CPP - When should you take it?
There are a few great debates that Canadian’s often find themselves taking part in….
- Who is the greatest hockey player of all time? Gretzky? Sid the Kid? Bobby Orr? Tough one.
- How about the best Canadian food invented? Poutine? Nanaimo Bars? Maple Syrup? I can’t come up with a winner there…
- What is the best Nickleback song of all time? ……………….*crickets*………………...
One debate that has been roaring for decades in the financial industry is about when someone should start taking CPP. This actually isn’t too difficult. All you need to do is find out the date of your death and it’s actually pretty simple to calculate from there! Thanks for reading.
Wait, you don’t know when that will be? Ok, come on back, this just got a little more complicated. Before we dive into some planning considerations, let’s first get a closer look at what CPP is and how it works.
The Canada Pension Plan (CPP) is a retirement pension that is based on how much someone has contributed during their working years and how long they have been doing so. The “traditional” age to start collecting CPP is at age 65 where you will receive your full benefit (whatever your personal calculation is) but you can start as early as 60 or as late as age 70. As of 2019, each month before the age of 65 that you decide to take the pension, it will be reduced by 0.6% (7.2% per year) and each month that you delay past 65 it will increase by 0.7% (8.4% per year).
To find out what your personal amount is that you can expect to receive, I would request a “statement of contributions” through your Service Canada account found on the Government of Canada website.
Now, it goes without saying that before you can make this decision on when to take CPP, you must first evaluate your situation and get an in depth snapshot of your life. Once you have a good understanding of all your assets, you now need to figure out what your retirement looks like. This is completely different and unique to you, so make sure you take the time to unlock what this is
[For an in depth look at what questions you should be asking in regards to this, feel free to connect]
Now that you have an idea of what your retirement should look like, let’s look back to the question of your mortality. I know that you don’t have a crystal ball and can predict when this day will come, but there are some questions that can assist you to narrow this down. What is your gender? How is your health overall? Do you have any family history of health issues? If you anticipate living a very long life, you may want to delay taking your CPP which could result in thousands of dollars more in your lifetime.
BUT, it’s not that simple.
The next area you want to look at is your need for the income. You can anticipate receiving the world record for longest life but if you don’t have the assets to support you while you delay payments, it doesn’t matter! Again, there are self assessment questions to ask yourself to narrow this down. What other assets/income sources do I have? When will I enjoy the money the most? Do I want to leave a legacy for the next generation or use up every drop in my lifetime? What are my tax implications if I take it early or delay? Am I entitled to survivors benefits?
“If you fail to plan, you are planning to fail” Benjamin Franklin
As you can see, there is a lot more that goes into the decision of when you should take CPP besides:
“Well my dentist says I should take it ASAP before it’s all gone”
Or
“I’m still working part time so it doesn’t make sense”
Or
“I heard a radio commercial that suggested XY or Z”
It all doesn’t matter. You need to fully analyze your life, your goals and your unique situation to best understand the best move for you.
So I guess the great debate of when you should start taking CPP is left without a concrete answer, for the masses that is.
If you want to learn more about the role that CPP might play in your retirement income plan, feel free to reach out
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