When is it best to take my Canada Pension income?

This is the million dollar question. In practice, we are asked this by most clients. Do you take CPP when it’s first permitted to which is age 60, should I wait to age 65 which has been the norm for decades, or should I wait until age 70 to maximize my pension benefit.

The standard age for CPP is age 65. At that age, you will receive your personal amount. Under current rules, those at age 60 are able to take the CPP pension earlier but at a reduced amount, and those that delay past age 65 will receive an enhanced payment or each month delayed.

By taking your CPP prior to age 65, your benefit will be reduced by approximately 0.6% per month or 7.2% per year. Therefore by taking the pension at age 60, your benefit would be reduced by a total of 36%. Therefore you would only receive 64% of the benefit paid at age 65.

By delaying your CPP past age 65 you will be credited with a higher payment of 0.7% per month or have your pension increased by 8.4% annually. If you were to delay CPP pension to age 70, your benefit would be enhanced to a total of 142% of the amount permitted at age 65.

So you can see that for an example: if you were going to receive $10,000 at age 65, by taking CPP early, your annual payments would be $6,400 annually indexed quarterly to inflation.

In turn, by waiting to age 70, your payments would be grossed up to $14,200. The difference from age 60 to age 70 in dollars and cents would be an additional $7,800 of income indexed to inflation for the rest or your life.

Just a couple quick notes to consider:
  1. By taking money early you have the ability to save the payments and set them aside for the future use.
  2. Don’t forget that if you start taking your CPP and you continue to work, you will have to continue to pay your required premiums into the play. By doing this, the government will take into account your payments and increase your future pension amounts accordingly.
  3. These are the new phased-in changes that will be taking affect from 2013 to 2016. So again we stress getting some help on this.
A few questions in the conversation we discuss with clients when deciding on when to start taking out their CPP pension would be:
  1. Do I need the money now?
  2. Am I still working and should I wait until I officially retire to take out my CPP?
  3. How’s my health?
  4. What’s my family history of longevity?
  5. Do I have a spouse?
  6. How well have I saved for retirement?
  7. Are my pensions either from work or personal indexed to inflation when I retire?
  8. Should I use personal investments early in my retirement and delay the CPP to 70?

Deciding on when to take your CPP pension was a much easier decision a few years back. With the new rule changes on the CPP benefit and the higher reductions, by taking the money earlier and the greater incentive to delay past age 65…it is now a more difficult decision than ever before.

For this reason getting the advice of a qualified financial professional would be worth the time and investment. The Canada Pension Plan is the foundation of retirement for millions of working Canadians from coast to coast.

by David Somerville, CFP