The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that will replace a portion of your employment income when you retire. If you qualify, you will receive the CPP retirement pension for the rest of your life. To qualify, you must be at least 60 years old and have contributed at least one valid contribution to the CPP.
For 2024, employees earning over $68,500 must contribute $3,867.50 to the CPP, double that if you are self-employed. Some Canadians are concerned that if they wait too long, they will not collect all that they have contributed. The only way to guarantee that at least some of those contributions are returned to you would be for you to apply for CPP benefits as early as possible. Unfortunately, longevity is the biggest unknown and the earlier you apply, the lower the monthly benefit will be.
CPP payments are decreased by .6% for every month (7.2% per year) you take it before the age of 65, to a maximum reduction of 36% if you start at age 60. However, if you wait to start taking your CPP; the amount is increased by 8.4% per year, or 42% if you wait until age 70.
The two biggest pressures on any Retirement Plan are the desire to retire as early as possible, and the risk of outliving your money. CPP payments are guaranteed for life, and as a retiree, you have the flexibility of choosing when to start receiving them. The various amounts you may receive should be considered when running your income projections. While it is only one piece of the puzzle, choosing when to start and ultimately how much you will receive; will impact your retirement income for the rest of your life.
Still Working at 60?
The Post Retirement Benefit (PRB) will help increase government benefits to those who decide to collect their CPP early and wish to continue working. If you are working in Canada, between the ages of 60-65, and are already receiving CPP benefits, you must contribute to the PRB. For those between 65 and 70 years, contributions are optional. Your additional benefits will take effect in January following the year of contributions. You may not see the increase until April or May, but you will receive a retroactive payment back to January.
If you are not sure when to start taking your CPP benefits, make sure to include various age/amount options when you run your Retirement Income Plan, this should be done every three to five years depending on your age.
Have a great weekend,
Tracey & Paige
Sources:
https://www.morningstar.ca/ca/news/185828/cpp-and-oas-should-you-wait-past-65.aspx
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