New Rules governing the Canada Pension Plan took full effect in 2016. Under these rules, the earliest you can take your CPP Pension is age 60, the latest is 70. The standard question regarding CPP remains the same – should I take it early or wait?
If you take it at the earliest age possible, age 60, your CPP income will be reduced by 0.6% each month you receive your benefit prior to age 65. In other words, electing to take your CPP at age 60 will provide an income of 36% less than if you waited until age 65.
CPP benefits may also be delayed until age 70 so delaying your CPP benefits after age 65 will result in an increased income of 0.7% for each month of deferral. As a result, at age 70, the retiree would have additional monthly income of 42% over that what he or she would have had at 65 and approximately 120% more than taking the benefit at age 60. The question now becomes, “how long do you think you will live?”
Assuming that an individual has $10,000 of CPP pension at age 65, and ignoring inflation (CPP income benefits are indexed according to the Consumer Price Index), the following table compares the total base income with that if benefits are taken early or late:
Total benefit received CPP Benefit Commencement
Age 60 Age 65 Age 70
One year $ 6,400 $ 10,000 $ 14,200
Five years $ 32,000 $ 50,000 $ 71,000
Ten Years $ 64,000 $100,000 $142,000
The question of life expectancy can be a factor in determining whether to take your CPP early. For example, according to the above table if you take your pension at age 60, by the time you reach age 65; you would already have received $32,000 in benefits. With $10,000 in pension income commencing at age 65 the crossover point would be age 73 (the point at which the total income commencing at age 60 equals the total income commencing at age 65). If you were to die prior to age 73, you would have been better off taking the earlier option.
If your choice is to delay taking the pension until age 70 instead of 65, the crossover would not be reached until age 85.
Some individuals may wish to elect to take the pension early and invest it hoping that the income from age 60 combined with the investment growth will exceed the total income that would be received by starting at 65.
Remember, if you elect to take your pension before 65 and you are still working, you must continue to contribute to CPP. After age 65, continuing contributions while working are voluntary. On the plus side, these extra contributions will increase your pension under the Post-Retirement Benefit (PRB).
Reasons to take your CPP before age 65
Reasons to delay taking your CPP to age 70
This information should help you make a more informed choice about when to commence your CPP benefits. Even if retirement is years away it is never too early to start planning for this final chapter in your life. Call me if would like to discuss your retirement planning.
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