CPP | When should I start collecting?


One of the most common questions we are asked at JMH & Co. is,  “When should I start collecting CPP?”  

The first thing that we will need to know to make an informed decision is the expected monthly benefits. To access this information, you can either use the CRA benefits calculator or you can get an estimate of your monthly CPP (Canada Pension Plan) benefits by logging into your MyService Canada Account.

 

With that information in hand, here are the factors to consider:

 

CASHFLOW

  • Can you afford to live without your CPP? 
  • If your answer is yes, skip #2 and let’s talk about the benefits of deferring your pension.

If your answer is no, let’s looks at some other options and maybe we can get to the point that we can defer your pension.

 

OTHER SOURCES OF INCOME

  • RRSP’s – Here is a link to a great article that talks about the RRSP’s and whether they are right for you.  
  • RRSP’s must be converted to RRIF’s by the end of the calendar year that you turn 71.  We can explore whether early withdrawals from your RRSP can fill the cashflow void which will allow you to defer your CPP.  This can have positive effects such as decreased income tax rates on withdrawals, increased liquidity and decreased susceptibility to Old Age Security claw-back.
  • TFSA – If you have other savings that can be drawn upon that can replace the CPP for a period of time, we can consider whether it would be beneficial to build those into the retirement plan.
  • Employment – We know this isn’t what you wanted to hear, but can you supplement your income with part-time employment.  Before you say no, have a look at the benefits of deferring CPP in the Life Expectancy section below.

Now can you afford to live without your CPP?  If your answer is yes, let’s talk about the deferral options.  If your answer is still no, then it is time to apply.

 

LIFE EXPECTANCY

Does your family history suggest longevity?  Are you generally healthy and expect to live a long life?  Below is a summary of benefits of deferring CPP from ages 60, 65 & 70:

Age 60 to Age 65
  • Each month before your 65th birthday that you draw CPP will decrease your benefits by 0.6%, so if you chose to opt into CPP at age 60 you would receive 36% less than the maximum benefit.
    • If you live until 72 years 11 months, you would have been financially better off by deferring until age 65.
    • If you live until 80 years old, you can gain almost $37,000 by deferring until 65.
    • If you live until 90 years old, you can gain almost $89,000 by deferring until 65.
Age 65 to Age 70
  • Each month after your 65th birthday that you defer CPP you will increase your benefits by 0.7%, so if you chose to defer CPP until age 70 you could increase your benefits by 42%
    • If you live until age 80 years 11 months, you would have been financially better off by deferring until age 70.
    • If you live until 90 years old, you can gain over $55,000 by deferring until 70.
Age 60 to Age 70
  • Combining the cost of drawing CPP early and the benefit of deferring until age 70, you will receive 122% more each month ($1,709 compared to $770)
    • If you live until age 77 years 3 months, you would have been financially better off by deferring until age 70.
    • If you live until 80 years old, you can gain over $31,000.
    • If you live until 90 years old, you can gain over $144,000.

Just because you have made the decision to defer, doesn’t mean you are stuck with that decision forever.  If your situation or circumstances change you can apply for your CPP benefits at any time, provided you are over 60 years old and meet the criteria.

There are similar benefits to deferring your Old Age Security.  We’ll let you digest this information for now and we’ll be back with more on OAS.

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