For many Canadians, deciding on when to start receiving CPP/QPP and OAS benefits is a major decision. Getting it right is a challenge and can have lasting consequences for your retirement income.
For this article we’ll look only at CPP benefits. CPP is an earnings related benefit. If you work for a company, you and your employer pay into CPP. If you are self-employed you pay both portions. You can find out what you are expected to receive at age 65 by checking your Service Canada account (or just phoning Service Canada).
For every month under age 65 your CPP benefit is reduced by 0.6 per cent. For every month over age 65 it is increased by 0.7 per cent. Taking your benefit at age 60 results in a 36 per cent reduction. Deferring it to age 70 results in a 42 per cent increase.
Keep in mind that CPP benefits are taxable as income. If you are still working, this added income could push you into a higher tax bracket. In addition, this higher income could result in the loss of some government benefits. If you are already collecting Old Age Security, it could be clawed back.
Longevity is a big consideration in deciding when to take your CPP benefit. Canadians are living longer and statistically, women live longer than men. There are detailed charts that show the break even point for taking CPP at various times. As an example, if you take your CPP benefit at age 60 rather than 65, the break-even age is just under 74. This means if you live past age 74 it would have been better to wait until age 65 to take your benefit.
Of course, there are few guarantees in life and we don’t know what the future will hold. There are many things to consider when deciding to take both CPP and OAS. Could your cash flow use some extra income? Can you split your CPP with a spouse? Even if they are not needed as income would you like to take the government benefits and invest the money yourself?
A detailed financial plan is the best way to show how various scenarios would play out, and help you make an informed decision. Book a call at my website to discover the benefits of having clarity on your financial future.
Mutual Funds provided through Carte Wealth Management Inc. Segregated Funds, GIC’s and insurance provided through Carte Risk Management Inc.