CPP Wait Until 65 or Get Benefits Now?

You must be retired. As I understand, just turning 60 does not automatically entitle you to an early CPP pension.

If you are entitled take it now. It will stop further contributions which are increasing substantially with no better pension in the end.

Eleanor, IF you are financially sound AND IF you can guarantee that you will live well into your 80's, you should delay taking the CPP. Because no one can guarantewe the latter, everyone I know (including people who advise us on retirement income), strongly advise that you take your CPP at age 60. The break even age is about age 78. I guess it's the old idea that "a bird in the hand is worth two in the bush." If you don't need the income immediately, you can always invest it for when you might need it. Also the monthly reudction is actually 0.5% per month, or 6% per year.

The insiders at cpp all plan to take at 60. the crossover point is quite late in life;my understanding is that even if you decide to return to work once you start taking it it still continues and no further contributions are deducted.

Eleanor, I advise all my clients who turn 60 and are no longer working to grab the discounted CPP benefit and run - no telling how long either you or the CPP plan will "live" - best to take the "bird in the hand" - financially, the age 78 mentioned above is about right (depending on inflation assumptions).

Oh yeah, have some fun - take a few friends to dinner on the first $300 cheque. Bon appetite.

Warren.

Eleanor, take the money at 60 and run. Who knows what those turkeys in Ottawa will do with the CPP during the next 5 years. There are bureaucrats in Ottawa whose entire job is to devise new ways to extract more money for foolish projects from the populace.

Although I heartily agree with "take it now; enjoy!", you might want to peek at this:

thanks for the chart, gummy. here is my interpretation. please correct me if I'm wrong.

if you take it at 65 and you can get a 6% return with 2% inflation, then by the year you turn 74, you are only 80% as good as if you took it at 60 and invested it.

the top line seems to say that if inflation is 0% and return is 0% (you spend it or put it in your mattress), then you are ahead until age 75 or 76 (resolution of chart is a little too small to tell for sure)

the case i would be interested in seeing is inflation greater than 0 (say 2%) and return 0% (i spend it all). how long do i live before i am better off waiting until age 65?

tim

Gummy, I love your pictures, and really would like to know how it is done. Tim, thanks for your intrepretation of the picture. Now, will someone please tell me what the hell they are both talking about!

Thank you all. Very much appreciate your advice.

Gummy, thanks very much for the graph; in colours too!

Any pearls of wisdom as to how to invest for some growth to offset the 'discount'?

Will invest most of it, except for first $300.00, as Warren suggests.

tim: You're interpretation is correct:
Eleanor takes her CPP (70% of the maximum) at age 60 (and invests it at 0% or 6% or whatever).
Her brother takes it at age 65 and invests it (with the same return).
His portfolio is what percentage of hers?
I've modified the chart (see it again, above) to include the case where (as you noted) you spend it all (return=0%) but the CPP increases due to "inflation" (2% and 5%).

Eleanor, while you are thinking about the CPP it would seem to be a good idea to ask your MP (one of those people who seem to do nothing for Ontario in Ottawa), how it is that surviving spouses in Quebec get about $250/month more than Ontarions. This despite the fact that Quebecers pay the same installments. Further, the Quebec plan was first in initiating the early retirement pension, which the CPP copied later.

I have written many letters about this to no avail and with no reasonable explanations. That's why I take every opportunity I can to keep the issue hot. The CPP, because of economy of scale if for no other reason, should be at least as good as the QPP.

This is just one of the Federal areas where I feel Ontario gets no help from it's gang in Ottawa.

On a different note, did you know that you can get a religious exemption from CPP premiums? Now, does anyone know which religions qualify, so I can sign up?

Why stop at just CPP? Sign a Vow of Perpetual Poverty and you won't have to pay any taxes.

...check out Interpretation Bulletin IT-86R dated September 8, 1975 on RevCan's website.

Of course, you may find some of the conditions to be a touch onerous. ;-)

bylo, i'm surprised you didn't provide the link

tim,

Believe me, I tried. If only some of the CAs doing 1997 tax returns would've stopped overloading RevCan's website I might have been able to get through and post the link :-)

WOW!! It's amazing what a simple question could get going! Pictures, hot links, the whole enchalada!

But a comment on the QPP, which I hope will provide me with a few bucks in a year or two. One advantage of Quebec's "separation" in the field of pensions is that there is a competitor to spur the other on. QPP was the first with age 60 pensions, but the CPP was first with pension sharing between spouses. One advantage the QPP has (and the main reason I'm glad I'm in it) is that it is more thoughtfully invested. Instead of lending the premiums to the provinces at sweetheart rates, Quebec invests its premiums like a regular pension fund in a variety of equity and income securities. It therefore has less chance or going belly up. Now that the CPP has planned to do likewise, I think it bodes well for all of us. The CPP will be less likely to run out of money, and the demand for equities by the CPP should produce healthy returns for those invested in the market. At least I hope so.

So Bylo, if I have this correct...

I am opposed to any public or private plan that pays benefits upon retirement (how something, like retirement, that is certain to happen (barring my untimely demise) can be "insured" against is beyond me). So if I start a sect and file a CPT17, I'm off the hook?

This last months issue of the Investment Executive had an interesting article dealing with Alberta's approach to the CPP - get ready, there are changes coming!!

You can find the article here:

Rob, I just clicked on CPP Stuff and read the article. One statement by a Steve Syms I find most perplexing: "In the U.S., public policy focusses on the responsibility of the individual. Here we have a view it's the government's job [to provide pensions]. Has this guy never heard of the U.S. Social Security system, and how no politician would dare tamper with it, lest he suffer the political wrath of middle class retirees? Individual responsibility?? MY FOOT!

Interesting...thanks Rob...Nice site too, first time there!

gb

rge, you quote: > "In the U.S., public policy focusses on the responsibility of the individual. Here we have a view it's the government's job [to provide pensions]. <

Yeah, it is a matter of public policy in the US. Specifically, ERISA, (aka, Employee Retirement Income Security Act) this states that employers have to make an effort to inform employees on a timely basis of their entitlement under pension/retirement plans (401k's, Keough Plans, IRA's and the like). This has spawned a great deal of effort in the seminar area and in the development of internal communications tools (both direct, software-supported and internet/intranet based systems) to provide input to employees on this vital area for them.

Warren.

Warren, the point I was making (perhaps not too clearly) is that the US government sponsored Social Security system, the US equivalent to our CPP as I understand it, is a sacred cow. The gist I seemed to be getting from some contributors to this thread, and from that article, was that the US has abandoned government pensions plans and turned retirement responsibilities totally over to the individual. I think that goverenment still has a very strong presence in the US retirement system, and I don't think that this is a bad thing, either in the USA or in Canada. In any case, thanks for your informed comments on my not totally informed opions!

On the subject of CPP:

My husband turned 60,last summer.I turned 42 last week. My plan is this. He is getting$530.00/month. I invest it, including his otherwise CPP contributions that he does not have to pay any longer.Which is about Aprox.$ 160.00/month.

This CPP money we will always invest, until I turn 65 years old, since my husband will receive other pension, and I am planning to work.

Here is my dilema that I have not decided on yet. And would appreciate some comments from all of you.

What should I do, there is 19 years between me, and my husband.When he turns 65 years, he will get his other pension-around $3,000/month.If he would put me as a benefeciary, he would be penelized-aprox.$300/month, because of our ages. They would have to support me for my lifetime.

If however, I would sign a document that would really indicate that his pension would die with him, and I would get nothing.For that provision, his pension would go up-$300.00/month more.

Even if I would take his pension upon his death, I would get only 60% of his pension. Thus, I would get $ 1,620.00/month. $ 3,000-300=$ 2,700.00 $ 2,700x60%=$ 1,620.00/month.

My question: Should I do the above, and get $ 1,620.00/month or buy a higher life insurance that would provide for me, and pay that higher insurance with the $ 300.00/month that he would otherwise loose.

Thank you in advance for any comments.

Jennifer, why not have your husband start taking a reduced pension now, and the two of you start enjoying life. go to parts of the world together while you both have the energy. money is meant to provide a lifestyle, otherwhise its pieces of paper with dead politicians faces on it. CPP, take at 60, for sure. age has the habit of creating mysterious aches and funny lumps. go to Romantic places while the two of you can enjoy romance, as long as he has his viagra from Pfizer. do not be owned by stuff. let it work for you. i am starting at 55 to take my RRSP, Pensions etc and we will live and travel extensively. When you walk for a few miles and all of a sudden find something you had not expected it really makes you understand the differance between existing and in living. Getting philosophical in my old age, happens when the people in the obituary columns are the same or younger age. Long term funds. sceptre equity Growth. PH&N Dividend Income. Altamira or bisset bond. ING at 4.25 daily interest. 25% in each rip van winkle.

Howard, you are mellowing as you approach old age!! Wonderful. Your advice is well taken, but I would add one point for Jennifer (what a lovely name--that's what we named our first born!): You seem to have a rather complicated pension problem, and should seek out professional advice and not rely on what you read here. One question though: If your husband only gets his pension at 65, and if you are investing his CPP, what is he (both of you) living on? Are you able to support both of you on your income alone and invest the balance? If so, you should be giving advice, not seeking it.

Greg,

Thanx - it's starting to get pretty big, and for some reason a few of the links keep breaking, so it's in for a major over-haul as soon as RRSP season is over.

rge, I think the point is that OVER-ALL Canadians seem to believe more in big government than our Southern neighbors. Speaking as a Canadian who's lived a good portion of his life south of the 49th, and then married one of them Yanks, I do see it as a general trend. However, it is one that I see a bit of a change with.

Jennifer,

There are so many options to the problem you present that there's no way you're going to get any real answers here. My best advice would be to sit down with a GOOD FP and look at all the options available to you. And, like Howard said, enjoy the time you have good health - it doesn't always last.

Thank you, My husband is still presently working, until he turns 65.Thus, still contributing to his Union Pension Plan.As I said before, he is presently getting his reduced CPP-$ 530.00/month.

Since we have been married for 24 years, and my husband was the only bread winner, until now. We have accumulated/saved around $ 476,534.00.And our condo is paid for.

We both have $100,000.00 Term Life Insurance. So, this is why I asked, as to what to do with his coming Pension.

And yes,we shall travel, it is time to rest a little. THANK YOU-TO ALL OF YOU!

Re CPP. Situation different from both Jennifer and Eleanor, but close to 60 and judging by general consensus, should start taking CPP at 60. Here's the rub:

Have a Co., pension of approx. $1000. monthly. That amount will be deducted by $450.00 once I reach 65, and CPP kicks in.

My question is, if I start taking CPP now, I will pay taxes on CPP, for the next 5 years. At 65 I will receive a discounted CPP for the rest of my natural life, and family genetics point to 90+!! (Not complaining.) Am I getting bogged down with the taxes and the long term discounted CPP?

Husband, 66, now retired. Our joint annual income is approx. $30,000. Condo paid for, and approx. $150,000. savings, (GIC's, MF's). We are doing O.K., but have to watch our pennies!

Comments, advice much appreciated.

Jennifer, why are you paying for insurance. the premiums would be better off invested. if either one of you dies you have more than enough to live comfortably on. Dont let your husband promise to do all these things once he retires. not that i am implying, but we all know people whose world fell apart shortly after they finally stopped working. my parents were like that. now he is a lonely widower. new friends do not replace a companion of 60 years.

Howard is it you talking like this? What is happening to you? Were you on the road to Damascus in the past couple of days?

Regardless I welcome the change and hope your newly found heart isn't only of the Valentine variety.

I'm a bit surprised at people still working and drawing CPP. I thought the criterion for withdrawal was that you must have "substantially ceased to work". I draw mine, but was advised that the guideline was earned income of less than $8,000 or so. Am I missing something here?

How do you all know you are going to die at or before the breakeven of 78. My father lived to be 100 and that is going to become much more common. The possible returns if you live to be 100 are so outstanding that many cannot afford to pass them up by taking early benefits. The government will not cease paying CPP benefits. They would print the money before doing that.

Re my last posting, I passed by the office this morning so picked up the CPP literature (dated January 1998). Some relevant pieces:

"the contributor must have wholly or substantially ceased pensionable employment."

contributors are considered to meet this criterion "if their annual earnings from employment or self-employment do not exceed the maximum retirement pension payable at age 65 for the year the pension is claimed."

"When contributors turn 65 they do not have to stop working to receive their retirement pension. Once clients begin receiving their retirement pensions they can no longer contribute to the CPP if they return to work."

