Wealth Watch: Payments from the Canada Pension Plan

Wealth Watch: Payments from the Canada Pension Plan

Derek, when can I start receiving payments from the Canada Pension Plan?

You’ve been paying into the Canada Pension Plan (CPP) for years and as you are nearing retirement you may be wondering when you can start to access these funds. While there is no perfect answer, there are some considerations.

The CPP is one of the major components of Canada’s retirement income system. The plan was established in 1965 with the intent of ensuring that every Canadian receives an income in retirement. Anyone over the age of 18 must contribute a specified portion of your income to this plan. In 2017, the rate will be 4.95 per cent of your income up to a maximum of $2,564.10. If you make less than $3,500 in 2015 you are exempt from making contributions. CPP reforms are coming in 2019 which are expected to enhance the plan, but for the sake of this article we will focus on present rules.

The payments you receive from CPP can begin between the ages of 60 and 70. The amount you’ll receive is dependent on how many years you contributed, how much you’ve contributed, and how old you are when you begin receiving payments. The maximum possible monthly payment starting at age 65 in 2016 was $1,092.50 while the average monthly payment in 2016 was $642.45.

The CPP payment will increase if you wait to take it past age 65, or decrease if you decide to take it sooner. Herein lays the dilemma. You can begin taking payments as early as age 60, but in 2016 this includes a reduction of 0.60 per cent per month before your 65th birthday. Or, if you take it after you turn 65 you will get an increase of 0.70 per cent for every month after your 65th birthday, up to a maximum of a 42 per cent increase if you start to take it on your 70th birthday.

Put another way, if you take your payment at age 60 you will receive nearly 36 per cent less than if you waited until age 65, and you would get 42 per cent more if you wait until age 70. The numbers add up in a hurry, so it’s important to consider a number of factors.

Two factors you need to consider are your other sources of income and the longevity of your family.

If you’re going to need all you can get in retirement there is value in taking the CPP early. Obviously if there are more bills than money the added boost from the CPP is valuable. However, if you have a pension from your company, notable assets in savings, and other sources of income you may not need to rush the CPP. Furthermore, since CPP payments are taxable there isn’t much point in taking more income at a high tax bracket. Your situation here is unique and a plan must be considered.

The hardest factor to determine is longevity. The longer you expect to live the more you’ll be able to benefit from waiting on taking the CPP payment. In a perfect world we’d all know exactly when we’ll pass away and can plan accordingly. Since that’s impossible, the best suggestion is to consider your parents and grandparents. If they all lived well into their 90s, you may want to wait on taking the CPP in order to maximize your total payments. Granted, health can change quickly and no one really knows the answer here.

In terms of age, depending on when you start taking payments your break-even point will be somewhere in your mid 70s or early 80s. More specifically, if you think you’ll live into your 80s, you may consider delaying your payments. Keep in mind that if you pass away, your estate will receive a maximum one-time payment of $2,500 plus possibly reduced survivor payments to your spouse. This is another discussion in itself, but is another factor to consider.

For many, this discussion becomes the “bird in the hand, is worth two in the bush” analogy, whereby some prefer to take the payments as soon as possible simply because they want to avoid the unknown factors of waiting. While this is certainly a consideration, any strategy certainly requires discussion.

Finally, some investors chose to take the payments and invest the proceeds, or use the funds to pay down debt before their retirement really begins. This is also a valid concept, so long as there is a strategy that goes with it.

As with any decision involving money and tax, it’s best to review your strategy with a professional so consider having a chat with your wealth advisor before making the final decision. Retirement is a time to enjoy the fruits of your labour, rather than worry about the dollar and cents that the government deposits to your account, as such be sure to plan ahead.

Happy investing!

Derek

Derek Fuchs is a Senior Wealth Advisor with Scotia Wealth Management in Red Deer and holds the designations of Chartered Investment Manager, Certified Financial Planner, Financial Management Advisor, and is a Fellow of the Canadian Securities Institute.

