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When Should You Start Your Canada Pension Plan (CPP)

A common question to financial planners is, “When should I  start  taking my Canada Pension Plan?”

Canada Pension Plan legislation currently allows you to draw your CPP starting at age 60, and also permits you to wait until age 70. Of course, if you take it early, you will receive a lower payment each month for the rest of your life. For each month prior to your 65th birthday that you start your CPP, you receive 0.6% per month less than at age 65. For each month after your 65th birthday that you wait, your CPP will increase by 0.7% per month. At age 60, you would receive 64% of your age 65 payment, whereas at age 70, you would receive 142% of that amount. Putting this into dollars, if your age 65 payment is $1,000 per month, it can range from $640- $1,420 per month depending on when you start between age 60 and 70.  The amount of your pension will depend on how long you worked and that your salary over the years.  The average payment to Canadians in 2016 is $643.11, while the maximum is $1092.50.

There are a number of considerations to reach your decision on when to start – some favour starting early, while others would make it better to wait.

The most important factor is that your life expectancy. A shorter life expectancy means you should take your CPP early. For obvious reasons, particularly if you have no spouse who will receive your survivor benefit, you should take your CPP at age 60 if you do not expect to live until age 65. Based purely on life expectancy, the following a table would be a guide on when to draw the pension in order to receive the highest amount of money. This calculation is looking only at the amount of money that you will receive and not how you spend it or invest it.

Life Expectancy

Start at Age

Life Expectancy

Start at Age

68 or younger

60

79

66

69/70

61

80

67

71/72

62

81/82

68

73/74

63

83/84

69

75/76

64

85 or older

70

77/78

65

Let’s look at an example. If you are entitled to a pension of $1,000 per month at age 65, and the start drawing it at age 60, you will receive $640 per month. Now, assume that I am entitled to the same pension, but I wait until age 65. By the time you reach age 65, you will have received a $38,400 (60 months at $640) in CPP, and I will have received nothing. However, from that time forward, you will continue to receive $640 per month while I will start receiving $1,000 per month. By the time we both reach our 74th birthday, you will have received $107,520 (14 years x 12 months x $640/month) and I will have received $108,000 (9 years x 12 months x $1,000. After age 74, I will have received more money than you. Therefore, if your life expectancy is age 74 or longer, it may make sense to start your pension later than age 60. However, other factors may play an important role in your decision making.

I provide an overview of some issues below that may impact your decision. Everyone’s circumstances differ, and you may wish to seek professional advice on what is best for you. If you have a crystal ball, it would be a great asset.

Considerations for taking CPP early

  1. Short life expectancy
    This impact was discussed above, and is perhaps the most important of all. If you are entitled to a survivor’s benefit, the life expectancy of your spouse or common-law partner is also a factor. The survivor’s benefit issue is discussed further below.
  2. Need for cash
    If you are behind in your bills and you need cash to satisfy your creditors, taking your CPP early to catch up on your arrears may be a wise choice. You should work with a financial counsellor to assist you with this decision and your budgeting.
  3. Want for cash
    You may have enough income now to meet all of your necessary expenses, but not enough for entertainment, travel, etc. You may want more money to enjoy life while you are physically able to do so. In a similar scenario, one individual told me she reduced her work week from full-time to part-time and applied for her CPP. This gave her the same cash flow but now had more time to enjoy life.
  4. Minimal or no entitlement to survivor’s CPP benefit
    The CPP provides the payment of a survivor’s pension to your spouse, including a common-law partner, of a deceased pensioner. However, the maximum CPP that any one person can receive in retirement is one full retirement pension. If that spouse is already entitled to a full retirement pension, he or she will not be entitled to any of your survivor’s pension when you die. If he or she receives something less than a full retirement pension, a survivor benefit will be paid. The size of this pension will depend on how much his or her retirement pension is below the maximum. In addition, if you have no spouse, no survivor’s pension will be paid (unless there are qualifying dependent children). The benefit of your lifetime of premiums will cease, other than payment of a taxable death benefit, which is currently a maximum of $2,500.
  5. Impact of Old Age Security Clawback
    After reaching age 65, all Canadians are entitled to Old Age Security (if they have lived in Canada for 10 years or longer). However, if your income exceeds a certain threshold, which for 2016 is $73,756, you must repay your OAS at the rate of $0.15 for each dollar over this amount. If your net income after age 65 will exceed the threshold at that time, taking CPP early will give you a smaller annual pension, and result in less repayment of OAS. This factor alone may not be enough to alter your decision, but in conjunction with other factors, may do so.

Considerations for deferring your CPP

  1. Average or longer life expectancy
    This impact was discussed above, including the life expectancy of your spouse or common-law partner, and, again, is perhaps the most important issue to consider.
  2. A decrease in your tax bracket in retirement
    By taking CPP early, you receive less monthly pension. However, if you are also in a higher tax bracket now then you will be in the future, you will also be paying more tax on your CPP then you would in the future. This is a typical situation if you draw CPP while you continue to work. For example, in 2016, a taxpayer pays approximately 37% on income between $45,000 and $91,000. A person with income of between $11,000 and $45,000 would be paying tax of approximately 27%. If you are currently making over $45,000 but would be making less than that amount when you retire, you would be paying an extra 10% tax on your CPP while you are still working.
  3. Possibility of having a disability claim
    If you are receiving a CPP retirement pension while working, and you become disabled, you cannot apply for CPP disability pension (unless it is within six months of starting your retirement pension and you repay that pension). The maximum disability pension is about $200 higher than your maximum retirement pension in 2016.
  4. Impact on your Employment Insurance
    If you are entitled to Employment Insurance, you should understand how the start date of your CPP pension will impact your Employment Insurance. This is only a consideration when you first apply for CPP. Careful planning on this timing can minimize the impact and so you should seek additional advice.

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum