When to take Canada Pension Plan benefits
One of the trickiest decisions Canadians must make as they approach retirement is the age at which to start collecting Canada Pension Plan benefits.
For many, the answer is straightforward, if counterintuitive: As late as you can, the closer to age 70 the better. That’s because the longer you wait, the higher the eventual payout.
But most people — about two-thirds of us — don’t wait that long, jumping on board at age 60 for the most part.
In some cases, they simply can’t afford to wait. Others felt they’d be better off with a cheque in hand, either to pay down debt or invest.
Either way, before you make a similar call, be sure you understand how things work, particularly in light of some recent changes.
The CPP program is financed through mandatory contributions from employers, employees and the self-employed — as well as investment income made by the $170 billion CPP Investment Board.
Employers and employees make equal contributions (self-employed workers pay both ends) based on a maximum amount of pensionable earnings ($50,100 in 2012), adjusted annually.
The amount you'll eventually receive depends on your time in the plan and your career earnings going back to Jan. 1, 1966, or when you reached age 18, whichever was later.
To see where you stand, your best bet is to go to the Service Canada website where you can download a history of your CPP contributions and an estimate of the potential monthly pension you'll receive once you hit 65.
The maximum annual payment for 2012 is $11,840 or about $987 a month, all of which is indexed to inflation.
However, most people don't earn anywhere near that. In fact, the average monthly CPP payment in 2012 was $529 a month or $6,348 a year.
That’s the how, here’s the when.
You can start collecting CPP as early as age 60, but your monthly pension is reduced each year you're under age 65.
Similarly, if you elect to start taking it later than age 65, the amount of your pension is adjusted upwards by the same percentage for each year past 65. Age 70 is the limit, though.
Until recently, if you started taking benefits at age 60 you received 30 per cent less annually than what you would have received if you started at age 65.
Starting this year though, that penalty for starting at age 60 has increased and will climb gradually to 36 per cent annually by 2016.
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