When Should You Start Taking Your CPP?
If you are getting close to retirement age, you might be thinking about your Canada Pension Plan (CPP). You’ve been contributing for decades, so it’s important to think about they money you’ll get back from the government. The all-important question is when to start taking your CPP. Let’s look at some CPP basics first; then we’ll look at specific scenarios.
Current CPP Rules
The “normal” age for starting CPP is age 65, but you can start as early as 60 or delay as long as 70. The maximum monthly amount you can receive in 2018 is $1,134.17 (this amount is indexed with inflation). The amount you will get depends on how much you’ve contributed and how many years you have contributed to the plan.
The federal government plans to gradually increase required contribution percentages starting in 2019. The stated goal is to ensure more Canadians have enough money to fund their retirements. These increases mean your maximum monthly payout will increase by more than inflation over the coming years.
The Differences between Starting at 60 vs. 70
If you choose to take CPP early, your payout will be reduced by 0.6% for each month you take it before age 65, or 7.2% per year. If you start right when you turn 60, this means your monthly payout will be reduced by 36%.
If instead you start taking CPP after you turn 65, your payout will be increased by 0.7% for each month you delay, or 8.4% per year. If you wait right until age 70, this means a 42% increase in your payout.
Choosing an Early Payout
These numbers sure make you want to delay your CPP as long as possible, but waiting isn’t always the best option. First, you may not have a choice. If you are at least 60, not working and don’t have enough other income to cover your living expenses, you will likely need to take your CPP. There’s no point living in abject poverty trying to boost a later benefit. Also, if you have serious health concerns and don’t expect to live into your 80s or 90s, taking CPP early is also a good option.
Finally, if you’ve stopped working and are no longer contributing to CPP, delaying could lower your monthly payout instead of increasing it. How? If you have a number of years of no contributions to CPP, these get counted against you and lower your lifetime contribution amount. This is true for people who have fewer than 39 years of making the maximum CPP contributions.
Choosing to Delay
There are a couple of factors beyond the increased payout that can push you into waiting until your 70 to start CPP. The first is Old Age Security (OAS). You become eligible at 65, but there is an OAS claw back for high-income earners. If your total income exceeds $75,910 (in 2018), you have to give back at least part of your OAS benefit to the government. To keep as much of your OAS as possible in this situation, delay your CPP until you are required to take it at age 70.
Finally, if you are still working past age 65, you might be in a high marginal tax bracket. This means more of your CPP will have to go back to the government as income taxes. Waiting until you stop working or reach age 70 (whichever comes first), will help you keep more of your money.
As always, if you have any questions about CPP or retirement, I’d love to hear from you.