What to do about CPP

According to the OECD Better Life Index**, Canadians live longer. Three years longer than Americans in fact. While a longer life is a great benefit of being Canadian, it can cause concern when planning for retirement. Expenses can be higher earlier on for travel and other life goals, but as we age the potential for increasing healthcare costs are present, leaving a continued demand on your capital and income needs.

Insightful Wealth Group clients benefit from overall planning. This includes cash flow, tax strategies, and estate strategies as well as risk management. Determining sources of income in retirement is a significant part of what we do for cash flow planning. This in-depth planning often results in a popular question: Does it make sense to take CPP early? 

The default age to begin receiving your benefit is 65, but you can take CPP as early as age 60, even if you continue working. However, should you choose to take CPP early, the amount you receive will be reduced. Under the new rules, the reduction rate is now 0.6% for every month prior to your 65th birthday. This translates to a 36% reduction if you opt to take CPP at age 60.

So, if you are turning 60 in the coming years, you have a big decision to make. Many people feel they can use the money in the short term for trips or added expenses. Even if they don’t need it to cover living costs, they can invest the funds for the future. One consideration to be aware of is your tax rate.

This is very important as should you take it early you could potentially bump yourself into a higher tax rate and therefore your net income could conceivably be lower.

Ideally we would know exactly when we are going to die, and that would allow us to determine the optimal age for taking CPP by simply looking at the break even points:

In other words, if you begin to take the reduced amount of CPP at age 60, you reach the break even point at age 74. One could then argue that if you live past age 74, the numbers demonstrate you would be better off taking CPP later.

Have I answered the question though? Not definitively. It will be a unique answer for each person as it depends primarily on family goals, cash flow needs and sources of income, and taxation. 

At Insightful Wealth Group we take the time to thoroughly understand each client’s individual circumstances and help them to plan accordingly. With a team devoted exclusively to delivering comprehensive strategies and sophisticated solutions, we invite you come and talk to us about creating a personalized plan to determine what will best suit your retirement needs.

** OECD Information sourced fromhttp://www.oecdbetterlifeindex.org/topics/health/