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Should I take my CPP early?

Posted on: June 21, 2018

The decision of when to take your Canadian Pension Plan is personal and unique to your lifestyle needs, wants and overall health. I want to help you to maximize your CPP and this involves understanding the personal factors that play a role in determining whether you should opt to receive an early retirement income or defer your benefit. The cost of an uninformed decision could be hundreds of thousands in lost benefits – speak with a Financial Advisor for advice on the right decision for you.

The standard age to start receiving your CPP is 65. However, you may receive a reduced pension as early as 60 or an increased pension after age 65. If you take your CPP retirement pension early, it is reduced by 0.6% each month you receive it before age 65. This monthly reduction seems small, but the accumulated impact is dramatic. For example, if you take your pension at 60, you will receive 36% less than if you had taken it at 65. On the other hand, if you take your pension late, it is increased by 0.7% each month up to age 70 (8.4% annually adjusted for inflation). So, if you receive your pension at 70 you will receive 42% more than you would have at age 65. It seems like an easy decision to make, however consider the following points in favor of taking your CPP early:
  • You need the cash benefit to bridge a financial shortfall.
  • You have recently transitioned into retirement and want to access your retirement income to fund new lifestyle costs such as, travel, a new hobby or a family cottage while you are in good health.
  • You are within a higher tax bracket and receiving the full CPP benefit at age 65 will make you subject to claw back your Old Age Security. In this situation you will need to ensure that the tax you will pay on your CPP income is not greater than the money reduced from your OAS.
  • If you are within a lower tax bracket, assess whether it is more beneficial to withdraw RRSP payments at a lower tax rate or to take your CPP early.
  • You have a family history of illness or shortened lifespan.
  • You wish to invest your monthly cash flow.
Additionally, your retirement cash flow is based on your pensionable earnings from age 18 until the commencement of your CPP benefit. In this calculation, 16% of your lowest earnings are removed. If you have retired and have stopped earning an income by age 60, it may make more sense to take your CPP as opposed to including an additional 5 years of zero income in your benefit calculation. We can begin to understand just how individual each circumstance is. As you evaluate your options, do not hesitate to contact us to discuss your CPP and the best decision to accompany your broader wealth management plan.