at work: If your employer offers a defined contribution pension plan or a group RRSP, chances are that your contributions will be matched up to a certain percentage of income. Enroll as soon as you are eligible to receive this “free money” and contribute enough to get the maximum employer match.
10. Reduce withholding taxes: One of the advantages of contributing to a pension plan or an RRSP is that you get a tax break. However, if you wait to the end of the year to get a refund, you are giving the government an interest-free loan. If you are making regular contributions to a personal or workplace retirement savings program you can file a T1213 Request to Reduce Tax Deductions at Source to CRA.

In Part 2 of this series featured next month, we will discuss 10 more ways you can grow your retirement savings.

Do you have any ideas for saving money? Share your money saving tips with us at http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card. And remember to put a dollar in the retirement savings jar every time you use one of our money-saving ideas.