KEY010 - Should you take a reduced Canada Pension Plan now or a full Canada Pension Plan later?
1. 04 In This Edition
1.1. In this edition of The Key To Retirement, I'm going to talk about when you should take your Canada Pension Plan.
1.2. And, in today's bonus segment we're going to show you how to get a free report titled "12 Key Questions You Must Ask A Financial Planner BEFORE You Hire One. Because if you're in the market for a financial planner, there are certain things you need to know before you can make a good hiring decision.
2. 05 What's New?
2.1. So Scott, what's new?
2.2. Scott: I've been having some really interesting conversations with clients recently.
2.3. Cathy: Because of the dismal state of the markets?
2.4. Scott: Well, yes, and no. I mean yes because that's where the conversation usually starts and then we review the research on what you should do when the markets crash. But, that conversation begins and ends pretty quickly as a result of our analysis. The conversation then moves on to a more important one. And, by the end of that discussion, they are usually really quite confident with everything that they are doing.
2.5. Cathy: Why are they so confident?
2.6. Scott: Because of what they learn during the discussion. You see, during our review meetings, we take a look at one very special report that clearly illustrates whether or not a client has or will have enough wealth to accomplish their financial goals.
2.7. And, what is extremely interesting about this report is that it very clearly illustrates the difference between good wealth and bad wealth.
2.8. Cathy: There's a bad kind of wealth?
2.9. Scott: Oh yes there is. The bad kind of wealth is the kind that you can't easily convert into cash flow. The kind that you would find in say, your house. The equity in your house can be seen as bad wealth (when it comes to retirement income planning anyway). But, the great thing is that our analysis very clearly illustrates the level of good wealth to bad wealth and allows our clients to see exactly what their options are in the future to ensure a comfortable retirement.
2.10. Recognizing today that a) there is enough wealth to accomplish a client's financial goals but b) that the wealth is not distributed properly, allows clients to better understand what they are on track for. And allows them to mentally prepare for what could be necessary in the future. It's the closest thing to fortune telling I've ever seen.
2.11. Cathy: Is this new?
2.12. Scott: Yes, new and improved.
2.13. The great thing is that we are able to re-calibrate a client's plan using current values to show them exactly what the impact is on their ability to achieve their financial goals. All because we went through The KAIZEN Financial Planning Process with them initially do we have better information to draw upon to make great decisions.
2.14. Cathy: And clients are liking this?
2.15. Scott: Oh yeah. Anything that can build a client's confidence in what they are doing, is a step in the right direction - it's a good thing.
2.16. Cathy: Sounds to me like this information will give clients a sense of control. And that can only help them weather the uncertainty of the markets. I like it!
3. 07 Feature Segment
3.1. What is the Canada Pension Plan?
3.1.1. Definition:
3.1.1.1. The Canada Pension Plan (CPP) Retirement Pension provides a monthly taxable benefit to retired contributors.
3.1.1.2. 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.
3.1.1.2.1. Starting in 2012, the work cessation test will be eliminated.
3.2. When can those who qualify receive the Canada Pension.
3.2.1. The earliest you can begin to receive your pension is age 60.
3.2.1.1. If you want to receive your CPP prior to age 65, starting in 2012, you will be penalized more than before.
3.2.1.2. 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%.
3.2.1.2.1. So, if you begin to collect your pension as of age 60, you will be electing to accept a 36% reduction in your pension.
3.2.2. The latest you defer receiving your pension is age 70.
3.2.2.1. For every month you elect to wait in receiving your pension, you will receive an enhancement to your benefit.
3.2.2.1.1. 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.
3.2.2.1.2. There are no further benefits to deferring your pension beyond age 70.
3.3. Get an estimate of your pension.
3.3.1. If you are approaching retirement, it is important that you obtain an estimate of your pension.
3.3.2. I will post a link in the show notes to the website you can go to do do this. The Canada Retirement Income Calculator.
3.4. Common questions answered.
3.4.1. How do I decide when to take my pension?
3.4.1.1. Lots to consider with this question.
3.4.1.2. No "one size fits all" solution.
3.4.1.3. Factors that must be considered to answer this question.
3.4.1.3.1. Are you still working and contributing to the CPP?
3.4.1.3.2. How long have you contributed for?
3.4.1.3.3. What are your other sources of retirement income?
3.4.1.3.4. How's your health?
3.4.1.3.5. What are your retirement plans?
3.4.2. If I stop working past the age of 60 but delay receiving my pension will this be better or worse for me?
3.4.2.1. For many in this situation, the extra five years of no income will reduce your overall CPP benefit at age 65.
3.4.2.2. This happens because in essence, you are lowering your average wage over the life of the plan by including the zero income years.
3.4.3. How do I apply?
3.4.3.1. Everything you need to know about applying can be found through our link in the show notes.
3.5. So, in summary
3.5.1. My recommendation is for people to asses their own situation in conjunction with their overall financial plan.
3.5.2. In most cases, you are best to begin collecting your CPP when you need to - and not before.
3.5.3. If you are looking for extra retirement income to supplement your lifestyle, start collecting.
3.5.4. If your retirement income is enough to sustain your lifestyle, defer receiving it.
3.5.5. 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.
3.6. There is no rule of thumb. But, there is a right answer for you.
3.6.1. Financial Planning is the key. It always has been and always will be.
3.6.1.1. Make sure you are answering your financial planning questions from an educated standpoint.
3.6.1.1.1. And that education can only come from a comprehensive financial plan.