Help line: 1-800-277-9914

So I phone the CPP office:
"My wife went back to work," I sez, "so she stops getting CPP, right?"
"She can't contribute to CPP."
"Yes, yes, I understand, but she has to stop receiving CPP, right? I mean, she'll probably make more than $8800/year ..."
"Sir, she can make as much as she wants but she can't contribute to CPP."
"But what about the 'substantially ceased pensionable employ..."
"Sir, that the eligibility requirement to begin CPP payments. Once begun, she can go back to work."
"Mamma mia!"

Hi there, and thanks. Not sure how to view my own situation. I was given early retirement; unable to face the rat race at 60 once more. Austerity measures are allowing me some leisure, and think time. Well earned since I started working at 17, and have brought up 3 kids!

Gummy, any chance of another update to the chart? To include non-discounted CPP to age 90....pretty please!

The generosity you all display in sharing your knowledge is very much appreciated.

Gummy - right, the "ceased working" part is to start the CPP - so an executive who is retired and not working could apply at 60 and then have a job come her way that generates say $150k per year and she no longer contributes and she may continue to collect. Hmmmmm care to try a chart on why the CPP is in financial trouble??

Jenifer, get some advice on the pension discount issue - one thing I point out to folks is that the discount is in your case $300 per month pre-tax so the actual impact on the cashflow is perhaps $180 per month or even $150 per month - the benefit is worth about a $100,000 piece of life insurance (plus, you may be able to get a 100% guarantee (instead of the 60%) for very little more discount) - also you might consider a life pension for your husband with a 15 year guarantee. Or even consider withdrawal of the pension capital to a locked in RRSP/RRIF structure.

Bottom line, you need some advice on this. There is too much at stake to bet the answer on a few "freebie" answers in this forum.

Warren.

TO ALL OF YOU, THANK YOU.

BEFORE MY HUSBAND TOOK HIS EARLY REDUCED CPP, I PHONED THE CPP DEPARTMENT. AFTER SOME "BETTER GO BACK TO SCHOOL TO LEARN SOME LEGAL LANGUAGE", I HAVE FINALLY GOT THE ANSWER I WAS LOOKING FOR.

AFTER YOU START COLLECTING CPP,THE BOTTOM LINE IS THE GOVERNMENT CANNOT CONTROL HOW MUCH YOU WILL EARN IN THE FUTURE!

COULD YOU IMAGINE IF THEY COULD? THAT WOULD FOR SURE PUT STOP TO ANY SELF-EMPLOYMENT,AND THE IDEA OF MAKING MONEY! LET'S NOT FORGET,ANY EXTRA MONEY YOU MAKE, THE GOVERNMENT WILL BE MORE THAN HAPPY TO TAKE THEIR SHARE OF THE PIE.

SO,MAKE AS MUCH MONEY AS YOU WANT, BUT BE PREPARED TO SHARE IT.

Jennifer, thanks for the comments - just a note, turn off "THE CAPS" - not only is this known as "shouting" in netiquette, but it's hard to read. TIA.

Warren.

Warren:

I know what you mean, I noticed it after I submitted it.

Oh well, next time better! Hopefully I won't be in too much of a hurry.

Thanks,

I retired in March, 1998 at age 51 and I am not planing to work again due to recieving sufficient pension income to start enjoying life now. My question is, can I still receive CPP at age 60 even though I will not have paid into CPP in 9 years?.

I retired in March,1997 at age 51 and paid into CPP for 30 years. I will not be working for the next 9 years and plan to take early reduced CPP at age 60. My question is, if I do not pay into CPP for the next 9 years can I still receive CPP?.

Mike, if you don't work for the next 9 years and don't contribute, you had better take your CPP at 60. Here's why. It's something I had to struggle to get the info on from CPP and finally I got it cleared up by writng to Monica Townson at the Financial Post.Essentially, to get the full CPP pension of $x, one has to contribute at the max for every year through age 65, minus 15% of the number of years contributed after age 21, or 1966. So, if one starts work at 21 and pays full CPP contributions for at least 44 years less 15% (6.6 years), in other words full contribs for 37.4 years, then that person gets the full CPP pension then in effect at age 65. The 15% is to take care of years out of the work force. In the case above, if one were to only have worked 35 years, their pension at 65 would be 35/37.4 of the full dollar pension.

