Beginning in 2012, anyone who paid into CPP and reached the age of 60 could choose to begin receiving CPP benefits regardless of employment status. Previously, in order to qualify for retirement benefits one had to cease employment. There are significant financial incentives for delaying CPP. Under the new rules, the monthly penalty for taking the CPP early (before 65) will increase gradually from 0.5% in 2012 to 0.6% a month by 2016 and the monthly benefit for delaying CPP increased from 0.5% a month to 0.7 % a month in 2013. Taking CPP early at 60 will mean you will receive 36% less than if you take it at 65 and you’ll get 42% more if you start taking it at 70 instead of 65.The maximum CPP payment for 2014 is $1,038.33, or 12,459.96 a year.
Deciding when to take CPP benefits is best based on each individual’s circumstances, but there are a number of factors to consider. One has to do with your marginal tax rate. If you are in a high marginal tax rate from age 60 to 65 but will be in a significantly lower rate after age 65 it may be best to delay CPP beyond age 65. Another consideration is your life expectancy and what is known as the cross over date. This is the age you need to attain to get the benefit of delaying receiving the benefits to get the larger amount. For example, if you delayed taking CPP at 65 and took the enhanced benefit at 70, the cross over age is 80.2 years. You need to live beyond 80 to compensate for not taking any CPP benefits at age 65. If you’re in good health and longevity is in your family, it may be a good idea to delay because you may have a better chance of reaching that cross over age. On the other hand, if you need the cash benefit or are in questionable health it may make sense to begin receiving reduced early benefits and take the after-tax proceeds and invest them in a Tax Free Savings Account. Also keep in mind that if you are retired and are collecting your CPP then you have to take less withdrawals from your other investments, leaving your money there to grow.
While generally speaking we suggest taking the CPP early and potentially reinvesting it completely or partially there is simply no one answer that fits all. We can help you analyze your specific situation to determine what is best for your circumstances.