EARLY CPP: TO TAKE OR NOT TO TAKE?
• Combined survivorship benefits are subject to a maximum. The way this benefit is applied depends on the age at which you started your CPP.
• Even if adding your benefits together you will not be eligible to exceed the maximum. You will not receive all of both benefits when they are combined.
• If you started receiving CPP earlier than age 65, it will be increased by a special adjustment offset some of the survivor’s benefits that is lost as a result of the combined benefit calculations.
HOW RETIREMENT INCOME EFFECTS CPP DECISION
TO TAKE OR NOT TO TAKE?
One of the most commonly asked questions I get is whether I should take CPP early or not. Everything else equal, the decision to take CPP early or leave it till later is about life expectancy and what I call the break even point. Generally speaking, if you think you are going to live a long life then it makes sense to leave CPP till later.
To determine the break even point, lets start be reviewing the rules.
Starting 2016, the reduction in benefit was 0.6% for every month prior to your 65th birthday.
Similarly, the government dangles a carrot in front of you by enticing you to take CPP later and offering you an increased benefit of 0.7% for every month after your 65th birthday.
As you can see from the data, taking income at age 60 this year (assuming you qualify for the maximum CPP at age 65) would give you $699.20 per month. By the time you turn 65, you will have collected $41,952 of income over the 5 years.
Alternatively, if you waited until 65 to collect a higher amount, you are foregoing the $41,952 to get more money in the future. It takes until age 74 to make up the $41,952 that you left on the table.
In other words, the mathematical breakeven point is age 74 this year. If you live past age 74, the one could argue the math says take CPP later. If you don’t live to 74, then you should have taken the money early. Unfortunately, no one knows when they are going to die.
HOW DOES TAKING CPP EARLY EFFECT CPP SURVIVORSHIP?
Many people think if they start their CPP retirement early, they will be eligible for a higher survivor’s benefit if or when their spouse dies. This is not true! This is a commonly misunderstood planning segment. The issue of combined benefit calculations really does complicate the decision when to take your retirement pension. Speak to your advisor for more detailed calculations but here are some guiding principles.
Lower Income Families
Guaranteed Income Supplement (GIS) is a government subsidiary program that is available for low income households. The GIS is an income test that includes CPP, work pensions and other sources of income. (but not GIS & OAS). There are many cases where taking the CPP early (lower income for longer) will allow for a larger GIS amount at age 65.
Higher Income Families
Old Age Security (OAS) is also an income test. It is susceptible for claw back for higher income families. OAS claw back begins at an income of $73,756 and is reduced by 15% for every additional dollar of income. In cases with work pensions or large RRSP accounts, decision on when to take CPP becomes even more important.
In short, the decision on when to take CPP is one of life expectancy, net worth and expected retirement income. All these aspects need to be carefully reviewed to make an informed decision. My objective is to provide timely and enriching information. If you have any questions, please feel free to contact me.
Shayan Hamdani | Investment Advisor HollisWealth | a division of Scotia Capital Inc.
289-291-0825 Email: email@example.com