Four reasons why you should still take CPP early (post 2011 rules)

January 1, 2012 is an important date for Canada Pension Plan because the new CPP rules come into effect.

I’ve written extensively about the issues around taking CPP early.  It’s one of the big conundrums of Canada Pension Plan and my conclusion has always been that it makes sense to take CPP as early as you can in most cases.  Does the results change given that there are a new set of rules coming?  Here’s four questions to ask yourself in determining if it makes sense to take CPP early.

Will you still be working after 60?

Under the old rules, you had to stop working in order to collect early CPP.  The work cessation rules were confusing, misinterpreted and difficult to enforce so it’s probably a good thing they will be a thing of the past.

Starting January 1, 2012, anyone turning 60 can start to collect Canada Pension Plan as soon as they turn 60.  You don’t have to stop working.  So now, the conundrum of taking CPP early will be an issue as soon as you turn 60.  You can still be working and apply to collect it early but the catch is you have to keep paying into CPP even if you start collecting it early.  The good news is paying into it will also increase your future benefit.

What is the mathematical break-even point?

Under the old rules, the decision to collect CPP early was really based on a mathematical calculation of the break-even point.  With new rules coming, every Canadian needs to understand the math.  Here’s an example of two twins I used before:

“Janet and Beth are twins. Let’s assume they both qualify for the same CPP of $502 per month at age 65. Let’s further assume, Beth decides to take CPP now at age 60 at a reduced amount while Janet decides she wants to wait till 65 because she will get more income by deferring the income for 5 years.

Under Canada Pension Plan benefits, Beth can take income at age 60 based on a reduction factor of 0.5% for each month prior to her 65th birthday. Thus Beth’s benefit will be reduced by 30% (0.5% x 60 months) for a monthly income of $351 starting on her 60th birthday.

Let’s fast forward 5 years. Now, Beth and Janet are both 65. Over the last 5 years, Beth has collected $351 per month totaling $21,060. In other words, Beth has made $21,060 before Janet has collected a single CPP cheque. That being said, Janet is now going to get $502 per month for CPP or $151 per month more than Beth’s $351. The question is how many months does Janet need to collect more pension than Beth to make up the $21,060 Beth is ahead? It will take Janet 140 months to make up the $21,060 at $151 per month. In other words, before age 77, Beth is ahead of Janet and after age 77, Janet is ahead of Beth.”

Another way to phrase this question is “When are you going to die?” This math alone is a very powerful argument for taking Canada Pension Plan early.

Under the new rules, the mathematical break-even point changes because they will be increasing the reduction from 0.5% per month to 0.6%. In the above example, Beth would get $321 instead of $351 at age 60.  This moves the break-even point to age 74 instead of 77.

If you want to see the new breakeven points for 2012 to 2016, visit Taking CPP early:  The new breakeven points

When will you most enjoy the money?

When are you most likely to enjoy the money?  Before age 74 or after age 74?  Even though the break-even point is three years sooner, for most people, they live the best years of their retirement in the early years.  I call these the ‘go-go’ years (which is one of three phases of retirement).

Some believe it’s better to have a higher income later because of the rising costs of health care.  Whatever you believe, you should plan for.  It might be worthwhile to look around your life and see the spending patterns of 70, 80 and 90 year olds to assess how much they are really spending.  Are they spending more or less that they did when they were in their active retirement years.

What happens if you Leave money on the table?

Let’s go back to Beth who could collect $321 at age 60.  Let’s pretend she gets cold feet and decides to delay Canada Pension Plan one year to age 61.  What’s happened is she ‘left money on the table.”  In other words, she could have taken $3852 from her CPP ($321 x 12 months) but chose to leave it to get more money in the future.  That’s fine as long as she lives long enough to get back the money she left behind in the first place.  Again, it comes back to the math.  For every year she delays taking CPP when she could have taken it, she must live one year longer at the back end to get it back.  By delaying CPP for one year, she must live to age 75 to get back the $3852 she left behind.  If she delays taking CPP till 62, then she has to live till 76 to get back the 2 years of money she left behind.  Why wouldn’t you take it early given this math?  The main reason is you think you will live longer and you will need more money the older you get.

My two cents

I think if people understand the math of Canada Pension Plan, most people will take it early.  In 2012, you can take it early even if you are working.  The bad news is you will get hit with a bigger reduction with the new rules.  Some say its also bad news because you will have to keep paying into CPP if you are working (under the new rules).  To me, that’s not such a bad thing because paying into it also increases your future benefit so it’s not like you are not going to get your money back.  I don’t think the increased reduction is enough of a deterrent because a bird in your hand is better than two in the bush.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

178 Responses to Four reasons why you should still take CPP early (post 2011 rules)

  1. Jim, a good article as usual. I’m also a financial planner and I always recommend clients take early CPP if they can. But one factor you’ve neglected to account for is what does the early bird do with that reduced benefit cheque? Even applying a measley 1% growth to the extra income blows the doors off the argument to wait. If there’s debt that can be paid down/off,the benefit is even sweeter.

    • Another option would be to take the reduced benefit cheque that you get every month between ages 60 and 65 and, if you don’t really need the money yet, deposit it in your TFSA (to a max of $5000 per year or more if you haven’t started one yet) in a quality equity income fund that pays dividends (or something safer if you wish) and then watch it grow tax free. The amount of your CPP benefit that is greater than $5000 could be placed in a non-TFSA investment vehicle that produces good returns. You could have a nice little nest egg sitting there to enjoy by the time you turn 65 (perhaps in excess of $50,000) that would require you living a lot longer than 74 to equal (if you had chosen to wait 5 years for the non-reduced benefit cheques that would only have added a few thousand dollars to your annual income). And if you wish, you could keep the nest egg invested and potentially earn returns that would exceed the additional income from the non-reduced benefit cheques for as long as you live.

      • One thing that no one seems to be considering is the high tax you will pay on the CPP benefit if you continue working from 60 to ??. If you take it later your income will probably be reduced and so little or no tax will be paid. I am sure this could be built into a model taking individual circumstances into account.

        • I am turning 60, am taking my CPP early and will keep working and contributing to it to grow the benefits. Taxes?? No problem – I have $45,000 worth of head room in my RRSP and that is where my monthly CPP will be invested.

          • Wouldn’t it be better to put it in a TFSA account? If you put it in an RRSP you will have to pay tax when you withdraw it. Also with a TFSA you can withdraw if you need funds.

        • Perceptive comment, Ian. This could also negatively impact OAS clawback. Also, if you’re not lucky enough to be working in the public sector, OAS and CPP are probably the only inflation-indexed pensions you will get. Given the rate at which central banks have been printing money recently, this increases the arguments in favour of waiting for an increased CPP pay-out.

        • Something that Rev Canada told me which is an issue for me is that if you stop working at 60 but don’t take your CPP right away your benefits will be reduced because the calculation would include those five non earning years.

          • Jane

            Those five years of zero earnings may reduce your “calculated retirement pension” or they may not. It all depends on your lifetime record of earnings under the CPP. Your actual retirement pension won’t decrease though, as the increase for the age-adjustment factor is always more than any decrease in your average lifetime earnings.

            I refer to this situation as receiving a larger piece of a smaller pie.

            If you want me to do some actual calculations for you (for a fee), to see exactly what the impact of those five years of zero earnings will be for you, email me at DRpensions@shaw.ca.

  2. I thought maybe it was because we have an actual pension FUND for CPP whereas Social Security in the US does not. Contributions by workers just go into general revenue to pay the bills and when they need to pay retires benefits they just print new money and pay it out.

  3. Jim:
    I am also a financial planner who used to nearly always recommend early CPP. One other factor in favour of starting ASAP is the level of government debt (yes even in Canada) could mess with ability to pay a fully indexed CPP in the future.
    However, now I have changed my view. My belief is that those who are likely to live another 15-20 years, will likely have a lifespan of 100+ AND they will continue to be active and in good health.
    That means the risk of outliving savings is higher, and the benefit of a larger pension is enhanced.
    Really enjoy the Blog!
    Thanks,
    Michael at http://www.RetirementSingularity.com

    • Good comment, Michael. Also, don’t forget that there is a survivor benefit for married recipients. which will extend the actuarially expected pay-out period for the enhanced benefit, not to mention the fact that CPP is inflation-indexed (at least for now!)which gives a potentially significant compounding effect on that extra pension.

