C.P.P. To Receive Now or Not to Receive

Often we are asked should I apply for early CPP or wait until 65 or later.

This is a common question and deceptively tricky to answer. There are many variables to consider such as current income, future retirement income, work pensions, current health, future health, family history of longevity/disease and most importantly personal preference. Of course there are other unknowns such as possible government policy changes to CPP which seems trivial but as boomers retire en masse across Canada and people live longer, this could put a serious strain on the fund as could a prolonged recession.

The truth is that the decision is mainly an emotional one as the numbers appear to indicate waiting until at least 65 is preferred. We prefer to see clients wait until 65 to begin drawing on CPP as there is a pretty big step up in payments (36%, or 7.2% per year, when compared drawing at age 60).

The other consideration you have to think about when you are married and you have a working spouse with their own CPP is really the longevity factor between the two of you. Since CPP only pays a maximum amount then the issue becomes taking two early CPPs or one person waiting while the other takes the benefit of early CPP. Then it becomes which person takes less. Lots to think about and discuss with your advisor.

If you do take CPP now then what do you do with the money if it is not really needed to live on month to month? If you take the early CPP and are still working you may be inclined to invest this money in your RRSP to defer your income tax. The problem will be when you decide or are forced to draw an income from your RRSP and having to repay the deferred taxes. A big complaint among seniors is paying what they consider, additional taxes. For a lot of people taking an early CPP and investing in your TFSA may make good financial sense. Each individual needs to discuss with an investment advisor what makes sense for their situation.

While the RSP only defers the taxes the TFSA will always be tax free even though you must pay the up-front taxes. In the end you won’t jeopardize OAS claw backs which start at 75K when you need the money to supplement your retirement income.

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