retirees

New Rules governing the Canada Pension Plan took full effect in 2016. Under these rules, the earliest you can take your CPP Pension is age 60, the latest is 70. The standard question regarding CPP remains the same – should I take it early or wait?

New Rules governing the Canada Pension Plan took full effect in 2016. Under these rules, the earliest you can take your CPP Pension is age 60, the latest is 70. The standard question regarding CPP remains the same – should I take it early or wait?

 

If you take it at the earliest age possible, age 60, your CPP income will be reduced by 0.6% each month you receive your benefit prior to age 65. In other words, electing to take your CPP at age 60 will provide an income of 36% less than if you waited until age 65.

 

CPP benefits may also be delayed until age 70 so delaying your CPP benefits after age 65 will result in an increased income of 0.7% for each month of deferral. As a result, at age 70, the retiree would have additional monthly income of 42% over that what he or she would have had at 65 and approximately 120% more than taking the benefit at age 60. The question now becomes, “how long do you think you will live?”

 

Assuming that an individual has $10,000 of CPP pension at age 65, and ignoring inflation (CPP income benefits are indexed according to the Consumer Price Index), the following table compares the total base income with that if benefits are taken early or late:

 

Total benefit received    CPP Benefit Commencement

Age 60    Age 65      Age 70

One year               $ 6,400    $ 10,000  $ 14,200

Five years              $ 32,000   $ 50,000   $ 71,000

Ten Years               $ 64,000   $100,000   $142,000

 

The question of life expectancy can be a factor in determining whether to take your CPP early. For example, according to the above table if you take your pension at age 60, by the time you reach age 65; you would already have received $32,000 in benefits. With $10,000 in pension income commencing at age 65 the crossover point would be age 73 (the point at which the total income commencing at age 60 equals the total income commencing at age 65). If you were to die prior to age 73, you would have been better off taking the earlier option.

 

If your choice is to delay taking the pension until age 70 instead of 65, the crossover would not be reached until age 85.

 

Some individuals may wish to elect to take the pension early and invest it hoping that the income from age 60 combined with the investment growth will exceed the total income that would be received by starting at 65.

 

Remember, if you elect to take your pension before 65 and you are still working, you must continue to contribute to CPP. After age 65, continuing contributions while working are voluntary. On the plus side, these extra contributions will increase your pension under the Post-Retirement Benefit (PRB).

 

Reasons to take your CPP before age 65

  • You need the money– number crunching aside, if your circumstances are such that you need the income then you probably should exercise your option to take it early;
  • You are in poor health– if your health is such that your life expectancy may be shortened, consider taking the pension at 60;
  • If you are confident of investing profitably– if you are reasonably certain that you can invest profitably enough to offset the higher income obtained from delaying your start date, then taking it early may make sense. If you are continuing to work, you could use the CPP pension as a contribution to your RSP or your TFSA.

 

Reasons to delay taking your CPP to age 70 

  • You don’t need the money– if you have substantial taxable income in retirement you may want to defer the CPP until the last possible date especially if you don’t require the income to live or support your lifestyle;
  • If you are confident of living to a ripe old age– if you have been blessed with great genes and your health is good you may wish to consider delaying your CPP until age 70. Using the earlier example and ignoring indexing, if your base CPP was $10,000 at 65 then the pension, if delayed until age 70, would be $14,200. If you took the higher income at 70, you would reach the crossover point over the age 65 benefit at age 84 and after that would be farther ahead.

 

This information should help you make a more informed choice about when to commence your CPP benefits. Even if retirement is years away it is never too early to start planning for this final chapter in your life. Call me if would like to discuss your retirement planning.

 

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There are a number of obstacles that could potentially de-rail a comfortable retirement. These include marriage breakdown, a stock market crash, and being sued. Another huge obstacle would be the diagnosis of a life threatening critical illness affecting you or your spouse. While it might be difficult to insulate yourself against some of the threats to retirement security, Critical Illness insurance goes a long way to mitigate the financial disaster that could result from a change in health as we approach retirement.

There are a number of obstacles that could potentially de-rail a comfortable retirement. These include marriage breakdown, a stock market crash, and being sued. Another huge obstacle would be the diagnosis of a life threatening critical illness affecting you or your spouse. While it might be difficult to insulate yourself against some of the threats to retirement security, Critical Illness insurance goes a long way to mitigate the financial disaster that could result from a change in health as we approach retirement.

 

Considering that the wealth of many Canadians is comprised of the equity in their homes and the balance of their retirement plans, having to access funds to combat a dreaded illness could put their retirement objectives in jeopardy. Imagine that you are just a few years into or approaching retirement and you or your spouse suffers a stroke.  The prognosis is for a long recovery and the cost associated with recovery and care is projected to be substantial. Statistics show that 62,000 Canadians suffer a stroke each year* with over 80% surviving* many of whom would require ongoing care. Since 80% of all strokes happen to Canadians over 60 those unlucky enough could definitely see their retirement funding jeopardized.

 

Sun Life recently reported that for a 45-year old couple, the risk of at least one spouse having a serious health condition by age 70 is 61.5%. With odds like these it is fortunate that a product exists that will provide tax-free cash to help defray the expenses associated with the care and recovery from a serious illness. Accessing retirement plans on the other hand, would trigger income tax on the funds withdrawn, adding to the financial burden.

 

While statistics indicate that the chances of having a critical illness are high, they also support the notion that those with the foresight in their planning to include Critical Illness insurance have a greater chance of keeping their retirement funds intact.

 

Critical Illness insurance is offered by most major Canadian life insurance companies. It can be purchased with different terms, from 10-year renewable to permanent plans providing protection up to age 100. Like most insurance products the cost is based on the age of the insured so the younger you get it the lower the cost will be. While 10 or 20-year plans are appealing based on price, consider how long you will need the coverage for.

 

If you wish to keep the policy into your retirement years, for the reasons stated here, a permanent plan or one that offers coverage to age 75 may be preferable, as premiums are locked in at lower rates. Some policies offer a Return of Premium rider that refunds premiums paid when the contract expires or is cancelled with no critical illness claim.

 

Saving for retirement is always a good idea and protecting your savings in the event of a critical illness is essential. It may be wise to consider doing it now, while you are still in good health and can take advantage of lower premiums.

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