      • Andrew

        Just to clarify a point, the survivor’s benefit doesn’t change the mathematics of when to start receiving your retirement pension, because the amount of the survivor’s benefit is based on the “calculated retirement pension” of the deceased, NOT on their actuarially adjusted amount.

        In some cases (especially if you’re not working after age 60 or working only part-time), the amount of any survivor’s benefit may actually decrease if you don’t apply for your CPP early.

        • OTOH, if one is already receiving a survivor’s benefit at age 60, it would tilt the balance towards applying for their own CPP as late as possible.

          The moment they start their own pension, the survivor’s pension is generally cut by at least 40% (up to 100%).

          Other factors may come into play, obviously.

  4. Question: My job ends in July 2011 and I will be getting a severance package in 2011 which will meet exceed my income needs during 2011. I will be 62 in June 2011. Should I apply for my “reduced” CPP to start in December 2011 or January 2012? Would there be any significant difference in the CPP payment due toi the change from old to new rules?

    • Thanks for the comment and question. It’s near impossible to advise under these circumstances with such limited information.
      The advantage of being on the old rules is the reduction of 0.5% instead of the greater reductions under the new rules. That being said, the new reductions are being phased in over 5 years so the penalty for delaying CPP till 2012 is not that big.

      Just remember, every year you delay CPP, you have to live one year longer to get the money back you left on the table. Good luck with your decision!

  5. As an American I’m mostly familiar with Social Security, which you should generally always take as late in life as you can (unless you have debt that you need to repay, etc.) It’s really interesting to hear about CPP in Canada and all the reasons it might be wiser to take it early.

  6. I’m turning 65 Sept. 2012 planning to retire but
    work part time some people say I should wait
    until 65 to collect CPP should I wait or collect it now
    Thanking you in advance

  7. Hi Jim, I just turned 60 in mid August. I have a wife and daughter, daughter is 8. I am concerned with health. I would like to know if I should apply now for CPP. I am not sure of the benifit to my wife and child if I pass. In my mind, I should apply but what do you think?
    Terry

  8. @Doug and @Terry
    I really appreciate the question but it is impossible for me to answer a direct personal question like that in this type of forum. In the article, I think I have clearly articulated my general bias to take CPP early when you can but proper planning requires personal anaysis and a lot more information. You should seek professional advice if you are unsure.
    Good luck!
    Jim

    • Hi Shaohao,Very Cool! I will make the change.Did you crteae a project or use the bat files in the test area?I have had teal on windows in the past. I just don’t have the bandwidth to keep up. Would you be willing to test a new release on Teal on windows? I plan to release once every three months or so.Yes, I did have a portable mutex class in some previous revs of teal. It’s actually really a better way. Please feel free to modify teal to have such a concept and I will merge the changes into the mainline. The class interface can be simple:class teal_mutex_internal {public: teal_mutext_internal () : acquired_ (false) {} virtual ~teal_mutex_internal () {}; void acquire () {assert (!acquired); acquire_ (); acquired_ = true} void release () {assert (acquired); release_ (); acquired_ = false}protected: virtual void acquire_ () = 0; virtual void release_ () = 0;private: teal_mutex_internal (const teal_mutex_internal ); void operator= (const teal_mutex_internal );}Take care,Mike

  9. Did you consider that Janet is contributing an additional 5 years while Beth is not. Beth will take a little longer to catch up because she also has to recoup her 5 additinal years of payments. My own calculation says it’ll take me 20 years to catch up … so I’m collecting at 65 vs 70. It’s also advantageous for me to not collect before 65 because of my CPP/RPP blend … my RPP is reduced by whatever my CPP is at age 65.

  10. Ooops … Did you consider that Janet is contributing an additional 5 years while Beth is not. Janet (not Beth) will take a little longer to catch up because she also has to recoup her 5 additional years of payments. My own calculation says it’ll take me 20 years to catch up … so I’m collecting at 65 vs 70. It’s also advantageous for me to not collect before 65 because of my CPP/RPP blend … my RPP is reduced by whatever my CPP is at age 65.

    Now, because I like what I do, I’m still on the job, no longer contributing that 7% to my RPP because that’s paid up so that’s effectively a 7% raise… and I’m collecting CPP as well … another ~ 7% raise. I’ll do this for another year or two I think, then pack it in.

    • Rikk, it sounds like you work for the federal govt. You say that your CPP is reduced at age 65 – if you work for the federal govt your pension is reduced at age 65 and that relates to the CPP. But I haven’t seen anything yet that says if I take CPP early I will get less govt pension (or RPP). The amount your pension will reduce is calculated even before you retire. Does anyone know if taking CPP early impacts how much federal govt pension you recive.

  11. I think a coule of items were missed in the oversimplied calculation
    1- add to the fund for the period age 60 to 65 the following – amounts not paid into cpp as opposed to just spending those dollars – if working the new rules require payment (I think) and thus increase the benefits – and reduce the income spreads between taking cpp at 60 versus 65
    2- add interest ( less tax on interest) say a net return of 2% . the return will depend on the investment chosen for the new funds being accumulated. If the use of the cpp and saved contributions is paying off a creditor -(example) house mortgae Then the rate of return received increases the break evn point tomuch later

    and always remember
    if you die before breakeven point- you just made a volantary donation to the government cofeers – for which I thank you !

    • No mention of the fact that if you’re married or equivalent to there are survivor benefits – which increase if you defer. Probably most important – CPP is inflation-indexed. This means there is a potentially significant compounding effect on the extra pension you and your survivor get by deferring. On the flipside, for some people, the extra pension could increase OAS claw-back. Someone needs to build an Excel model so this can be analyzed more thoughtfully.

      • Andrew

        I just want to point out that you’re wrong when you suggest that CPP survivor benefits will be larger if you defer your CPP until after age 65. CPP survivor’s benefits are based on what’s called the “calculated retirement pension”, which is the amount before any age-adjustment factor (up or down) is applied.

  12. We have 2 situations in our home
    1. My husband started to collect at age 60 as he is not working and therefore would be adding zeros to the averaging of his contributions each year and would have made less each year if he waited.
    2. In my case I am adding max contributions at this point in my life. Each year I am told I would make more at 65 because of 1. Not being penalized for claiming early. but 2. Especially because of added contributions to my plan,I am helping to compensate for low contributions in earlier life. At 60 I was told that I could draw $484.
    Now I am told I could get $786 at age 63. that seems like a good incentive to wait. Also if I were taking the pay out I would be paying higher tax on it as I am still working. Comments please.

  13. I took my CPP pension early and combined it with my LAPP pension.

    I have some questions:

    (1) I started to combine CPP and LAPP when I was 60.I am now approaching 65 and will soon have to pay back the CPP portion. In other words, the CPP will be (a) removed from my LAPP pension, and then b)I have to pay back the CPP ‘loan’.

    I would like to get payback details (interest rate, term etc) from CPP, so that I will know how much in total I borrowed, and how long it will take me to pay it back (through LAPP)

    I realize that I benefitted for a specific time, and therefore should repay with in a specific time.I might want to reapy a lump sum rather than having CPP repay the loan back to CPP over, say, 5 years (which I estimate it should take).

    Thank tyou,

    Peter Davies

    PH: 250-452-9191

  14. “Pay back” CPP?!?! Never heard of such a thing. I’m a Financial Planner and I’ve seen lots of pensions but this is a new one on me. Are you sure you have to do this? Many pensions pay a bridge amount because they assume people wait till 65 to start collecting CPP so they give you the bridge payment to give you a level income throughout your retirement. So if you start CPP early you will experience a drop of income when the bridge payments cease at 65 but then OAS picks up much of that slack. But I’ve never heard of a requirement to pay back the CPP you received.

  15. Jim,

    I started taking my CPP last July 2011 at age 62. Since then I started working as a mortgage broker but since Aug 2011 (past 4 months) have had severve back problems that has made me incapable of working. I am scheduled for a back opertion over the next 2 months which is supposed to alleviate the problem/ pain however there is no guarantee of success. Should the back problem continue after surgery and it becomes a chronic condition can I apply foR the CPP disability benefit to augment the monthly CPP amount now rec’d?

