CPP: Know Your Options

The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit which Canadians can start receiving as early as age 60 if they have made at least one valid contribution to the CPP. Valid contributions can be either from work you did in Canada or as the result of receiving credits from a former spouse or former common-law partner at the end of the relationship. CPP payments are based on a number of different factors, such as:

• The age you decide to start your pension,
• How much and for how long you contributed to the CPP,
• Your average earnings throughout your working life

These factors mean that most people do not qualify for the maximum CPP benefit at age 65. To get the maximum CPP, you need at least 39+ years of maximum contributions between age 18 and 65. You can get an estimate of your monthly CPP retirement pension payments by logging into your My Service Canada Account.

There are many situations that can affect your pension amount, such as:

• Working while receiving the CPP Retirement Pension,
• Contributions after age 65,
• Periods of low or no salary,
• Periods of raising children,
• Pension sharing,
• Divorce or separation.

While most people start collecting CPP and OAS payments at age 65, Canadians can receive payments as early as age 60 or as late as age 70.

When you take your CPP at 65, you will collect the full calculated amount. If you take it earlier, your monthly payment is reduced by 0.6% for each month you receive it before age 65, or 7.2% per year. This adds up to a 36% loss if you take your pension at 60.

If you take CPP after age 65, your monthly amount will increase by 0.7% for each month after age 65 that you delay it, up to age 70 (that comes out to 8.4% per year). So, if you start receiving the pension at age 70, you will receive 42% more than if you had taken it at 65.

Taking CPP Early:

Statistically, at age 65, the average Canadian will live for another 20 years. If you are healthy and think you can live past age 80, waiting until you are 70 to collect both CPP will maximize the benefit payments you can receive in your lifetime. One thing to consider is the breakeven point, which is the age at which an early CPP taker will have collected the same benefits as someone who started taking CPP at 65. See the chart below, which looks at how long it would take the higher payment you get at age 65 to make up for the fact that taking CPP earlier creates advanced income. The chart assumes a $1,000 CPP payment at age 65.

Taking CPP Late:

You should consider delaying if you are working past the age of 65 and can live on employment income, or if you have other adequate sources of cash flow. Some of the factors to consider in deciding if you should delay starting your CPP retirement pension are:

• If money is needed now
• Your other income streams; current and future
• Your longevity
• The breakeven point for waiting versus applying at age 65

If you delay taking your pension, you ideally want to live long enough to receive the same total amount you would have received in your lifetime if you had taken it earlier. The breakeven point can be determined using the following chart, which assumes a $1,000 CPP payment at age 65.

Finally, even if you come out ahead by delaying CPP, you may opt to start collecting early. The extra income can be used for additional travel, to help family, or to simply provide an extra cushion when thinking about your cash flow.