Just Posted

New admissions have been suspended for Engineering Technology diplomas (Instrumentation, Electrical and Mechanical) and the Transitional Vocational Program at Red Deer College. (Photo by Sean McIntosh/Advocate staff)
Developmentally disabled impacted: Red Deer College suspends program

Transitional Vocational Program comes to an end

Alberta’s chief medical officer of health Dr. Deena Hinshaw is asking Albertans to do their part by observing gathering limits, staying home if unwell, wearing masks and maintaining physical distance. (Photo by Chris Schwarz/Government of Alberta)
Three new Central zone COVID-19 deaths, Alberta adds 1,433 cases

Red Deer down to 802 active cases of COVID-19

NDP education critic Sarah Hoffman holds up freedom of information requests that turned up no records. The Opposition requested back-to-school re-entry plan correspondence between Education Minister Adriana LaGrange and school boards, teachers and the media. Photo via Facebook live
NDP renews calls for Alberta gov’t to scrap K-6 draft curriculum

The NDP is once again calling on the Alberta Government to get… Continue reading

Earlier this week Alberta Health Services warned that Rocky Mountain House Health Centre emergency department would be temporarily without physician coverage from May 12, at 6 p.m., to May 13, at 7 a.m. (Photo contributed by the Town of Rocky Mountain House)
Doctors needed in Rocky Mountain House

Emergency department temporarily closed due to doctor shortage

The owner of Mae’s Kitchen in Mirror, says hamlet residents were ‘disheartened’ by a recent anti-restriction protest. The restaurant is following all the health restrictions in place. (Photo courtesy Mae’s Kitchen Facebook)
‘We don’t need that’: Mirror restaurant against recent anti-restriction protest

A week after a large anti-restriction protest at The Whistle Stop Cafe… Continue reading

Bo’s Bar and Grill owner Brennen Wowk said the hospitality industry is looking for more clarity from the province around what conditions must be met to allow for restaurants reopening. (Advocate file photo)
Frustated restaurant owners want to know government’s reopening plan

Restaurant owners feel they are in lockdown limbo

Atletico Ottawa defender Vashon Neufville controls the ball during Atletico Ottawa’s first team practice of their inaugural season in the Canadian Premier League in Ottawa, Wednesday June 3, 2020. The Canadian Premier League plans to kick off its third season mid-June to early July in one location without fans. THE CANADIAN PRESS/Chris Wattie
Canadian Premier League delays kickoff again, looks to mid-June to early July start

Canadian Premier League delays kickoff again, looks to mid-June to early July start

Calgary’s Stephen Ames shoots 66 to take Mitsubishi Electric lead

Calgary’s Stephen Ames shoots 66 to take Mitsubishi Electric lead

Nashville Predators goaltender Juuse Saros (74) deflects a shot against the Carolina Hurricanes during the first period of an NHL hockey game Saturday, May 8, 2021, in Nashville, Tenn. (AP Photo/Mark Zaleski)
NHL postseason: Who’s hot as the playoffs arrive?

NHL postseason: Who’s hot as the playoffs arrive?

Ottawa Senators' Connor Brown, right, celebrates a goal with teammates during third period NHL action against the Montreal Canadiens, in Ottawa, Wednesday, March 5, 2021. Brown will lead a young Canadian squad into the world hockey championship in Riga, Latvia. THE CANADIAN PRESS/Sean Kilpatrick
Ottawa forward Connor Brown leads Canada’s roster at world championship

Ottawa forward Connor Brown leads Canada’s roster at world championship

FILE - In this Nov. 9, 2018, file photo, Hockey Hall of Fame inductee Jayna Hefford shakes hands with people associated with the hall before a hockey game between the Toronto Maple Leafs and the New Jersey Devils in Toronto. The Professional Women’s Hockey Players’ Association is forging ahead in its bid to establish an economically sustainable professional league in North America with or — for now — without the NHL’s full financial backing. In response to Sportsnet.ca reporting the NHL was not in a position to operate a women’s league for the foreseeable future, PWHPA executive Jayna Hefford wrote in an email to The Associated Press late Thursday that her group has begun developing what she called “a parallel path for a future that doesn’t rely on NHL support.” (Frank Gunn/The Canadian Press via AP, File)
PWHPA forging ahead without NHL backing of women’s hockey

PWHPA forging ahead without NHL backing of women’s hockey

‘No secrets’ and no certainty in one-of-a-kind NHL playoffs

‘No secrets’ and no certainty in one-of-a-kind NHL playoffs

Supporters dance during a rally against measures taken by government and health authorities to curb the spread of COVID-19 at the Whistle Stop Cafe in Mirror, Alta., on Saturday, May 8, 2021. RCMP say they have ticketed four people after the rally that was attended by hundreds.THE CANADIAN PRESS/Jason Franson
Alberta leadership responsible for protests against public health orders: expert

Alberta leadership responsible for protests against public health orders: expert

Alberta Premier Jason Kenney answers questions at a news conference in Calgary on Tuesday, Sept. 15, 2020. Kenney is distancing himself from a decision to expel two members from his United Conservative caucus. THE CANADIAN PRESS/Todd Korol
Kenney distances himself from caucus vote to turf dissidents with ‘personal agendas’

Kenney distances himself from caucus vote to turf dissidents with ‘personal agendas’

Most Read