When planning for retirement, one of the biggest decisions Canadians face is when to take their Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) retirement benefits (also called CPP or QPP pension). Start early, at the age of 60, delay to age 70, or something in between?
This decision has become more complex in recent years, as the Old Age Security (OAS) pension can now be deferred. Those who work while receiving a CPP or QPP pension may be able to obtain the CPP Post-Retirement BenefitOpens a new window in your browser or QPP Retirement Pension SupplementOpens a new window in your browser by continuing to pay CPP or QPP premiums. And as Canadians live longer, the impact of the decision about when to start a CPP or QPP pension can last for years, if not decades.
Plus, starting in 2019Opens a new window in your browser, the CPP and QPP will be gradually enhanced, which may increase benefits and make this planning even more important. Here’s some information that can help.
CPP and QPP basics
Your monthly CPP or QPP pension is based on plan contributions during your working life. Once you start receiving a CPP or QPP pension, the benefits last the rest of your life and generally increase annually if the cost of living goes up. In 2018, the maximum monthly CPP or QPP pensionOpens a new window in your browser is $1,134.17, however most Canadians are not eligible for the maximum. The average monthly CPP pension for new beneficiaries was $691.93 in January 2018.
The standard age for beginning to receive your CPP or QPP pension is the month after you turn 65. Starting your CPP or QPP pension earlier or later may have a big impact over the long term.
If you start to take your CPP or QPP pension early, for each month you receive benefits before age 65, the amount is permanently reduced by 0.6 percent (7.2 percent per year). If you start your CPP or QPP pension at the earliest possible age, 60, your benefits will be 36 percent less than if you took your pension at age 65. If you have concerns about shorter-than-average life expectancy, then taking the CPP or QPP as early as age 60 may provide greater benefits over your lifetime than starting at age 65.
If you start your CPP or QPP pension later than age 65, the amount will increase (compared to the amount you would receive at 65) by 0.7percent for each month of delay up to age 70 (8.4 percent per year). If you start your benefit at age 70, the CPP or QPP pension will be 42 percent more than if you'd started at 65. If you expect to have a longer-than-average life expectancy, then delaying CPP or QPP beyond age 65, up to age 70, may provide more dollars over your lifetime.
You may also be eligible for a CPP or QPP survivor benefit if your spouse or common-law partner was entitled to a CPP or QPP pension and predeceases you. (For the purposes of CPP, spouses include common-law partners. For QPP, spouses include civil union and common-law partners).
Guiding your decision
In making your plan on when to start your CPP or QPP pension, here are four questions to consider.
If you need the income from CPP or QPP to meet your daily needs, you may want to take the benefit sooner. If you have other resources, you might delay.
If you wait to take your CPP or QPP pension, you may also deplete your savings, rather than leaving those funds in place to cover future spending, to protect against unexpected costs, or to leave a planned legacy.This depletion may not be outweighed by the benefit of receiving a higher CPP or QPP pension at a later date.
In making the choice to defer or take your CPP or QPP pension, make sure you've considered the implications on your overall retirement plan.
A CPP or QPP pension, plus a survivor pension, cannot exceed a maximum amount set by CPP rules ($1,134.17 per month in 2018).
As a result, households with two spouses who each receive a CPP or QPP pension might opt for one or both spouses taking a CPP or QPP pension earlier.
Let's say that each spouse is eligible for $1,000 in monthly CPP or QPP pension benefits if the pension begins at age 65, but $640 if the CPP or QPP pension begins at age 60. If they both wait to take their CPP or QPP pensions until age 65 or later, and one spouse outlives the other, the surviving spouse's CPP or QPP pension, when combined with the survivor pension, will be more than the maximum amount that can be received by the survivor.
In this case, the amount in excess of the maximum will not be received by the survivor. However, if one or both takes a CPP or QPP pension earlier in exchange for a smaller monthly benefit, if one spouse predeceases the other, all of the survivor pension may be paid to the remaining spouse. This might make sense when one spouse expects to live much longer than the other.
You could start your CPP or QPP pension while still working. If you are receiving a CPP pension and you work, between ages 60 and 65 you must contribute to CPP; however, between ages 65 and 70 CPP contributions are optional. In Quebec you are obligated to contribute to QPP once your earnings exceed the $3,500 basic exemption regardless of your age if you are still working.
If you contribute to CPP or QPP while collecting a CPP or QPP pension, you are eligible for the CPP Post-Retirement Benefit or QPP Retirement Pension Supplement — a lifetime amount added to your monthly CPP or QPP pension.
Contributing to the CPP or QPP while working and collecting a CPP or QPP pension provides a way to turn on the benefits for monthly cash flow, while increasing the amount of benefits over time. This means that even if you start to receive your CPP or QPP pension early, you can boost your benefit amount. The CPP Post-Retirement Benefits or QPP Retirement Pension Supplement are provided in addition to your CPP or QPP pension, even if you receive the maximum pension.
Note, however, that if you work past age 65 and are not yet receiving CPP or QPP benefits, you will still be required to contribute. Your CPP or QPP pension will permanently increase by 0.7% for each month that you delay the start of benefits (up to age 70) but you would not be entitled to the CPP Post-Retirement Benefits or QPP Retirement Pension Supplement.
You can start receiving your OAS pension at age 65 and can receive a higher monthly amount if you defer the start of your OAS pension for up to five years.
In combination with the option to start CPP or QPP early or defer until age 70, this means a household with two spouses may have up to four retirement income benefits with different start date options, providing a range of possibilities for retirement income.
Creating your plan
The CPP or QPP pension option you choose could depend on whether you're single or have a spouse or common-law partner, whether you have other retirement income or savings that can meet your spending needs if you choose to delay CPP or QPP (and OAS) benefits, whether you're planning to work after you're eligible for a CPP or QPP pension, and the decision you make about timing your OAS pension.
The ideal plan will allow you to benefit from the flexibility the government programs provide, fine-tuning your CPP or QPP and OAS pension decisions to meet your needs.