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When is the best time to kick in my CPP?

on Sun, 01/05/2014 - 13:15
I have been chatting with a lot more baby boomers in the last couple of years, as more clients refer their parents, aunties and uncles to me. A portion of them had already retired and some of them are approaching retirement age. One of the common mistakes I gathered from the seniors I talked to, is kicked in their CPP way too early. You might ask: what do you mean? Don't you start your CPP at age 65? Normally, yes. However, not too many people know that you can actually choose when to kick in your CPP.
Then, the next question arise: why do I want to delay in applying my CPP? According to the CRA web site: "You can apply for and receive a full CPP retirement pension at age 65 or receive it as early as age 60 with a reduction, or as late as age 70 with an increase." See their words here: "as late as age 70 with an increase". The only reason you want to consider delaying applying to CPP is have an increase in the monthly benefit, for life. According to the Service Canada web site, "If you take your pension after age 65, your monthly payment amount will increase by 0.7 percent for each month that you delay receiving it up to age 70 (8.4% per year). This means that, an individual who starts receiving their retirement pension at the age of 70 will receive 42% more than if they had taken it at 65." 42% more! That's a huge amount! Just by delaying to apply for the CPP.
Even better, the increase is applied by month, so it make more sense to at least try to delay as long as you can. Bear in mind, CPP payments are taxable income, if you don't need the money and you start receiving it, you have to pay tax on it.
Another big mistake people normally make: thinking OAS is a social benefit - only for people who have low income. According to Service Canada's web site "The Old Age Security program is the Government of Canada's largest pension program." Yes, OAS is a part of YOUR pension, the better part is actually here: "It is funded out of the general revenues of the Government of Canada, which means that you do not pay into it directly." It is FREE money from the government just because we build Canada together. Why would you give up FREE money?! So, stop thinking you don't want OAS because it is a social benefit. We as Canadians deserve to receive OAS.
The next huge misunderstanding to the CPP/OAS system I found among pre-retirees is that, they don't know we can kick in CPP and OAS at different times… Yes, we are eligible for OAS at 65 but you do not have to apply for CPP when you apply for OAS… This misunderstanding is created probably because the government send in the two applications to people reach age 65 and NEVER bother to explain how the system works. When people receive that letter from the government, the first thought in their heads "Oh, my time has come, finally!" but never got a chance to sit down and do some calculation, nor try to get more information on the system. Many of us might even think, I am getting who I deserve and have been waiting for my life… 
Same as CPP payments, OAS payments are consider to be taxable income as well. Similar to CPP, your monthly payment will increased by 0.6% every month you delay to receive it, up to 36% at age 70. This is technically free money from the government, you didn't really work for it, you are eligible for it because you are a Canadian for a certain among of years and have been living and building Canada for at least 10 years after age 18.
Calculation and estimation can be done before taking any major financial decisions in life. Unlike OAS, you cannot stop your CPP payment once you applied for it. Talk to a financial advisor before making a move, it will benefit you for life :)
Physical form download and "how-to" download
Application for OAS
Physical form download and "how-to" download

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