    • Since you’re already receiving a CPP retirement pension, the only way that you can qualify for a CPP disability benefit is if your disabling condition existed and was “severe and prolonged” prior to the date that your retirement benefit started. Unfortunately, that’s one of the downsides to taking your CPP retirement pension early.

  16. I turn 60 in April and I am applying for my CPP. I will continue to work past 65 and know that I have to continue to pay into this. How does this work? Does my business still take the maximum amounts out of my pay check and do I have to tell my employer that I am starting to collect my CPP . Will my income be lower if I start taking my CPP out at 60

    • Judy
      You’ve got several questions here, but I’ll do my best to answer them all.
      Firstly, as of 2012 you MUST continue contributing to CPP if you continue working after starting to receive your CPP retirement at age 60, and you MAY continue contributing even beyond age 65. For now then, there is no need to advise your employer that you’re applying for CPP, as they have no choice but to continue making deductions and contributions. Once you turn 65, you will have to let your employer know whether you want to continue to contribute to CPP, as it is optional at that point, and they may stop deducting and contributing unless you ask them to continue.
      When you ask “will my income be lower”, I assume that you mean your CPP retirement pension. If so, the answer is yes. For benefits starting in 2012, it is reduced by 0.52% for every month that you are under age 65 when your benefit starts (a total of 31.2% at age 60). Then again, each year that you continue to work and contribute after starting your CPP retirement benefit will earn you a post-retirement benefit (PRB). Roughly speaking, a year of contributing at the YMPE will get you a PRB of approx $25/mth starting January of the following year, subject to the adjustment formual based on your age at that time.

  17. My wife has a much lower income than I do. If I take CPP at 60, would the amount of the survivor pension available to her be lower than if I took CPP at 65?

    Thanks

    • Yes it will. Also please note that a survivour pension and a regular pension combined cannot be greater than the maximum regular pension.

      Its also interesting for those needing/wanting to decide when to start their cpp that they need to be cognizant of how much they have contributed. In my case I have 37.25 max contribution years and won’t be contributing more. Therefore if I wait until after age 62 years 11 months to start it I will have diminishing returns because I won’t have the maximum contributions required to get the maximum available. Many people have a lot less than the maximum and because the CPP is based on potential contributory years (42 to 47), established at the time the CPP is started, they are affected negatively the longer they wait .

      I’ve used the pending 17% dropout factor in the below calculations.

      Age 60 Max reduced pension requires 34.86 yrs. max contributions.
      Age 61 Max reduced pension requires 35.69 yrs. max contributions
      Age 62 Max reduced pension requires 36.52 yrs. max contributions
      Age 63 Max reduced pension requires 37.35 yrs. max contributions
      Age 64 Max reduced pension requires 38.18 yrs. max contributions
      Aged 65 Max un-reduced pension requires 39.01 yrs. max contributions

    • Neil
      I hate to disagree with Dave, but the simple answer is that the amount of survivor pension payable to your wife is NOT reduced if you take your CPP at age 60 instead of age 65 (ie., the survivor benefit calculation is based on your calculated unreduced retirement benefit).
      The slightly more complex answer is that if you don’t apply for a retirement pension T ge 60, it depends on whether you’re working between age 60-65, and whether your average lifetime earnings is going up or down during this period of time. That is what will affect the calculation of your survivor’s benefit.

  18. On a different issue.

    If you have/obtain 39 maximum years of contributions at age 57 or anytime before age 65 you are not gaining any benefit for your contributions.

  19. I work for the government my pension will be clawed back when I turn 65. I am turning 60 next year would it make even more sense to take CPP early based on the clawback or is this a non issue?
    Thanks,Ian
    P.S. It is my intention to work at least 2more years as I will have 35 years in at 2013, max pension 70%.

    • Ian
      I suspect you’re referring to the clawback (or offset) of the CPP from your government pension plan, rather than the OAS clawback. If I’m wrong though, accept Dave’s answer and ignore me.
      If it’s your federal or provincial government pension “clawback” that you’re talking about, you really should get the specifics from your HR dept. Based on my knowledge and experience though, most governments will offset at age 65 by an approximation of what your age-65 CPP would be, based on the contributions that you made to CPP while working as a government employee.
      In a nutshell, that means that if you apply for CPP at age 60, you’ll be in a windfall situation until age 65, at which point the clawback or offset may exceed your reduced CPP benefit. The good news though is that the OAS also kicks in, so you’ll probably be further ahead at that time anyway (unless you’re one of those lucky folks who’s subject to 100% clawback of the OAS, as explained by Dave).
      Confused yet?

      • Terminology. The CPP Bridge benefit or offset does not get “clawed back”. The benefit is awarded to those with defined benefit CPP integrated pensions who start drawing their pension at an age less than 65. Those people will have been clearly told that it would stop at 65 and there was never any intention to pay that amount beyond that age. It does not get clawed back into your pension plan; It stops and it stops because you never paid to receive it beyond 65. The definition of a clawback is;

        1. Money or benefits that are distributed and then taken back as a result of special circumstances.

        Reading Doug’s answer, his suspicions, I expect, are very right and something I should have picked up on given the subject matter of the blog.

        To be clear my entry here is not intented to be directed at Doug or Neil, only to be helpful to others reading this stuff and learning about pensions.

        • Dave
          Good clarification! Sometimes terminology is everything. I know that it feels like a clawback when they take away something that you’ve been receiving for several years, and some people get very upset over it. I agree though, you only get what you pay for. Thanks Dave.

  20. Hi Ian,

    The only pension that gets clawed back of course is the Old Age Security (OAS). If you expect that your OAS will be fully clawed back; meaning you have income in 2012 dollars of more than $112,272, then adding any income, CPP or otherwise beyond that amount is not affected by the OAS claw back provisions. You will pay only the applicable income tax rate. In other words if you believe after 65 you will not be eligible to retain any of the OAS then when to start your CPP and therefore the amount of CPP being added to your income is irrelevant.

    If your income is between (2012) 69,562 and 112,777 then adding income would effectively push OAS higher into that range forcing it to be clawed back at the rate of 15% per hundred dollars. It seems from your long work history that you may be entitled to max CPP. (2012 rate 987.00 per month). So the issue would be adding (age 65 CPP) of $11844 to your income or adding (age 60 CPP) of approx. $8006 to your income. The difference being 11844 – 8006 = $3838. Adding $3838.00 to your income would effectively incur the 15% ($575.70) claw back in addition to whatever income tax is payable.
    While I would want to know more about your particular situation; on the face of what you have presented I would likely start your CPP when you retire at age 62 or sooner.

    Hope this helps.

    Dave

    • My husband retired with a government pension after 35 years and now has a bridge CPP to age 65 of $725/month. So am I to understand that at age 65 the bridge $725 would be cancelled and replaced by CPP at the same amount?

      • Mary
        You’re at least half right with your understanding, and that is that his $725/mth bridge will end at age 65. His CPP will start whenever he applies for it, between 60-65. If he applies for it at age 65, the bridge was meant to approximate what the CPP would be for the years that he worked for the government, so it may indeed be somewhere in the neighbourhood of $725/mth. It often is actually a little higher than the bridge amount. If he applies for his CPP earlier than age 65, it may be lower than the bridge amount, but he will be receiving it for a longer period of time.

  21. I will be 62 in September 2012.
    If I were to take my CPP now, and if for some reason I became unemployed before age 65; would this affect the amout of EI I could receive, if any at all?

    Thanks, Tom.

  22. I will be turning 60 in Dec/12. I don’t have a company pension plan but have saved up over of the years.
    In todays economy, Just in case I lose my job Just wondering if it would be in my best interest if I collect CPP at 60 or should I wait until 65?

    Thanks in advance…Ed

  23. The econonmy and the liklihood of job loss arn’t relevant in making the decison whether to start it at 60 or 65. There is no absolute right answer.
    To be clear its not 60 or 65, you can start it anytime after age 60. So if you lost your job at say age 62 you could start it then, at a higher rate.

    If you’ve read Jim’s colum above he sets out the issues pretty well. It really just depends entirely on your own specific situation, money needs, and how long you think your going to live.

