There are really two decisions that you are faced with concerning the CPP for the over 65 and still working:
- Should you apply to receive your CPP retirement pension at age 65 or wait until you stop working, or even until age 70?
- If you decide to start your CPP retirement pension at age 65, should you continue contributing to the CPP?
In this article, I’ll try to give you enough information so that you can decide when to start receiving your CPP retirement pension. I’ll deal with the decision as to whether to continue contributing to CPP beyond age 65 shortly, in a separate article.
- How badly do you need the money now?
- What are your future income streams?
- How long do you expect to live?
- What is the “breakeven point” for waiting versus applying now?
Related article: Should you take CPP early?
The breakeven point past 65
To determine your breakeven point for yourself, you must have a good understanding of how CPP benefits are calculated.
Related article: How much will you get from CPP?
To calculate an exact breakeven point, you would need the following:
- Your current CPP record of earnings and contributions, which is available online:
- A good estimate of your future earnings up to age 70
- An accurate way of calculating your CPP retirement pension under various scenarios (you can try using the online calculator at service Canada, or you can leave a comment below.
Before deciding when to start your CPP retirement pension, an individually calculated breakeven point is important if any one of these factors applies to you:
- Your CPP record of earnings shows nil contributions for more years than you can “drop out” in calculating your retirement pension.
- Your earnings after age 65 will be significantly lower than your previous “average lifetime” earnings.
- Your earnings after age 65 will be significantly higher than your previous “average lifetime” earnings.
For most people, however, an approximate breakeven point is sufficient, and that can be determined using the following table (which uses the maximum CPP entitlement for 2015 as the “Monthly CPP”):
Approximate CPP Breakeven Points for Ages 65 to 70
|Amount of increase||n/a||$89.46||$178.92||$268.38||$357.84||$447.30|
- Monthly CPP: Maximum amount of monthly CPP retirement pension that anyone would be entitled to receive in 20153, at the age indicated.
- Adjustment factor: 0.7% for every month delayed past age 65, to a maximum of 42% at age 70.
- Amount of increase: Amount of monthly CPP retirement pension received at delayed age, minus amount that would have been received at age 65 ($1,065.00).
- Foregone income: $1,065.00 times number of months delayed.
- Breakeven (months): Foregone income divided by amount of increase.
- Breakeven (age): Age at which CPP starts plus number of breakeven months/12.
Related article: CPP Breakeven points for taking CPP early
A case study
If Alfred is eligible for a maximum CPP retirement pension at age 65, he can choose to apply immediately and receive $1,065.00 monthly.
If he chooses to wait until age 70, his monthly CPP retirement pension would be $1,512.30 (an adjustment of 0.7% for each of the 60 months that he delayed, for a net increase of 42.0%).
He would have foregone the opportunity to receive $63,900 in CPP retirement pension (60 months @ $1,065.00 monthly), in exchange for an increase of $447.30 in his monthly CPP retirement pension.
The number of months it would take him to break even is calculated by dividing the amount of pension forgone by the increased amount that he would receive if he started receiving CPP at age 70:
$63,900 / $447.30 = 143 months
Age 70 + 143 months/12 = 82 years old.
His breakeven age would be 82. At age 82, he would have recouped all of his foregone pension and he would be ahead $447.30 monthly, from that age forward. If he dies before age 82, he would have been better off in strictly dollar terms if he had applied for his CPP retirement pension at age 65.
As you perhaps noted in the above table, the number of breakeven months remains constant at 143 months. This basically means that if you don’t apply for your CPP retirement pension at age 65, you will have to live for approximately 12 years after whatever age you do apply for it to start, in order to catch up on the CPP retirement pension that you have “foregone”. After those 12 years, you will be further ahead by having delayed the start date of your CPP retirement pension beyond age 65.