Definition:, The Canada Pension Plan (CPP) Retirement Pension provides a monthly taxable benefit to retired contributors., You qualify to receive a Canada Pension Plan Retirement Pension if you worked and made a contribution to the plan and are at least 60 years of age (as long as you qualify for the work cessation test., Starting in 2012, the work cessation test will be eliminated., The work cessation test basically said that you had to stop work for basically two months before you could begin receiving benefits.
The earliest you can begin to receive your pension is age 60., If you want to receive your CPP prior to age 65, starting in 2012, you will be penalized more than before., The new rules state that if you begin to collect your CPP prior to age 65, for each month prior to your 65th birthday, you will be penalized 0.6%., So, if you begin to collect your pension as of age 60, you will be electing to accept a 36% reduction in your pension.
The latest you defer receiving your pension is age 70., For every month you elect to wait in receiving your pension, you will receive an enhancement to your benefit., The enhancement is equal to 0.7% per month or put another way, if you waited until you were 70 to receive your pension, you would receive a 42% enhancement to your pension., There are no further benefits to deferring your pension beyond age 70.
If you are approaching retirement, it is important that you obtain an estimate of your pension.
I will post a link in the show notes to the website you can go to do do this. The Canada Retirement Income Calculator.
How do I decide when to take my pension?, Lots to consider with this question., No "one size fits all" solution., Factors that must be considered to answer this question., Are you still working and contributing to the CPP?, If you're still working and contributing to the CPP, your continued contributions will enhance your CPP when you finally do decide to stop working and receive benefits., How long have you contributed for?, The longer you contribute, the more you will receive when you do finally collect. If you haven't contributed much, you won't get much., What are your other sources of retirement income?, CPP income is a taxable income. So, adding more income to your plan early could push you into a higher tax bracket - and if you don't need the extra income, this could prove to be an unnecessary exercise., How's your health?, If your health is poor so that you would expect a shortened life expectancy, you may want to start collecting early to ensure you receive as much of a benefit throughout your lifetime., What are your retirement plans?, Do you want to retire?, Do you need to retire?
If I stop working past the age of 60 but delay receiving my pension will this be better or worse for me?, For many in this situation, the extra five years of no income will reduce your overall CPP benefit at age 65., This happens because in essence, you are lowering your average wage over the life of the plan by including the zero income years.
How do I apply?, Everything you need to know about applying can be found through our link in the show notes.
My recommendation is for people to asses their own situation in conjunction with their overall financial plan.
In most cases, you are best to begin collecting your CPP when you need to - and not before.
If you are looking for extra retirement income to supplement your lifestyle, start collecting.
If your retirement income is enough to sustain your lifestyle, defer receiving it.
If your health is an issue and your life expectancy is shorter than average, consider taking it early to ensure you receive as much benefit as possible.
Financial Planning is the key. It always has been and always will be., Make sure you are answering your financial planning questions from an educated standpoint., And that education can only come from a comprehensive financial plan.