  24. I am 59 and am considering applying for early CPP @ age 60.I am presently collecting total disability (75% from my employer’s insurer and 25% from Canada Disability Pension). I have been employed with my employer for 35 years. I have been collecting total disability income for the last 5 years of these 35 years. Would the disability money that I collect at present, reduce/impact my early CPP? Would the fact that I have been on disability over the last 5 years reduce my CPP entitlement? Thanks.

    • GROise
      You can’t receive both a CPP disability pension and an early CPP retirement pension. They are mutually exclusive!
      What will normally happen (assuming that your disabling condition doesn’t improve to the point where you would be employable), is that your CPP disability benefit will convert to a CPP retirement benefit at age 65. This “conversion” will normally be a reduction, but it’s accompanied by eligibility at age 65 for the Old Age Security pension, so you should see a net increase in your government benefits at age 65.

  25. I am self employed and I am trying to decide if I should continue to take a salary vs. dividends. The reason I have taken a salary is to be able to contribute to CPP, because for most of my career I was an employee and paid into CPP.
    I currently have contributed the max to CPP for 27 years , out of a possible 34 years. I am 52 years old. When I run an estimate monthly CPP benefits from service canada website, it tells me that ” if you were 65 today, you would receieve a monthly retirement pension of $975.07″.
    Does this mean that if I stop contribuing to CPP, that I could expect to receive the inflationary adjusted equivelent of $975.07 per month in 13 years, when I’m 65?
    I’ve called the service canada service line and did not get much help answering this question.
    Thanks in advance to the bloggers that reply ,I appreciate it.

    • Laurie
      No, there is no attempt in the CPP estimate system to anticipate inflationary impacts. Estimates are always based on current dollar values.
      There are/were two different estimate systems used by CPP. One “pretended” that you were age 65 presently, and used your existing 27 years of contributions to calculate a current retirement pension. The “if you were 65 today” heading was what was used for that system, but your estimate shouldn’t be as high as $975.07 using that system. The max pension for 2012 would be $986.67, and if all 27 of your years of contribution were at YMPE, that would only give you a pension of approx $859.36 if we pretended that you were 65 now ($986.67 / (84% of 37 years) x 27 years).
      The other system projected your last year of earnings until age 65, and did an estimated calculation, but still using 2012 dollar values. It sounds like that is the calculation that was done for you, but we used to say “if your earnings continued to age 65 at the same level as currently”.
      In either case, the best estimate for your CPP at age 65 if you stopped contributing now would be to say that you will receive 69.2% of the maximum (27 years at YMPE divided by 83% of the possible 47 years of contribution). Using 2012 values, that would work out to $683.08 monthly. This will be adjusted by whatever increases there are in the YMPE over the next 13 years, but it’s probably more meaningful to keep things in current dollar values.
      Does this make any sense?

      • Hi Doug,
        Yes, I understand – thanks for explaining it so well. Service Canada could use you! With the information you provided I now understand how CPP is calculated and the implications if I stop contributing.
        Thank you.

        • Laurie
          Glad that my explanation was helpful. Since you have the choice to contribute or not, another way of looking at the cost/benefit is to compare the cost of contribution (9.9% for each year of earnings) versus the payback in terms of annual CPP retirement benefits (25% of each year’s earnings averaged over 39 years = 0.64%). On that basis, the makeup time for each year of contributions is about 15.5 years after age 65.
          This calculation only acknowledges the value of the CPP retirement pension though, and you should also consider the potential value of CPP disability benefits as long as you maintain contributions during 4 of the last 6 years, as well as death/survivor benefits.
          Service Canada paid for my services for 32 years. Now I give it away for free!!

          • Thanks again for providing very valuable information. Service canada lost a very knowledgable employee when you left:)
            In reading your response re that make up time is approx. 15.5 years after age 65, Do you know what the make up time would be if CPP was taken at age 60 ( given the new rules of .6% per month)?
            Again thanks in advance for sharing your knowledge.

          • Laurie
            In response to your followup comment below (no reply button there), thanks for the kudos. I’m very glad to be able to share my knowledge in this form.
            As to your question, the math changes a bit if you take the CPP retirement at age 60, because it’s reduced by 36% as you suggest, and because the earnings are averaged over approx 35 years (your best 83% of 42 years) instead of 39 years. The new makeup period is therefore 64% of 25% of 1/35 = 0.46% return for the same contribution of 9.9% = 21.5 years. Starting at age 60, you will recoup your “voluntary” contribution at age 81.5, which is almmost the same as the above 15.5 years after age 65.

      • Dave- thanks for the link- I agree the website is helpful.I have saved it in my favorites. The CPP calculator makes it easy to see the differnce ,in PV terms, of taking CPP at 60, 65 and 70.

        Doug- Your information re the time it takes to make up my ‘voluntary’ contributions is valuable information for me to ponder as I evaluate whether to continue to pay into CPP or not. Thank you.

    • My husband collected his cpp @ age 61 and worked. Two years later he was told he was clinical blind and was taken off work for good. Is he able to apply for cpp disability now

      • Debbie

        The only way this can happen is if your husband was disabled (under the CPP definition) prior to receiving his CPP retirement pension.

        Even then he is probably too late now, as the maximum retroactivity for a disability decision is normally 15 months, and the retirement application normally has to be withdrawn within 6 months of the first payment.

  26. Hello,
    I have read the info that you have posted and feel a little better about my dad’s Pension Plan.
    I have some questions though and I was wondering if you can please clear those for me.
    My dad’s job ended due to shortage of work and now he is on Employment Insurance (EI) from May 2012-July 2013. He has turned 59 on April 2012. So I was wondering is it wise/good for me to apply for him, for his reduced CPP now or should he wait until his EI is given (i.e. after July 2013?).
    Thank you

  27. Great article. The question I have is, should I take CPP early if I am currently getting CPP Disability? Will the monthly amount change? I know my Disability ends at 65. Thank you.

  28. K
    The answer to your question is NO, NO and NO!
    In any case, you can’t receive both a CPP disability benefit and a CPP retirement pension at the same time. Unless your disability has ceased or improved to the point where it no longer prevents you from working, you should continue receiving your disability benefit until age 65, at which point it will convert automatically to a retirement pension (at a lower rate).

  29. I am eligible to receive CPP but am going to continue to work part time . WhenI am not working, I am eligible to draw EI benefits. Can you tell me if I should apply for CCP while drawing EI and if there is a clawback on one or the other. I can’t seem to get an answer from service canada with regards to the best decision to make

  30. I took early CPP in December 2011 without a work stoppage as many people have and am still having CPP contributions deducted from my pay…can I get that money back as I believe it is unconstitutional for the FEDS to make anyone stop working ?

      • Since I received my first CPP payment in December 2011 I thought I wouldn’t have CPP deducted from pay…but is has been deducted for all of 2012. Is this right ?

        • Ray
          It used to be that you could no longer contribute to the CPP after you started receiving your CPP retirement benefit. That changed, beginning 2012.
          Now, you MUST contribute up to age 65 regardless whether you are receiving CPP early, and you MAY contribute up to age 70 even if you are receiving CPP. The answer to your question MAY therefore depend on your age. If you are still under age 65, you definitely cannot get a refund, as those contributions are mandatory. If you are over age 65, you can opt not to contribute, but the question is whether Revenue Canada would allow you to exercise that option retroactively for 2012, and give you a refund.
          The good news is that those additional contributions will create additional benefits for you, in terms of what is called a PRB (post retirement benefit). That benefit will be effective Jan, 2013 (although you shouldn’t expect to receive your first retroactive cheque until approx June/July 2013, after the tax returns have been processed a and the additional contributions are acknowledged by RCT). The amount of the PRB can be estimated at about $25/mth for a max earnings (approx $50,000), pro-rated if less than that. The PRB is also subject to the normal actuarial adjustment up or down, based on your age as of Jan/13.
          The same process of mandatory/optional contributions for 2013 will apply to you, and if you contribute for 2013 you will be eligible for an additional PRB in 2014 and beyond.

          • But I thought since I started receiving CPP in 2011 I would be under the old rules and would not have to contribute anymore.

        • Ray
          Nope, doesn’t matter when your CPP benefit started, if you’re under age 65 in 2012 or later, you MUST contribute to CPP on any earnings.

  31. I believe that the strategy of taking CPP early in order to get as much money out of the plan as possible is wrong thinking. Instaed you should be more focused on how much you will receive each month and what you need to live on and how much tax will be paid on any income received.

