When Should You Apply for CCP?

This can be a very difficult question to answer.

Canada Pension Plan (CPP) benefits are based on your average annual earnings during your working years; and what age you are when you start receiving benefits.

Under the new rules, after 2016, if you choose to take CPP early, your pension benefit will be reduced by 0.6% for each month you are under the age of 65.  If you decide to wait, your monthly benefit will be increased by 0.7% for each month you postpone receiving your benefits over age 65. 

Obviously, the government’s recent changes to CPP are designed to encourage people to wait until they are over age 65 before they start receiving their benefits.  From a purely financial standpoint; people who live beyond the age of 80; are better off to wait until age 70 before they apply.  So, what is the best option for you?

YOUR OPTIONS

If you have planned ahead and have several sources of retirement income, you will have the luxury of choosing when you want to start receiving your CPP benefits.  This can also present some tax-planning opportunities.

If you were 65 in 2012, the maximum CPP retirement benefit was $11,840 per year.  This may not seem like a lot; but considering Canada’s graduated tax system, every dollar of income counts come tax time.  (The more you make the higher the tax percentage you pay.)  By delaying your CPP benefits to later in life, you present the opportunity to reduce the risk of having your OAS clawed back, this is because most people enjoy a higher income in their early retirement years, and take less income later on as their lifestyle slows down.  By waiting to age 70, your monthly benefit would be increased by 42%, waiting beyond age 70 there are no additional benefits.

Percentage of CPP Benefits you will receive depending on age taken:

 

Age at                                 Old CPP                    New CPP

Application                      Rules                      Rules

60                                         70%                       64%

61                                         76%                       71.2%
62                                          82%                      78.4%
63                                          88%                      85.6%
64                                          94%                      92.8%
65                                         100%                   100%
66                                         106%                   108.4%
67                                         112%                   116.8%
68                                         118%                   125.2%
69                                         124%                   133.6%
70                                         130%                   142%

It’s a big decision whether or not to start taking your benefits once you reach the age of 60, if you are not sure and need some help figuring it out, give me a call.

 

Have a great weekend,

 

Tracey

 

 

 

 

 

 

 

 

 

 

 

Source:  Original article by Maureen Glenn, published on Advisor.ca 06-11-13