Should you take your CPP early or late?

Inevitably in our conversations with clients, the big question about the Canada Pension Plan comes up.

Should I take CPP early (age 60 when it first becomes available) or later (after 65 or even 70)?

Which decision will be best for me in the long run?

Like all financial questions, it is impossible to issue a blanket position because everyone’s circumstances are unique.

The Canada Pension Plan (CPP) offers a retirement benefit to all Canadians who worked outside of Quebec and the pension is indexed annually. For residents of Quebec, there is the Quebec Pension Plan (QPP).

What makes CPP different from the Old Age Security (OAS) pension that everyone can access, is that the benefits are not coming from a government fund. Instead, they are coming from contributions you made yourself through your working life, along with those of your employer.

You are allowed to start drawing on your CPP at the age of 60, or wait until you are 70. Most people start drawing it at 65 when they retire.

What are the pros and cons of taking it earlier or later?

If you start at 60, you will receive 36 percent less of your pension than if you waited until you are 65. In other words, for each month you take it before age 65, your pension is reduced by .6 percent.

If you wait until you are 70, your pension will be increased by 42 percent in total. In that case, for each month you wait, your pension is increase .7 percent in total.

The argument for taking it early or at least at 65 is based on the fact that while you will receive less money with each cheque, you will receive more cheques overall and it will all balance out in the long run.

The magic number here that people are searching for is how long do you have to live before you see real benefits to waiting to draw your CPP?

The answer is generally somewhere around the age of 78.

So it is all a bit of a gamble, in some ways. If you expect that you will live into your 90s, it is a mistake to take it early. In fact, you should defer it all the way to 70 if you can manage to survive without it.

How can you estimate how long you can live? That’s the hard part. Do you go by your family genetics and assume if your parents and grandparents all made it into their 90s, that it is likely you will too? If you already know that you have serious health concerns, then you may opt to use the money now when you need it.

Another issue as more and more baby boomers are being downsized in their late 50s and struggle to replace once robust incomes with consultancy work or part-time jobs, is the need financially to take it at 60 just to make ends meet.

We can’t counsel people which course to take without knowing their full retirement plan options. Weigh your decision against other considerations such as alternative sources of income and likely expenses in the ages between 60 and 70.

For many people when they first retire there are higher expenses as they travel more, take part in more social activities and even take up new hobbies. By the age of 70, some are beginning to downsize and realize healthy revenues from the sale of a large home and the purchase of a smaller home or condo.

If you are trying to figure out what to do, seek professional guidance. If you are looking for an estimate of what your CPP benefits will be, call Service Canada at their toll-free number at 1-800-277-9914

Certified professional bookkeeper and certified tax specialist Elena Ivanova is managing director of Piligrim Accounting Inc., a national accounting and tax preparation service based in Richmond Hill, Ont. You can reach her at elena@piligrim-accounting.com.

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