    A much better strategy is to delay CPP as late as 70 unless it is needed to exist or your health is poor. Delay CPP and remove money from your RRSP while your income is lower, I assume you are not still working. This strategy gives you the maximum monthly income at a time when you need it the most and who cares about the break even point. Will you be satisfied if you break even but do not have enough monthly income to live on.

  32. This is the very first time I have ever communicated in an online forum, so please bear with my deficiencies. My husband has paid into CPP since 1968. Our birthdays are both in spring months and we are the same age. I only worked sporadically (raised children). Last Dec., on a lark, I applied for any CPP that might be mine and am now receiving a whopping $25. and change. Because of the old requirement of having to be off work to start the CPP, my husband did not apply. Now we are wondering if it would be in our best interests for him to apply in the “pension sharing” mode. Our question is this: as I am his only dependent and he claims me for the full eligible amount, would my receiving a portion of his pension put me in a position where he would lose me as a dependent? His income is in the $60.000 range. I only get the $25.ish from CPP. Your input would be great! Thanks. Elaine

    • Elaine
      I will let others who know the income tax system better than I, respond to the issue of pension sharing versus claiming you as a dependent.
      My response concerns only your CPP calculation, and whether you remember completing form for the “Child Rearing Dropout” or CRDO provision. If you’re not sure, it might be good to call or drop in at your nearest SCC just to make sure.

  33. I took my CPP early at age 60 so it starts to pay me in a couple of days. I also have an OMERS pension which is indexed each year as per the cost of living. I understand the CPP is also indexed.

    My question: Will my reduced pension be indexed each year. For example if my pension is based on 60% of the 2012 rate presently (roughly 674.00 when it is 60% of the maximum rate), will it again be indexed up at 60% of the new higher rate each year. It would seem logical. That said I received no CPP in 2012 (I thought I was supposed to start receiving payments the month of my 60th birthday which was Dec 8).

    Sorry if this is long. Basically put is the reduced pension indexed as the full pension is? Thanks for a great site.

    • Larry
      Yes, your reduced CPP pension is indexed each year, but not quite in the way that you descibe. Once you start receiving your benefit, it is increased each year in line with increases in the Consumer Price Index (CPI), which is based on the cost of living. The max benefit starting the following year is “indexed” (not quite the right word) by increases in the 5-year rolling average of the Year’s Maximum Pensionable Earnings (YMPE), which is based on changes in wages. Therefore, if prices are going up faster than wages, your benefit the following year might actually be more than 60% of next year’s max benefit, but if wages are going up faster than prices it might be less than 60% of next year’s max benefit.

    • Larry
      I forgot to comment on your effective date. Under CPP, benefits are always paid at the end of the month following whatever created the entitlement. That means that your benefit will be calculated in 2013 dollars, not 2012 dollars. The negative part of this for you is that the reduction factor changed effective 2013, to 0.52% for every month you take it early, meaning that your benefit will be reduced by 31.2% instead of the 30% that it would have been in 2012 (meaning that you will receive 68.8% of whatever your age-65 entitlement would have been, instead of 70%). I’m not sure where your 60% came from, but I hope this clarifies things for you?

  34. I’m confused. Say you start your CPP at age 60 and still work. (1) Doesn’t still paying into CPP somewhat off any benefit of collecting CPP early ? (2) If your collecting a reduced CPP because your taking it early, I though it was reduced forever… how does still payinto CPP change that ?

  35. Bill
    I can understand your confusion, because the CPP rules around contributing after you start your CPP retirement pension changed effective 2012. Prior to then, you are 100% correct, once your pension started, you could no longer contribute and your pension never changed, except for the annual CPI increased.
    Since 2012 however, contributions are mandatory until age 65 regardless whether you’re receiving a CPP retirement pension or not, and they’re optional between age 65-70 if you are receiving your CPP retirement pension.
    These additional contributions (manadtory or optional) made after you start your CPP retirement pension still don’t increase your existing CPP pension though. What they do do (I always like saying that) is create a new benefit, known as a post-retirement benefit or PRB. This is a new monthly benefit that is paid starting January of the year starting when these “extra contributions” are made, and is payable for life along with your current CPP retirement pension.
    The amount of the PRB is approximately what your contribution would have increased your “regular CPP retirement pension” by if you hadn’t already been receiving that pension. A good estimate for a maximum contribution is approx $25/mth, adjusted up or down based on the normal CPP actuarial factor based on your age when the PRB starts.
    I hope this helps a bit?

    • Thanks but I’m still a bit confused. If you start collecting CPP at 60 and keep working, are the contributions you still have to make after age 60 substantially less than before… since you say you’re only going to get a small $25/month PRB benefit ?

      • I don’t get it ? If I take ny CPP early at age 60 and continue working, I’m going to get about 32% less from CPP for the rest of my life. And out of that reduced amount I still have to pay contributions into CPP up until age 65. It seems to me, from age 60 to 65 I’m essentially over contributing by a couple of thousand dollars/year – only to get a couple of hundred dollars/year in PRB benefit! Does this raking CPP early make any sense… if I do it it (thought you’d like that one too) sounds like I’m getting the shaft, what am I missing here ?

      • Bill
        Nope, contributions stay the same (4.95% for employee or 9.9% if self-employed, but as I say, benefits stay almost the same also. If you think about it, it takes 40 years of max contributions to earn a max pension of approx $1,000 mth. That works out to about $25/mth for each of those 40 years of contribution.
        The PRB gives you the same rate of return, but it starts almost immediately, so that’s probably even a better return than on your “normal contributions”, because they’ve been sitting there for an average of 20 years.
        Don’t forget though, that the PRB that I’ve quoted of approx $25/mth is for max contributions if you’re age 65. If your contributions are less than max or if you are less than 65, you have to adjust the $25/mth accordingly.

        • Thanks… but I’m not sure and I’m really going to have to rap my head around this one. Its important ’cause I turn 60 later this year… and, if possible, I’d rather not leave any money on the table. PS: I do appreciate the comments and opportunity for feedback !

          • Bill
            If you haven’t yet decided whether to apply for your CPP early, the math does change a bit. I do do (there it is again) detailed CPP calculations as a business, and I can help you if you wish. I do charge $25 per calculation, but all I’d need is your CPP statement of contributions and some what ifs, around your future earnings. If this interests you at all, email me at “DRpensions@shaw.ca”.

        • Bill
          My reply above was intended for your previous comment, so now I’ll try to address any leftover issues from your second comment.
          I’m not exactly sure what you mean when you say that you’ll have to pay contributions out of your reduced CPP? You only pay contributions on earnings, not on your pension, if that makes you feel better.
          I’m not sure why they made contributions mandatory up to age 65, but I don’t think you’re being shafted by the PRB. Your contribution costs you 4.95% of your salary (double if self-employed) and your PRB gives you a return of 0.625% (adjusted by your age factor starting the following year. The breakeven point for someone under age 65 is about age 71-73, so I don’t see that as too much of a shaft?

  36. Tanya
    Since 2012, there is no longer any restriction to earning income in the month before you claim your CPP, so keep on working and apply at age 60 or whenever you feel is best for your situation.

  37. I have been struggling with this decision for some time now. My wife and I are both retired federal public servants. She turned 60 in November and I won’t be 60 for a couple more years however we both receive what is known as a “bridge benefit” up until 65 years of age when it is then stopped and CPP kicks in. Since the bridge benefit equals CPP, if we took CPP at 60 at a reduced amount, once bridge benefits ceased at 65, would we not then be making less per month for the rest of our lives? I’d like to take advantage of the extra monthly income while we are relatively younger and healthy but I fear the eventuality of a decrease in benefits at 65 years of age? I also understand that I will likely take longer to reach the break even as per the new rules, meaning I’d receive a bigger deduction per month at 60 than my wife would.

