Did you know Canadians are living longer?

According to the OECD Better Life Index, Canadians live three years longer than our American counterparts—excellent news!

However, that means that us Canadians need to prepare for more years of retirement, which can be challenging.

Think about it. When you first retire, most of your expenses will likely go towards traveling or any activities that you’ve been dreaming of. 

However, generally, people forget that expenses will increasingly be spent on healthcare costs as they age.

As financial advisors, at Insightful Wealth Group, we can help you plan for all of this effectively. 

One of the important things we look at is Canadian retirement income. In other words, the sources of income in retirement so that you - as our client - can plan for cash flow properly. 

This in-depth planning often results in an important question: Does it make sense to take CPP early?

Let’s uncover the factors you need to make the right choice for your unique situation.

More Questions? 

Call Our Experts at Insightful Wealth Group for a Consultation

Canada Pension Plan (CPP) Basics

First, let us run you through the 101 of CPP.

If you aren’t aware, it’s a government-administered pension plan that provides retirement, disability, and survivor benefits. 

As a Canadian, you and your employer will contribute to the plan or as a self-employed individual, you will contribute annually.  

The amount of CPP benefits you receive is based on the number of years you’ve contributed to the plan and the amount of your contributions.

One important thing to note is the earlier you take it, the lower the amount you receive.

The default age to begin receiving CPP benefits is at 65 in Canada, but you can start taking payments as early as 60, and it’s available even if you continue working!

Now, that begs the question, should you start taking your CPP earlier or later? When is the best time to take CPP?

The answer is that it varies. However, this is what we’re here to help you with today!

Factors To Consider While Deciding the Best Time To Take CPP

Now, just because taking it earlier means you get lower payments, it doesn’t mean that you shouldn’t consider starting to tap into these benefits earlier.

It’s all about your individual situation.

Let’s dive into what factors you need to consider when deciding on the best time to start taking CPP benefits.

Your Current Financial Situation

Your current financial situation will play a big role in determining when you should start taking CPP benefits. 

If you need the money to cover living expenses, it might make sense to start taking CPP as soon as possible. 

However, if you have other sources of income and can wait, delaying CPP payments could result in higher benefits later on.

Your Life Expectancy

One of the biggest concerns when it comes to planning for retirement is how long you will live.

As we mentioned earlier, Canadians live longer than Americans. 

So, if you’re in good health and expect to live longer than average, it may be beneficial to delay taking CPP benefits to receive a higher amount later on.

More Questions? 

Call Our Experts at Insightful Wealth Group for a Consultation

Tax Implications

Taking CPP benefits early could potentially push you into a higher tax bracket, resulting in a lower net income.

It's important to consider the tax implications of taking CPP benefits early versus waiting until a later age.

Other Sources of Retirement Income

If you have other sources of retirement income, such as a workplace pension plan or personal savings, it may make sense to delay taking CPP benefits. 

This will allow you to maximize your retirement income and potentially reduce the risk of running out of money later in life.

Breakeven Points

Now, we can also use some math to help you make a more informed decision.

With more recent rules, there is a reduction in the payment if you take your CPP prior to 65. This reduction rate is now 0.6 per cent for every month prior to your 65th birthday.

This translates to a 36 per cent reduction if you opt to take CPP at age 60. The breakeven point in this case is 74.

What does this mean?

This means that if you live past age 74, you would receive more total CPP benefits by delaying payments until a later age.

So, it’s all about figuring out whether you need less money sooner, or whether you have other sources of income so that you can get more overall money later!

Conclusion

So now you know…

There’s no singular, correct answer!

When would be the best time to take your CPP benefits is a complex question! 

You must consider several factors before making the final decision.

If you want help making sure you make the right choice based on your unique situation, you should talk to experienced financial advisors!

At Insightful Wealth Group, we take the time to understand each client's particular circumstances and help them create a personalized retirement plan that suits their needs.

Whether you need the money to cover living expenses or can wait to receive higher benefits later on, we can help you make informed decisions about when to start taking CPP benefits.

This article has been prepared by Raymond James Ltd. (“RJL”). It expresses the opinions of the writer, and not necessarily those of RJL. Statistics, factual data and other information are from sources believed to be reliable, but accuracy cannot be guaranteed. It is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. RJL, its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. It is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person residing in the USA. Raymond James Limited is a Member Canadian Investor Protection Fund.