Applying for Canadian Pension Plan payments has typically been a rite of passage for 65-year-old retirees. However, with more people working and living longer, people may be rethinking their withdrawal date.
The Government of Canada provides a lot of leeway when it comes to taking CPP. You can take it as early as 60 or as late as 70, however, the timing will have an impact on your payments. Here’s a look at how the system works.
The impact of earlier vs. later
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.
“You should consider delaying if you are working past the age of 65 and can live on that income, or if you have other adequate sources of cash flow. If you don’t need it at 60, don’t take it.”
“You should consider delaying if you are working past the age of 65 and can live on that income, or if you have other adequate sources of cash flow,” advises Dave Ablett, Director of Tax & Estate Planning at Investors Group. “If you don’t need it at 60, don’t take it.”
Those in good health might want to consider waiting, too. The longer you delay, the higher those payments will be for the rest of your life. If you think time may not be on your side, though, you don’t want to miss out on your pension by waiting too long to take it.
“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,” he says. “It’s key to have an honest look at your health and genealogy.”
CPP payout examples
Here’s how a delay in CPP would impact your monthly payments. The calculations assume that the person’s earnings each year of their working life were the yearly maximum pensionable earnings (YMPE) and that the YMPE increases each year by 2.5% and that CPP benefits increase each year by 1.5%.
- A person who is aged 60 in 2017 who elects to receive the reduced CPP benefit will receive a monthly benefit of $720 per month.
- If that person waits until the age of 65 to receive the unreduced amount, they will receive $1,241 per month.
- If that same person waits until the age of 70 to receive CPP, their monthly benefit will be $1,994 per month – almost triple what they would have received at age 60.
Deciding when to take CPP comes to having a good understanding of your retirement cash flow and your anticipated income needs throughout your post-working years. You’ll also want to estimate how long you think you will live.
“It’s a decision best made in the context of an overall financial plan,” says Ablett.