  38. Rick
    I can appreciate your struggle, as I had the same decision to make, and I opted to start my CPP at age 60. My main suggestion is that you should get accurate numbers to make your decisions.
    Firstly, the bridge benefit doesn’t necessarily equal your age-65 CPP retirement pension. What it attempts to do is approximate the CPP for the years that you contributed to superannuation, using a somewhat complex formula. In my case, the bridge amount is actually slightly less than my age-60 CPP retirement pension. A simple phone call to your HR advisor and/or the Superannuation dept should be able to confirm what amount your superannuation will decrease by at age 65. It’s also worthwhile to remember that the OAS will kick in around then also.
    As for your CPP amounts, it’s true that the reduction factor is increasing each year until 2016, when it will reach 0.6% per month. This does mean that taking CPP at age 60 will be a better deal for your wife than for yourself, but it still might make sense for both of you. Depending on your entire contributory period, if you’re not working now and if you don’t take your CPP early, your “raw” CPP calculation may be reducing if you delay, which offsets some of the age adjustment factor.
    If you want accurate CPP estimates, I can do that for you (for a fee), if you email me at DRpensions@shaw.ca

  39. Great article Jim, but I still don’t see the advantage in taking CPP early.

    The issue here is that your monthly income is much more important than how much you accumulate over x number of years.

    Working those extra 5 years will give you way more monthly cash then anything else. And since it’s the highest monthly income you’ll receive, it’s easier to save a chunk of it each month and add it to the whole at the end.

    The only reason someone would take CPP early is if they didn’t need the money to live off of month to month.

    And if that was the case, you wouldn’t have this dilemma in the first place!

    Just my two cents.

    • Michael

      Not to argue against waiting versus taking it early, but I don’t think it’s always quite as straightforward as you’re suggesting.
      First, if someone already has 39 years of max contributions, although their benefit will increase by the actuarial factor by waiting, their additional contributions don’t count for anything. If they take their CPP early however, those additional contributions will buy them post-retirement benefits (PRBs).
      Second, if someome isn’t working and they already have 8 or more years of zero earnings, although there pension will be increasing by the actuarial factor if they wait, it will be decreasing due to their lowering lifetime average earnings.
      Both of these scenarios alter the “breakeven” calculations, and demonstrate to me that the decision on whether to take it early or late is an individual decision, based on the mathematics of the breakeven calculations for them, plus the other factors that Jim mentions.

    • My goal is not to convince you to take it early or leave it longer.
      My personal belief is that math speaks volumes and I want to show you the math. There are some circumstance where it may not make sense to take it early but the real math lies in how long you plan to live.
      Good luck!
      Jim

      • The math doesn’t support your conclusion. Average Canadian lives to be 80. “how long you plan to live” – er… you can’t plan that.

  40. Strategy re: 60 vs 65.

    Example: Start CPP at 60 and buy 900 shares of BCE (currently about $41 per share and it pays $2.33 per share per year in Divs.) Divs are taxed preferentially and interest paid on the borrowed money is fully deductible. Pay the loan off over 5 years with your CPP. Result at age 65 is that you will continue receiving your age 60 CPP plus the divs (which probably will have increased a little) AND you will own 900 shares of BCE.

    In my case I will get the max age 60 CPP but not the max at age 65 (My max age 65 will be $956 not the 1012.50 which is stated on my CPP statement. When I crunch the numbers in tax software I end up with the same $$$ as if I had waited to age 65 to start my CPP. But as I say I will then have 900 shares of BCE fully paid.

  41. Hello, i read your article with great interest. although i am a bit late from your original posting. how much has changed since then? also, i cannot understand why your examples give a CPP of thousands, when in reality we, even after working for 20, 30 years and contributing, has in most cases with my elders, been told that their CPP will only come to hundreds. not even close to a thousand. in fact, in real life, i have only heard of people who retired on collecting 250 dollars, 300 dollars.
    and in sum, only a measly 700 dollars collectively incl CPP OAS and Provincal PP such as QPP BCPP,etc.
    I look forward to your response. feel free to email me directly. Agrigato, sie sie.

  42. Stan

    The numbers in Jim’s article are still relevant, as he included the transition rules from 2012 thru 2016. Right now we are at the reduction rate of 0.54% for every month that you take your pension early (on the way up to 0.60% by 2016), and we’re at a 16% dropout (on the way to 17% by 2014).

    2013 was the first year that the maximum CPP retirement pension exceeded $1,000.00 monthly, so that’s one of the reasons that no previous seniors would be receiving that amount. The other reasons include the number of years of contribution to CPP, the amount of earnings in those years and at what age you start receiving your pension.

    The basic formula for a CPP retirement pension is that it replaces 25% of your “average lifetime earnings” between the ages of 18 and when your pension starts (allowing for the general dropout as well as some other dropout provisions). For 2013, the only way that you would receive the maximum of $1,012.50 is if you had at least 39.5 years of earnings at the maximum rate (YMPE) and you applied for your retirement pension at age 65 (or if you had slightly lesser earnings and applied later than age 65).

    Although many people receive less than the maximum amount, this wouldn’t change their “breakeven” calculations when deciding what age to start receiving their pension.

  43. I am going to be 61 this year. I am not working at this time. I receive a bridging pension through HOOP. Would this effect the amount I would receive if I decided to take early CPP ? Obviously my HOOP bridging will end when I turn 65.
    Thanks for your assistance.

  44. Kathy

    The amount of your CPP retirement pension is not affected by any other benefit, but it could be reducing if you’re no longer working and if you don’t apply for your early retirement pension. Any reduction as a result of not working would be less than the increase by waiting until a later age, but it can definitely alter the “breakeven period” for deciding when to start.

    I can only give you an accurate answer however, with seeing your complete CPP statement of earnings, which you could email to me @ DRpensions@shaw.ca.

    • Thanks for your response Doug. I guess when I called them they said what I am receiving from my HOOPP would be considered in the amount I could receive. I assume this is incorrect. Where can I get my CPP statement of earnings? Thanks

  45. I will be 60 in a year’s time. I’m in reasonably good health and have planned to put off taking my CPP until age 67 or 68 – whenever I stop working. Until I started reading these comments I figured that was a fiscally sound thing to do. Now I’m not so sure. Most of my over 60 friends started getting their CPP as soon as possible. Are there any advantages to putting off collection until I do retire in my later 60’s?

    • Ian

      The only reply that I can give you without seeing your entire CPP contributory record is “it depends”. Jim has identified above most of the issues to consider (are you still working, how long do you expect to live, how badly do you need the money now, etc), but the financial impact of when to start taking your CPP can vary significantly based on your earnings history.

      For instance, if you already have 39 years of max contributions by the time you reach age 60, further contributions after age 65 won’t increase your retirement pension at all, whereas if you apply for your CPP they will be used to generate post-retirement benefits.

      On the other hand, if you have some lower years of contributions earlier in life, delaying your CPP while you’re working beyond age 65 can significantly increase your eventual CPP retirement pension.

      If you want accurate numbers to help you make your decisions, email me at DRpensions@shaw.ca, along with a copy of your CPP statement of contributions. I do charge a fee for these calculations, but most people agree that my fees are very reasonable to help you make a very important decision.

  46. I will be 62 in January. I am working full time and self-employed through my own corporation. I am contributing the maximum to CPP. Unfortunately I havn’t contributed the maximum throughout my work life. I was thinking that since I am now contributing the max I should wait until age 65 to collect the CPP.
    Now I am thinking that I should start by CPP early, start paying myself dividends rather than salary from my corporation and stop paying the maximum to CPP.
    What do you think?

  47. Valerie

    As I see it, you really have two separate decisions.

    Firstly, should you start your CPP now, or at age 65, or at some other age. Aside from general advice such as “start it now if you think you might die at a young age and delay until age 70 if you think you might live to an old age”, I would need to see your entire CPP statement of earnings to give you a meaningful reply. I can do that offline (for a fee) if you email me at DRpensions@shaw.ca.

    Secondly, should you pay yourself in salary and keep making contributions or should you pay yourself in dividends. That answer depends partly on when you decide to start your CPP. If you start your CPP now, you can either switch your earnings to dividends and save the contributions, or you can keep paying yourself salary and the additional contributions will create additional post-retirement benefits (PRBs). If you wait until age 65 to start your CPP, I probably wouldn’t recommend the dividend option, as based on how you’ve described your earlier earnings, that would negatively affect your CPP pension.

    Again, I could better quantify these options for you offline.

  48. I’m a single female immigrant, started working in Canada in 1996 with max contributions every year. Due to health issues and caregiving responsibilities, I want to stop working in Oct 2014 when I turn 60, and start collecting CPP. I see the CPP website says I can apply now that I’m 59. Would the amount that comes to me be calculated for now or for when I turn 60? That is, will the CPP payout include now till Oct 2014? I’ll also be contributing max this year. Should I in fact delay applying until I stop work? I don’t know how long it will take to process my application.

