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Five options to consider when to start your Canada Pension Plan

Published on: May 13th, 2021

If you’ve visited the Canada Pension Plan (CPP) website to look for information or recommendations on when to start your CPP, this is the advice they are offering: 

Deciding when to start collecting CPP should be based on your finances, health, life expectancy and taxes. The main reason to delay CPP is that you will receive a larger benefit.

Here are five options to consider if that advice was not detailed enough for you:

Option #1 – Request your Canada Pension Plan (CPP) as you turn 60 which is the earliest you can apply. 

Starting at age 60, you receive a reduced monthly pension for the rest of your life. Planning is vital at this stage as you cannot change your decision later. There are very differing opinions on starting CPP early at 60 up to 65 with a reduced monthly benefit payment. The reduction is 0.06% per month or 7.2% per year. If you begin at age 60, the reduction is 36% less benefit than you would receive at age 65. This monthly payment is reduced for the rest of your life. For people with a shortened life expectancy, this may be a sensible option.

Option #2 – Request your Standard Canada Pension Plan to start at age 65. 

This is what CPP calculates in their pension numbers for you.  Age 65 is when you may be starting to receive your Old Age Security Benefits (OAS), and you will need to be calculating the income tax on these new income sources in your retirement plan. This is the default for many people who are not following a written Retirement Income Strategy. Make sure this is the right option for you and you have planned for the additional taxable income from CPP and OAS.

Option #3 –  Defer your Canada Pension Plan monthly benefits to begin after age 65, even up until age 70. 

When you defer the CPP benefit, the monthly amount will increase by 0.07% a month or 8.4% each month for a total increase of 42% if you delay income until age 70. There are no additional benefits to defer past age 70. The increase in your monthly benefit is for the rest of your life. This idea may be right for you if you are planning on living a long life and/or have other assets to create income from age 60 to age 70. This goes back to the planning and discussion section of your Retirement Income Strategy. You can choose CPP at age 65 and defer your OAS benefit if your income is higher at age 65.

Option #4 – Sharing your Canada Pension Plan with your spouse or common-law spouse. 

CPP sharing allows spouses or common-law spouses to apply to share benefits based on the time spent together as a couple. This is one way to reduce overall taxable income that may be higher for one spouse; this is not income splitting.  With the option to income split your taxable income with your spouse, this may not needed.

Option #5 – Request taxes be deducted at source on CPP benefits received.

Having income taxes deducted is not given as an option when you apply for CPP; your monthly CPP benefit is taxable income, and many people are surprised with a tax bill at the end of the first year of thousands of dollars. Plan ahead and call to have taxes deducted on the monthly CPP income. 

It’s important to calculate in your Retirement Plan how to integrate your Canada Pension Plan benefits with other sources of income like Company pensions, RRSPs to RRIFs, TFSAs, and OAS. If you are searching for help creating a Retirement Income Strategy, please call us at 1.888.305.PLAN (7526).

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