Key ages for retirement planning
Everyone I meet in my retirement workshops wants to retire and most people want to retire sooner than later. When are you planning to retire? Have you picked a date? Are you counting down the days, months or years?
When you ask people when they are going to retire, most people respond with a date or an age. I believe the best time to retire is simply when you are ready. So how do you know when you are ready? I believe you will know your ready when you are ready. Readiness is a state of mind. To be ready, you have to be prepared and you have to look forward to a life that is fun, enjoyable and filled with purpose. If that’s a little too intangible for you, here are some important age benchmarks that affect your plans to retire.
The concept of Freedom 55 was popularized by one of the most successful advertising campaigns in financial history. Back in 1908’s London Life came up with a brilliant campaign that caused people to strive to retire earlier than later. The ‘55’ number was not picked arbitrarily. In fact, it’s a relevant retirement benchmark because it’s the earliest age at which you can start drawing your pension. There are some exceptions to this rule but the majority of pensions have a minimum start date for income at 55.
Related article: Pension plans provide safe, guaranteed income
Age 60 is important because it’s the earliest age at which you can collect CPP. In 2012, the rules were changed so that you did not have to stop working to collect CPP early at 60, which opened the door to a whole bunch of Canadians that can now take CPP early despite the fact they are still working. As a result, they also plan to increase the reduction or penalty for taking CPP early at age 60 from a 0.5% reduction to a 0.6% reduction for every month prior to your 65th birthday. Here are some articles for more information on taking CPP early:
- New CPP rules are here
- Four reasons why you should still take CPP early (post-2011 rules)
- How to get your CPP early
- Taking CPP early: The new breakeven points
Age 65 is important because in Canada, it’s still the age of ‘normal’ retirement. It’s the age at which you can receive all three types of pension – Canada Pension Plan (CPP), Old Age Security (OAS) and defined benefit pension.
Age 65 is most well know as the age at which you can start collecting Old Age Security. It’s important to be aware of your total income because too much income could cause your OAS to get clawed back.
Related article: Minimizing Old Age Security Clawback
In 2012, the government introduced new changes to the age of eligibility for OAS. The plan is to gradually phase in the plan to move the age of eligibility from age 65 to 67. This change won’t be implemented until 2023. Canadians are effectively being given 11-year notice and then 6 years to gradually implement the change.
Click here for more details on the new changes to OAS: Three big changes to OAS
This is the age at which you have to start drawing income from your RRSPs. You must convert your RRSPs to an RRIF or annuity before December 31 in the year in which you turn 71. You can convert your RRSPs to income sooner if you want.
Related article: Converting RRSPs to income
Knowing the rules and these key age benchmarks can help you to plan your retirement income. Are there any other key age milestones relevant to retirement planning?
Since moving to Canada from the UK just a short time ago I haven’t really given much thought to when I want to retire. In fact I just graduated and am now working full-time in a career that I love. Can I see myself doing it until age 65, maybe but I’d likely enjoy moving on to other aspects of my career. If my health is good I’ll work as long as I can to continue helping others. If I win the lottery, well that’s a whole other story. Some great info here… Mr.CBB
I feel very lucky to say that I have a final salary pension through my work and am retirement eligible by 55. I think this will be unheard off in a few years time…
the Age Credit kicks in @ 65, I believe. Not sure exactly what it is, but I don’t think it amounts to much
I’ve been researching differences between pensions in the UK and other countries. Thanks for providing such a clear reference for how things develop for people when they reach different ages in Canada Jim.