My own case is almost the same as yours. retired at 50 in '95, having paid in 29 years.From 1966 (also age 21 in my case) to the year I will be 65 (2010) is 44 years, less 15% of those years. But here is where the early pension at 60 really helps. From 1966 to when I beome 60 (2005) is 39 years. 15% of that is approx 6 years. So I can draw at 60, 29/33 of the actuarial pension, which is 70% of the full CPP pension amount then in effect, using the .5% discount for each month under 65.This is more advantageous than waiting to 65 when I would receive 29/37.4 of the full dollar CPP pension.

Assume the full CPP is $10,000 yearly.At 65, one would receive 29/37.4 of it. Taking CPP at 60 would see the pension at $7,000 multiplied by 29/33. You will see the latter amount is just over 79% of the former.

Hope this helps you and other early retirees. I only spotted it in an article in a newsapaper about an early retiree who felt she had to find new work at age 51 to avoid a heavy (unspecified) penalty in CPP. I called CPP and all they would say was that a very complicated formula applied that would be calculated when I submitted for benefits at age 60 or 65, and depending on whether I ever worked again (which I hope never to do thank you). I even visited a CPP booth at a seniors travel show and got no further. Taking CPP early in such cases reduces the penalty of those extra five years between 60 and 65 if you are not contributing.

bill, thanks. that was really helpful. I sometimes believe it is not a deliberate act when you ask these questions and get blank stares. The people you are asking have no idea.

Bill - the factors appear to have changed a bit. The booklet I picked up the other day says the contributory period is defined as starting January 1 1966 or age 18 (not the old 21), whichever is later, and "usually" ending when you take a pension, or at age 70, whichever is sooner.

You are correct in saying age 65 is the significant anniversary date for calculating the "maximum", with the proviso that just as you lose 30% for retiring 5 years "early", so you can also gain 30% for retiring 5 years "late".

At the same time, unless they have made an error in their booklet, it would seem that you now have to contribute 47 years to get the "maximum" at age 65 (and, incidentally, pay proportionately higher premiums than previously for the privilege). So the 15% figure, which they still are using, moves up to approximately 7 years at age 65. Thus you need to work 40 years, not 37.4. So for 29 years service, you will get not the approx $7750 which your data (start age 21) would generate, but approx $7250. Yet for the example you stated, the factor relating to retirement at 60 presumably remains 29/33, so you still get approx. $6150.

So it seems the feds just increased the incentive for taking the CPP early - the 29-year contributor taking the pension at 60 appears now to get approximately 84% of what would be paid at 65, rather than 79%. Seems very inequitable - there must be another wrinkle or I have missed something?

Better ask Monica Townson again!

Bill, thanks, you have been really helpful, and I plan to take your advice.

Thanks again, appreciate your help very much.

Mike.

I think Ron B's additional points are useful additions. I was using info from summer 1995 which applied specifically to my case, i.e. I began working in 1966, the year CPP started and I was 21 that year, so my max years were and are 44. Even with the slightly revised figures, it still makes sense. One additional point. I was a federal public servant.Our pension plan was fully integrated with CPP. We paid 7.5% total of salary towards pension each year. Until CPP max contributions were met, each month's deduction went to CPP and to our pension. Once CPP annual limit was reached it all went into the pension fund. At age 65 the federal pension is reduced by an amount taking this into account and CPP kicks in, giving roughly the same amount of income overall for those who were fully empoyed during CPP years les the 15%. The amount deducted is the same regardless of how much CPP is received. In my case, my total pension income at age 65 would be less than the day before, even if I don't commute CPP, but wait for it until 65, due to years missing in excess of the 15%. Obviously, the drop will be even greater if I commute at age 60, which I will, but I expect to be better overall due to the usual reasons advanced for commuting.

For anyone whose employer combined CPP and employer pension, the above type of scenario applies. For those whose employer stacked the two, it does not.

Bill, it's amazing how my situation resembles yours.I worked for the Ont Prov Govt and started at age 22 working from Dec,1967 through May 30,1997 some 29yrs 5 months, and I believe our plan is also integrated with CPP. At 65 I expect to see a claw back, and agree with you that I should start taking reduced CPP at age 60.

Thanks again for all your help.

Mike, good luck. I have a whole bunch of friends in this town who did exactly as I did in 95, nearly all of them only 50 or 51. I'll be offline 2 weeks. Any more Q's you might have could go on this site and I will look it up.