If you’re planning to take CPP early, you’ll reduce your monthly cheque by up to 36%. So why would anyone want to do that?
The Canada Pension Plan (CPP) is a retirement benefit funded by contributions from employees, employers and self-employed Canadians — and it covers almost all employed and self-employed people outside of Quebec (which has its own program).
To qualify for CPP benefits, you must be at least 60 years old and have at least one contribution to the plan from work you’ve done in Canada or from credits from a former spouse or common-law partner.
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per month or $9,780 per year, which is 21% of the average retiree’s income — so for many Canadians, CPP is a valuable contribution to their income in retirement, in addition to their own retirement savings and possibly a workplace pension.
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CPP benefits are reduced when you take them early
of the benefit, up to 36% if you take CPP at age 60. For every month you wait after age 60, you increase your benefit amount by 0.7%. If you wait until age 70, this works out to an increase of 42%.
If you qualify to receive $1,000 at age 65, you’ll receive $640 if you take your benefits at age 60 and $1,420 if you wait until age 70 (although this would likely be more, since the benefits are indexed to increase with the cost of living).
, in 2023, 29% of new CPP recipients opted to start their benefits at age 60 and another 24% started later than 60 but before 65. About a third (32%) took CPP at 65, while only 6% waited until 70. So why take a reduced benefit?
8 reasons why people may take CPP early
. If you retire at 60 and add more low-income years before you take your benefits, you could risk reducing your benefits.
as your income increases from the minimum income recovery threshold of $90,997 in 2024. So, if you’re already going to have a significant retirement income, you may want to minimize your CPP payment to lower your income and maximize your OAS payment.
In this case, you might want to minimize your CPP payment to maximize your GIS. It’s a good idea to engage a financial advisor when using OAS or GIS reasons to determine when to take CPP, as these are complicated calculations that can have lifelong implications. An advisor will have software that can help model these decisions.
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report by the Chief Actuary of Canada found that the CPP will remain sustainable for at least 75 years.
While this isn’t impossible, you’ll need to beat an annual guaranteed increase of 7.2% per year until age 65, then 8.4% from there to age 70, plus increases to adjust for the cost of living.
Generally, it’s not advisable to take CPP early. But there are circumstances where it could make sense. If you’re trying to decide if it’s right for you, it’s a good idea to consult a financial advisor.
Sources
CPP Retirement pension: How much you could receive
Canada Pension Plan: Pensions and benefits monthly amounts
Canada Pension Plan (CPP) – Number of New Retirement Pension by Age, Gender and by Calendar Year – Canada Pension Plan (CPP) – Number of New Retirement Pension by Age, Gender and by Calendar Year
Old Age Security
Old Age Security pension recovery tax
Sustainability of the CPP
originally appeared on Money.ca
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