    Thank you.

  49. Irina
    When you apply will not affect the amount of your CPP benefit, so you might as well do it sooner rather than later. It generally takes about 2-3 months to process a retirement pension application, so there’s no real rush, but no reason to wait either.
    Regardless when you submit your application, CPP won’t know your 2014 earnings until after your 2014 taxes are filed and processed by Revenue Canada sometime in 2015. At that time, CPP should recalculate your pension retroactively. Sometimes they need a phone call to remind them to do that.

  50. Thank you Doug. I’ll be submitting my application. I also noticed that Service Canada only has one ROE for my employment although I’m working for a different company now. Would I have to get them a copy of my previous employer’s ROE to get my CPP? My CPP statement of contributions does show all the years I’ve been working.

    • Irina
      CPP doesn’t use your ROE at all, so there’s no need to get one from your other employer for CPP purposes. CPP uses strictly the earnings that show up on your CPP statement, which comes from Revenue Canada when you file your tax return.

  51. What about in the other end and you’re stuck with the lower payment, don’t you actually start losing money if youlook at the big picture, I mean if you lived 10 years past you break even point wouldn’t you be giving up that difference in payment every month, so that at the end of the 10 years you could measure your loss at so many thousand?

    • Lorelei
      You are 100% correct with pointing out the higher pension amount if you live past the breakeven point. Unless you know in advance what age you’ll die at though, it’s a gamble either way.
      To me, it’s very much an individual decision. The relative pension amounts and the breakeven age are certainly important factors to consider, but they’re only part of the equation.

  52. There is another very important factor to consider when deciding when to start taking CPP and I rarely see it raised. Let me explain my personal situation. My husband passed away before reaching age 60, but had contributed to CPP for most of his adult life. Since his death I have been receiving the survivor benefit (roughly $535per month). Soon I will turn 60. I also contributed to CPP most of my adult life until my recent retirement. It is important to know that a combined CPP benefit (survivor plus self) cannot be greater than the maximum amount for a single person (currently about $1000 per month). Therefore, although my CPP benefit will be subject to the reduced amount when I take it at age 60, my combined CPP benefit will be slightly less than the maximum. It would make no sense whatsoever to delay the timing of my CPP benefit.

    So, the first point – If you are collecting a survivor benefit, it is very likely to your benefit to take your CPP as early as possible. At the very least, call Services Canada when you are 59 to get an estimate of different timing whether or not you continue to work. (e.g. How much do I get if I start taking CPP at age 60 versus 65)

    The second point – If a married couple is waffling about when to start collecting CPP, then also consider the possibility that even one of you may not survive past the break-even mid-70’s (maybe older if you invest the early payments) and you quite likely will have left money on the table that you won’t get back.

    The third point – Regardless of your personal situation, married or not, call Services Canada at age 59 to get estimates of CPP payments under a few situations so that you are better informed about your own personal situation. General rules of thumb may not apply to you.

    My final point – If, after careful consideration of your financial and health situation, you need your CPP benefit at an early age, go ahead and take it, and enjoy your final years.

    • Debi
      Thanks for raising this point. I have written about it a bit on this website at: http://retirehappy.ca/cpp-survivor-benefits/

      The only further caution that I’d add, is that if you take your retirement pension at age 60, the survivor’s amount will be recalculated when you reach age 65 and your combined benefit at that time may be reduced to significantly under the single max of $1,012.50. Did they mention that when you called Service Canada?

      Another option that you should at least consider is waiting until age 70 to start receiving your own retirement. This sometimes becomes the best option if you live even just to your mid-70s.

      I can do detailed calculations for you for all 3 options, if you email me at DRpensions@shaw.ca.

  53. Thanks for the heads up. Services Canada did not mention anything about a reduction at age 65. I will call them tomorrow to ask about the reduction at age 65.

  54. How does it make sense to take CPP early if the breakeven point is 77? The average age people live to in Canada is supposed to be around 80 and a rational assumption would to take the cautious approach and assume you live until at least 85. On that basis it doesn’t make sense to take it early.

  55. Beth start CPP at age 60 – get $321 per month,
    Janet start CPP at age 65 – get $502 per month
    age 66 and over, does Beth continue to get $321 and Janet continue to get $502 per month for the rest of their lives ?

    Assuming both live upto age 80:
    $321x12x20=$77,040 (Beth) would receive less than $502x12x15=$90,360
    is this the math?
    thanks

    • Yee – Yes, both Beth and Janet will receive their respective amounts for life (ignoring the annual increases for cost of living), so your math is correct.

  56. hi Doug,
    $321x12x20=$77,040 (Beth) would receive less than $502x12x15=$90,360 (Janet)
    so why is there a benefit to take CPP out at age 60 (Beth) ?
    At age 80, Janet would have collected more than Beth.
    thanks

    • Yee
      The benefit to Beth taking CPP results IF she doesn’t live until age 80 (or whatever the actual “breakeven” age is), OR if she needs the $321 monthly from age 60 to 65 more than she’ll need to extra $181 monthly after age 65 (when she may also be eligible for OAS and GIS).

      • thanks Doug
        so it depends on one’s need for early CPP (assuming can live till 80).
        And if other income would cause an OAS clawback.

  57. Normally, if people retire before 65 they get a bridge amount from their pension plan. At 65 that bridge amount gets reduced and offset by CPP kicking in. Therefore, if your pension was say $30K before 65 its 30k after 65 (not 30k + CPP).

    If you take CPP early and get a reduced CPP amount, do you get more from your pension at 65 to make up for the difference. That way you wouldn’t make less after 65 than you did before ?

    • Ron
      Using your example, if you take your CPP early, you will be receiving 30k plus your reduced CPP while you’re under age 65. At 65, you would be receiving 30k minus your bridge plus your reduced CPP.

      You’ve destroyed the concept of a bridge if you take your CPP early, so if you want a level income under/over age 65, that would be a bad decision.

    • The bridge you get from your pension really has nothing to do with the amount of CPP entitlement. CPP encompasses your working life from 18 to 65 whereas the bridge benefit only applies for the years you worked for an employer with an additional pension plan… that is integrated with CPP. (Some are not).

      If you worked for 15 years in a job that did not provide any pension (except CPP) and then a job for a further 24 years that did have a pension plan plus CPP, your age 65 CPP would be based on 39 (15 + 24)years of contributions, whereas the bridge offset from your pension would only be calculated on your 24 year period of employment that had the additional pension.

      In my own case I have about 37 years of maximum CPP contributions but only 29.6 yrs of that working for an employer that had an additional pension plan. My CPP bridge benefit is therefore based on 29.6 years but my CPP will be based on 37 years. If I was 65 today I would lose about $805 from my pension but start to receive about $981 from CPP. (The 2014 Max CPP being 1038.33).

  58. I took early CPP in April of 2011 (turned 61 in January 2011). Is my CPP affected by the new monthly reduction rules? I thought that I had snuck in under the old rules but a statement on a linked site makes me now question that…”if you received early CPP prior to Dec. 2010 there is no increased reduction”

    Thanks

  59. Evelyn

    You are entirely correct that you “snuck in under the old rules”. The increase in the reduction factor started with pensions that began in January 2012 or later.

  60. I will be turning 63 in June of 2014. I am not collecting early CPP yet. I am thinking of applying now. I am still working full time. Should I wait till 65 to collect the full amount or apply now to collect a reduced amount? I need a quick answer please. Thanks.

    • Perry

      The best answer that I can give you without knowing your entire CPP contributory record is “it depends”. For instance, if you already have enough years of maximum contributions, any further contributions may not increase your age-65 calculation at all, but if you do apply for your CPP early they will definitely generate “post-retirement benefits”. On the other hand, if you don’t have enough years of maximum contributions, waiting to apply until age 65 could increase both your “calculated pension” plus you wouldn’t be affected by the age-reduction factor.

      If you want me to crunch some numbers for you (for a fee), email me at “DRpensions@shaw.ca”.

      • Brenda,

        I have been checking into this very thing with Service Canada and yes, you can collect CPP while on EI.

