When should you take your CPP benefit?

October 14, 2014

As you’re approaching retirement, you’ve no doubt wondered when you should take the benefit that you can receive from the Canada Pension Plan. The decision can be tricky. Here are some things to think about when you’re making the decision.

Have you stopped working or have you reduced your hours?
If you’re choosing to retire before age 65, or if you decide to reduce your working hours, you may begin to notice that cash flow is a bit tighter than it used to be. This is the difference between the lifestyle your income had you accustomed to and the amount of income that you’re bringing in now. The early years of retirement will also often lead to extra spending which is part of the adjustment to having more time leisure and new activities. You now have a choice: should you be dipping into personal savings or taking early CPP?

If you choose to use personal savings, you’ll need to look at the total that you’ve saved. If you start taking income now, will you have enough later on? Will your taxable income increase again later through pension income or government benefits? Are there any advantages such as de-registering RRSPs while you’re in a lower tax bracket? As a planning point, personal savings will pass to a beneficiary after death, while the CPP benefit will stop, or will pay a reduced amount to your spouse.

How about taking it while still working?
If you don’t have an immediate cash flow need due to good planning or the decision to work longer, there are merits to waiting to take your CPP. The CPP benefit is fully taxable, so it needs to be added to your income. If you already have high income, you’ll keep more in your pocket if you wait until you retire and take it when your income is lower. You will also receive a benefit that is up to 36% higher if you wait to age 65.

CPP is a benefit that is just one layer of the retirement income picture that you’ll need to consider. Once all the factors have been taken into account, there is a break-even point that can be calculated that will show after what age it makes more sense to take it early over taking it later. We can help by showing you how this decision integrates with the rest of your financial picture.

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