Advice from Francine Dick, CFP
You can begin collecting your Canada Pension Plan Benefit (CPP) as early as age 60 or as late as age 70. The normal age to start is 65, although who among us is normal?
There are penalties to taking it early and advantages to waiting. If you take the benefit early, you lose 0.6% a month for every month you are under age 65, or 7.2% a year, or 36% if taken at age 60. There are reasons for starting early, but for now we’ll focus on delaying taking CPP.
The main advantage is that the benefit increases by 0.7% for every month you are over age 65, or 8.4% a year, or 42% at age 70. Currently, the maximum payable at age 65 is $1,306.57 a month, although the average benefit is $772.71. If you were to receive $1,000 a month at age 65, delaying to age 70 would give you $1,420 a month. Keep in mind that the CPP benefit, and Old Age Security (OAS), are secure, indexed-for-inflation benefits. If, like many entrepreneurs you don’t have a pension plan, this offers stability.
Also keep in mind that government benefits are fully taxable as income. If you are still working, adding on an extra $12,000 a year or more to your income could push you into a higher tax bracket. If you are also collecting OAS, a higher income could push you into dreaded clawback territory. Formally called the pension recovery tax (because governments love taxes), if your income is above about $87,000 you will have to repay some of your OAS benefit. Although you don’t actually repay it; it’s taken off future payments. So confusing!
In the end, though, the decision is up to you. If you need extra income to pay off debt, supplement your cash flow, or just have extra money for fun stuff, then take your benefit. You’ve worked hard and contributed to it. It might work best to take your CPP and hold off on your OAS to avoid the clawback. CPP benefits are never clawed back: you will aways receive the full amount you are entitled to. Or maybe it’s better to take OAS and hold off on CPP benefits as they have a larger increase if you delay.
So many decisions to make! This is why many Canadians seek the help of a financial planner who can provide clarity in seeing how various scenarios will play out and what your best course of action might be. Make the most of your retirement income.
Francine Dick, CFP, RIS, EPC
Francine Dick CFP, RIS, EPC: Francine’s mission in life is to help people secure a comfortable and confident future. As a financial and insurance advisor for over 25 years, she currently works with Carte Wealth Management, Inc. A ceaseless volunteer, she was awarded the Canada 125 medal and the Queen Elizabeth II Diamond Jubilee medal for her community service. Feel free to contact her for a complimentary consultation at Francine.firstname.lastname@example.org or 647-897-6471. Her website is www.askfrancine.ca