        You must, however, report CPP as income as it is considered income arising out of employment.
        How it is calculated is: your monthly CPP x 12 months / 52 weeks = weekly amount deducted as if it were employment earnings.

        A nice thing about this is, if you leave your claim open for the entire calendar year while you are working, you don’t get much deducted off any week you have low employment earnings. ( ie: the whole month isn’t taken off all in one week, which would be a big help to me as I have some part- time weeks before the start and after the close of a season and over the Christmas holidays.

        Another thing I am trying to verify is this: Once you start CPP, you don’t have to report it as above in any subsequent EI claim you open. As a seasonal worker, this is definitely a factor in my decision as to whether or not I apply for CPP @ 60.

        Hope this helps!

        • I was told that I could collect it while on E.I. but did not know it would be counted as income,so I cancelled it before I got a payment. Just wondering now .. can E.I. force you to apply for it?

  61. General question. I am mid 40’s and have a low income, is it better in general to start CPP early knowing my income(OAS and GIS) will be higher in retirement?

  62. Grant

    Yes, I would agree with the generalization that it’s probably better to take your CPP early, if you know that you will be eligible for GIS.

  63. I am 59, i applied for early cpp that will start March 2015, I have no pension, no assets, as of now, l can start banking 1,000 every month…..my questions, i was told that l should have waited to apply till 65, my cpp is $300 March2015 compared to 518 when 65….i was told to put it in RRSp, im desperately trying to get the best outcome for me when l turn 65, im thinking i can bank 1,000 a month in my TFSA and was thinking of putting also my CPP 300 a monthin TFSA…..I was also told that l would be paying taxes on the extra $300 a month t the end of year. So should l put the $300 towards rrsp? and take it out only at 65? or put everything in rrsp. Also should say we have a max match of $500 towards rrsp at work which l havent contributed yet as i wasnt able s i was getting rid of debts and now l can say i am. I also know that in a few years, will need to purchase a car and want to put as much as possible towards it so i do not have a car payment when i turn 65. I would really appreciate any input youmay have…my future is important and since l didnt have the opportunity to do this previously, l need to do the right thing and the most productive so i can live at least a bit comfortably in my golden years….thank you in advance for your advice…Barb

    • Barb

      From what you describe, I think waiting until age 65 (or at least until you retire) to apply for your CPP would be your best move.

      If you want to, it’s not to late to withdraw your application and reapply at a later date.

  64. I am 61 and now self employed receiving an indexed defined benefit pension from my last employer an Ontario government agency. The question is – should I contribute to CPP or should I just start CPP early? If I decide to contribute will it affect how much I’ll get as compared to simply waiting to 65? If not then I should just take it early and get paid in dividends from my company. What do you think?

    • joev

      I’d need to see your lifetime CPP statement of contributions to answer your questions in any meaningful way.

      If you want me to do some calculations for you (for a fee), email me at DRpensions@shaw.ca and send me a copy of your CPP statement.

    • JOEV

      Being self employed you’ll pay both sides of the contributions (employer and employee)

      If you contribute the maximum, based on 2014 rates.

      4 years x $4851 = $19404

      4 years of max contributions at age 65 would entitle you to (2014 rates) $1038/39 x 4 = 106.50

      19404/106.50 = about 182 (months).

      15 years 2 months, just to get your contributions back.

      Not a good investment in my opinion. Take the divs from your company.

      • Thanks Dave for your help clearing that up.

        The only question is if I am not contributing at all for the next 4 years will that actually reduce the payment when I apply for it at 65?

        • You have to have 35 years of Max contributions at age 60 to get the maximum reduced CPP at age 60.

          If you have less than 35 years max contributions and make no further contributions to age 65 then yes each month after age 60 to 65 your entitlement will reduce slightly as at age 65 you need 39 years of maximum contributions to get the normal maximum age 65 CPP.

          Note however that if you have 39 years at age 60, any further contributions to age 65 do not provide any additional benefit and is a waste of money if you don’t have to contribute.

          The answer to your question requires the details of your contributions since age 18.

          Hope this helps.

  65. Great forum here – I am turning 63 in a couple of months and I have been considering taking the CPP pension now. The survivors benefit has been mentioned here in a few posts and one area I am not clear about is regarding the maximum monthly retirement pension – specifically, if I apply for the CPP pension will the survivors benefit amount I have been receiving (since age 56) decrease and by how much? It seems that the CPP pension amount I would receive combined with the survivor’s benefit that I am already receiving will at this point be greater than the maximum amount stated on the service canada site. Maybe I should have started collecting the CPP pension when I turned 60 because according to this maximum I will not receive a greater amount when turning 65. Hope this makes sense.

  66. Iam 66 years old, still employed with the Federal Government.I applied /received my CPP when I turned 63. I am getting both old age(Their is a clawback on this pension) and CPP pension income . I am still paying into CPP. The income I receive from my employer is $83K. I would like to know if I should stop paying CPP or should I continue to pay it. I plan on working until I reach 69 years which would give me
    31 years contributing into the Federal Pension Plan.

      • JOE

        if your oas is getting clawed back now, would it make sense to stop it pay any back and collect a larger amount later when you may not be in clawback territory…….just a thought.

        • Dave

          That’s a good suggestion, but I suspect that it is too late for Joe to follow this strategy.

          To cancel and withdraw an OAS application, it must be done within 6 months of receiving the first payment.

  67. One thing that hasn’t been mentioned is that many seniors end up in nursing homes. The provincial government takes all your pensions to pay for the nursing home and leaves you with about $135 a month for your personal use. So if both Beth and Janet end up in nursing homes, they both will end up with $135 a month. So take the money as early as you can!

    • Dave

      Taking your CPP early will not affect your federal government superannuation pension. Regardless when you take your CPP, your superannuation will be reduced at age 65.

      • Thanks Doug. I know that my superannuation will be reduced at 65 regardless, but I was asking whether the amount of that reduction was impacted by taking CPP earlier. That is my only concern, otherwise I intended to take CPP at 60.

        • David

          The amount of the reduction at age 65 is determined by a formula that has nothing to do with when you actually start taking your CPP.

  68. I will be 60 next,Oct. I live in Quebec. I have worked out west most of my life.
    If I retire next year, do I get CPP and QPP . And can I keep working part time?
    Thanks.

  69. Dan

    If you’ve paid into both CPP and QPP and you’re living in Quebec now, you will be subject to QPP rules. I don’t know the QPP rules well enough to give you any advice. Sorry :(

  70. I am 62 and have just applied for my CPP. I was married for 36 1/2 years, from 1973 to 2010 and CPP sent me a form for being separated, why does this happen, does this mean I will get more money?

    • Diana

      I assume that what they sent you was an application for a CPP “credit split”. If so, the result of you completing the form will likely be that you and your ex-husband’s CPP “credits” will be shared equally for the years that you lived together (with some exceptions).

      If your ex-husband’s earnings were higher than yours, this could result in an increase in your CPP pension. If you also had children though, a credit split may not increase your CPP or it might increase it less than it decreases your ex-husband’s CPP (which may or may not cause you concern).

      I offer a service (for a fee) where I can determine the impact of a credit split in advance. If you’re interested in this service, email me at DRpensions@shaw.ca

  71. Diana

    I assume that what they sent you was an application for a CPP “credit split”. If so, the result of you completing the form will likely be that you and your ex-husband’s CPP “credits” will be shared equally for the years that you lived together (with some exceptions).

    If your ex-husband’s earnings were higher than yours, this could result in an increase in your CPP pension. If you also had children though, a credit split may not increase your CPP or it might increase it less than it decreases your ex-husband’s CPP (which may or may not cause you concern).

    I offer a service (for a fee) where I can determine the impact of a credit split in advance. If you’re interested in this service, email me at DRpensions@shaw.ca

  72. I turned 60 in October 2013 and planned on retiring this year (2014) so I started my CPP in January of 2014. I am still working and may continue working into 2015. I earn about 60,000 annualy and adding my CPP of $500 a month to this puts me up to over $70,000 a year.
    Should I repay my CPP and start it again when I actually do retire, or should I maximise my RRSP to save paying some of the income taxes I will be dinged with?
    I have no room in my TFSA but have about $18,000 of room in my RRSP contributions.
    Thanks in advance for any suggestions.
    Ingrid

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