Many people are anxious to receive payments from their Canada Pension Plan (CPP), something we pay into all our lives. But is it smart to take it as early as you can, or wait until you’re 65 or even 70 years old? Kim Parlee talks to Georgia Swan, a Tax and Estate Planner with TD Wealth, about what might be right for you.
- We all contribute to CPP, the Canada Pension Plan, all of our working lives. But should you take it as soon as you can at age 60? Or should you wait until you're age 65 or even later?
We're joined by Georgia Swan. She's a tax and estate planner with TD Wealth from Barrie, Ontario, for this Ask MoneyTalk. Georgia, our question is, I'm planning to retire early. Should I take my CPP when I hit 60, or should I wait?
- Well, the answer to that question is really it depends on your particular situation. So if you decide to take your CPP at age 60, then it is basically is reduced by about 7.2% per year. If you take it out at 65 or after 65, it can increase from then on up until age 70 by about 8.4% per year. So that's one of the things that should go into your determination-- how much is it going to be?
But the first thing that I always say to people is, do you need the money? Does it represent a real contribution to your income such that you absolutely need it? The next thing you should be thinking about is, do you have a medical condition, such that you might have a reduced life expectancy? And if that's the case, then you may also want to consider starting to take it a little bit earlier.
- Now I understand, like you said, you have to look at your own situation first. And I need to look at my health and my plans and money. But there's also some exceptions that I know you look at when trying to do the calculations. So tell me what those are.
- So when I see that somebody hasn't contributed anything to CPP after age about 55-- so let's say, for example, you're somebody who worked all your life and either was able to take early retirement from their work. Or, for example, maybe at some point you became self-employed so you didn't really contribute after that time.
That's another issue that you should look at. Because where you take CPP at age 60, they basically look at your best 35 years of earnings in order to calculate the amount that you're entitled to. Whereas where you take it at 65, they look at your best 39 years of employment.
So if, for example, you hit 55, and then you don't make any further contributions to CPP, you might actually be better off taking it at 60 and using that calculation of the best 35 years of employment. You might actually get close to the maximum if you take it at 60 still.
But if you don't, and you wait until 65, then the amount that you get might be significantly reduced. So that's an exception that you should really look at in terms of what your pattern of contributions have been in your latter years of work.
- Yeah, and that matters to a lot of people, I think, with just even in the current environment, whether they're laid off or starting their own business. That's going to play into it.
I also know, a lot of people talk about the fact that it's better to wait longer, if you can, because you'll get more. So what do you have advice for those maybe who are waiting much longer, want to wait till 70, let's say, to take it?
- Well, again, this is a conversation to have with your tax advisor, with your financial planner, with your investment advisor, because you have to really analyze what your income needs are. Because on the one hand, if you take it early, it means that there is an amount that's coming into your household which might allow your investments that much longer to grow before you have to actually start taking money out of it.
On the flip side of that, if you're somebody that prefers to know that, in your latter years of life and in your retirement years, you are going to have a definite amount of money regardless of what the markets are doing, in that particular case, you might want to wait a little longer and use up your investments so that you're not worried about market volatility later in life. And you know you have a certain amount coming in.
But again, that depends on your own feelings about Investing and what you're comfortable with and then, of course, what your advisor says to you is right for your particular situation.
- Always great to talk to you, Georgia. Thanks so much.
- Thank you.
- Georgia Swan. And if you have any questions, and you'd like to Ask MoneyTalk one of those questions, send us an email to firstname.lastname@example.org with Ask MoneyTalk in the subject line or check on moneytalkgo.com, where you can find answers to so many questions about life and money.