Q: I’m 60 years old now and eligible to get CPP (Canada Pension Plan). Some of my friends are telling me to take it now and others are saying to wait. How do I decide?
A: There are a few things that you’ll want to consider when making that decision.
Are you still working or do you already have taxable income?
CPP payments are taxable. Personal tax rates increase with income, so if you are still working when you start taking CPP it’s possible that you’ll be taxed at a higher marginal tax rate. However, once you’ve stopped working, it’s likely you’ll be in a lower tax bracket. If that’s the case, you’ll still pay tax on CPP, but you’ll get to keep more of it.
If you take CPP early, how much will it be reduced?
There is a reduction of up to 36% depending on when you begin to receive early payments. But payments can increase by up to 42% if you defer starting your payments until age 70. Consider your health and family medical history when making this decision, does it make sense to receive a larger payment for a shorter period of time?
Another factor that can impact the amount of payment is the time between when you stop working and when you start taking CPP. If you are not contributing into the program for a number of years before applying, your payment can be lowered. For this reason, some people who don’t need the extra income will take CPP early and invest it, but in order for that to make sense the after-tax rate of return would need to be more than the CPP reduction.
I’m you have more questions on this topic (and live in British Columbia) contact us and ask about our Retirement Readiness Report.