Retirement

Some math on taking CPP early or late as well as “non-advice” for Retirement Planning

Many of my clients wonder whether to start drawing Canada Pension Plan benefits early or wait until they are 65. There’s no simple answer and I am not a retirement planner – I am a tax prepaper.  You should really seek advice from a professional retirement planner to help you make this decision.

However, I do get asked all the time by my clients, what he or she should do. Take it now or wait? Is the smaller bird in the hand now, worth more than the bigger one five years away? They also ask if there is some calculation that shows the point at which choosing one over the other is better.

There isn’t a simple, one-size fits all answer, since each person has different financial needs. Some are more or less healthy than others and the biggy is knowing the unknowable — when are you going to die

But there are some rules of thumb that can help.

If you need the money to live on, take it as soon as possible. If you have health problems or have a family history of short life spans in retirement take it as soon as possible. If you think you can invest the money and come out ahead, take it early, but be warned that you’ll need a pretty hefty rate of return. You will pay tax on the pension and pay more tax on any profit unless you can put it into an RRSP or a Tax free Savings Account (TFSA).

If you don’t need the money, wait as long as you can. You get a lot more and it is indexed and we’re living longer. A woman who is 60 this year can expect to live on average to 89.3 according to the Canadian Institute of Actuaries, whose mortality tables set the bar for large pension funds. A man who is 60 can expect to live to 87.3.

Here are his CPP pension breakeven points:

* If you live beyond 72, then you would be better off waiting until age 65 to begin receiving the pension rather than at 60;

* If you live beyond 77, then you would be better off waiting until 65 to start the pension rather then 60, that is if your plan is to invest it, assuming a 5 per cent pre-tax rate of return;

* If you live to 80, then you’re better off starting CPP at 65 rather than waiting until 70;

* If you live beyond 90 (and plan to invest it) then you would have been better to wait until age 70.

My own retirement planner is Mr. David MacKinnon of Beaupre MacKinnon Financial.  I do advise you to contact a professional retirement planner for your retirement needs and not myself.  I can advise you about how much taxes you need to have withheld on your CPP whenever you decide to take it and you know how much you will be getting, but I cannot  advise you as to when you should take it.  I will also not advise you on when to take your private pension or how much RIFs or RRSPs you should withdraw from your plan(s).  Again, I will advise you, when you tell me how much you will get or how much you will getting, the tax implication and advise you how much taxes should be withheld at source for any of the above.  Please do NOT ask me advice on your retirement planning – I have not been trained for this and my errors and omission insurance does not cover any advice I might give.