Most Canadians think the Canada Pension Plan (CPP) or its counterpart the Quebec Pension Plan (QPP) is a benefit that you simply begin collecting when you turn 65.
But, did you know that you can make your CPP benefits do more for your monthly retirement income?
According to a survey conducted by the Government of Canada, only 36% knew that a CPP/QPP pension could be deferred until after the age of 65, and even fewer (17%) were aware they could defer their Old Age Security (OAS) to start collecting it later.
Delaying the start of CPP can pay off
In an article in The Globe and Mail, Dr. Bonnie-Jeanne MacDonald, Director of Financial Security Research at the National Institute on Ageing and an expert on pensions and retirement, said that delaying CPP/QPP benefits for as long as you can is the “safest, most inexpensive pension that money can buy”.
It’s generally accepted (but not widely known) that if you delay taking CPP until age 70, your benefits will increase to about 142% of what they would be if you start taking it at age 65. However, MacDonald’s own research shows that figure is closer to 150% of what you would receive if you started at age 65, and almost 250% compared to if you started at age 60.
How does that work? The way Dr. MacDonald describes it, at age 70 the calculation of how much CPP benefit a person would receive is based on 142% of a calculation known as the Maximum Pensionable Earnings Average. This figure increases with the compounding of inflation and wage growth. If wages increase 1.1% ahead of inflation, that 142% would grow by 1.1% over inflation for each year between age 65 and 70 to reach about 150%.
That’s a pretty drastic improvement! However, MacDonald has said that fewer than one per cent of Canadians choose to delay receiving their CPP benefits until age 70. In fact, she notes that most often Canadians take their CPP benefits at age 60 – as soon as they’re eligible.
The numbers, however, make it pretty clear: If you’re in a position to wait until a later age to receive CPP/QPP benefits, the payoff can be very worthwhile.
If you want to delay taking your CPP/QPP benefits, there are some options that could help supplement your income and bridge the gap – besides having to work for extra years.
As a member of the Canadian Baptist Pension Plan (CBPP), you could:
- begin receiving your DC pension plan benefits before you begin taking CPP/QPP, or
- make use of the CB Benefits plan’s tax-free savings account (TFSA).
Also, if you have a registered retirement savings plan (RRSP), you could make use of these funds earlier to help bolster your retirement income and defer receiving CPP/QPP.
Of course, there are some reasons why you may not want to delay taking your CPP/QPP benefits. For instance, if you’re experiencing financial hardship or you have personal considerations such as a shorter life expectancy or illness.
In any event, if you’re approaching your sixties, it’s worth speaking with a financial expert to discuss your retirement income options and whether deferring your CPP/QPP benefits until you’re closer to age 70 is a viable choice for you.
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