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What’s The Best Age to Start Taking My CPP Payment?

CPP

What’s The Best Age to Start Taking My CPP Payment?

The Canada Pension Plan withdrawal rules are changing to provide you with the incentive to wait until your 65 or older before starting to take your pension. If in 2016 you’re planning to start drawing your CPP pension early at age 60, you will get 36% less pension than if you wait until age 65. Plus remember the maximum monthly pension payable for 2016 at age 65 is $1092.50. To get an estimate of the amount of pension you would qualify for, you can log onto the Service Canada website at: servicecanada.gc.ca/calculator to use their online calculator. Or you can download a copy of the request form #DC ISP-1003(2014-03-03) E to fill out and mail it in. For additional information you can call the CPP toll free number at 1-800-277-9914; and be sure to have your social insurance number handy.

A common question clients turning 60 ask is “Do I take it now or wait, and is the smaller amount now, worth more than the bigger one in five years away?” Also wonder if there’s a calculation showing the point where choosing one over the other is better. There’s no simple one-size fits all answer, every person has different financial needs, and some are more or less healthy than others, so the big question is the unknown one; which is when you’re going to die!

Some rules of thumb that can help: If you need the money to live on, take it as soon as possible. If you have health problems and can’t work – consider applying for the CPP disability benefit or have a family history of early death once retired, take it sooner. If you think you can come out ahead by investing the money, take it early, but be warned that you’ll need a high rate of return to do so. The pension income is taxable plus you will pay tax on any profit unless you reinvest in an RRSP or a Tax free Savings Account (TFSA). If you don’t need the money, wait as long as you can, you will get a lot more money and it’s indexed, plus remember we’re all living longer. A woman, 60 this year can expect to live on average to 89.3, and a male 60 can expect to live to 87.3, so here’s where reviewing your family’s longevity history come in, how long your grandparent’s, parents or siblings have lived.

When to take CPP is a decision that many Canadians will have to make based on intuition, not analysis. It depends on a number of assumptions, including one’s life expectancy, whether or not you’ve stopped working and if you aren’t working, your CPP earnings history. Tempering all of this advice is what happens should you die too soon, or conversely living too long, then ending up having significantly less pension income in your advanced old age, than if you had started later! So the cornerstone of the decision when to start taking CPP is to have a financial plan that sets out when you want to retire, what you want to do, what are your goals. Etc.

Best to determine what income you need, then work backwards from that to determine whether you should take it early or late. Because very body’s retirement is different! Those of you turning 60 in the next 5 years  need to pay attention because you will have a big decision to make, as you can apply to collect CPP even if your are still working. I’m finding some people can use the money in the short term and even if they don’t need it, they can invest it for the future, often into a tax free savings account (TFSA). If you choose not to take your CPP income early, every year you wait past age 65 will mean a bigger monthly payout because the pension amount increases 7% a year up to age 71. So here are some CPP break even points to consider: If you think you could live beyond 72, then you would be better off waiting until age 65 to begin receiving the pension rather than at age 60. If you think you might live to 80 plus, then you’re better off starting CPP at age 71. So unfortunately no simple answers, other than you need to do the work to figure out your retirement plan, the when, where, doing what, etc. then filling in the blanks by working backwards. Here’s where it may make sense to sit down with trusted advisor and work through your numbers with consideration of your planned retirement date.
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