Should you Take CPP now or Later?
Your Canada Pension Plan (CPP) is worth approximately $250,000 to $330,000 in present value of money. Making the right decision on when to take your pension plan is just as important to your retirement strategy as it was to save for retirement. Should you take your CPP as early as possible at age 60 or defer to the longest time possible at age 70?
Although disturbing, knowing the date of your death is the only way to know for sure when the best time to pull your CPP. With no crystal ball, we rely on our experience and that of the experts on the subject. Here at Family Tree Financial Group, Lloyd and Charissa, have built a process to guide your decision:
1. Life Expectancy
How long will you be collecting CPP for prior to passing away. This chart provides simplistic figures on when the best time to pull your CPP is:
|Age at Death||Best Time to Start Pulling CPP|
|Age 60-75||Age 60|
|Age 76-83||Age 65|
|Age 84+||Age 70|
There are some questions that you can ask yourself to gain an understanding of when you believe that to be:
How is my health? Do I have medical conditions that could affect my longevity (ex. high blood pressure, diabetes, etc.)?
How is my lifestyle? Am I cautious or love to take risks?
When did my Grandparents or Parents pass away? Was it due to genetic medical conditions?
2. View Point
Once you start to pull Canada Pension Plan the amount of your benefit continues as long as you are living. Once you pass away, the benefits stop and only in certain conditions would a small portion of your pension plan continue to your spouse or children. Imagine that you delayed your benefit to age 68 and you pass away at age 69. How does your family feel about only collecting your pension for one year when you contributed to the pension plan for 48 years? If that frustrates you, start early.
3. Tax Efficiency
During your working years, your paycheque makes up your salary. In retirement, there are multiple sources of income (Canada Pension Plan, Old Age Security, Work Pension plans, investment income, Registered Retirement Income Fund, rental income, Tax Free Savings Account withdrawals, reverse mortgages, etc.). Each of these sources of income have different tax rules. Here at Family Tree Financial, we use a retirement projection tool called Snap Projections to build a tax efficient strategy when withdrawing your income in retirement. If you have room in your RRSPs and are earning employment/self-employed income, taking CPP early and contributing the full amount to your RRSP to get a deduction, is a classic strategy. Using a tax efficient strategy can lead to extra years of income for you and less tax paid to the government.
Bottom line: When to start pulling CPP will largely depend on how long you will be pulling from the plan, how fair you believe the program should be and what your taxable income will look like in retirement.
** This analysis was created for consideration in the fall in 2020. There are currently changes to the Pension Plan that are being implemented that may change this analysis. This article was meant to share opinions and is not to be construed as personalized financial advice. You should consult your Financial Advisor or Accountant for an in depth look at your financial situation.