CPP - The Cost Of Retiring Early | FBC, Canada's Farm & Small Business Tax Specialist

CPP - The Cost Of Retiring Early

You've paid into the Canada Pension Plan (CPP) for more than 30 years.  You're 60 now and want to start collecting your pension.  Well, you can - if your employment earnings are less than your CPP benefits. 

But there is a cost to pulling the retirement trigger early.  Under the recent changes to the Canada Pension Plan, your monthly CPP retirement pension amount will decrease by a larger percentage if you take it before age 65.

Before the changes (pre-2012), your CPP retirement pension was reduced by 0.5% for each month before age 65 that you began receiving it. This meant that, if you started receiving your CPP pension at 60, your pension amount was 30% less than it would have been if you had waited to take it at 65.

From 2012 to 2016, the Government will gradually change this early pension reduction from 0.5% to 0.6% per month. This means that, by 2016, if you start receiving your CPP pension at the age of 60, your pension amount will be 36% less than it would have been if you had taken it at 65.

When you take early retirement, your monthly payments are less because they are spread out over a longer period of time.  These rates are calculated using financial tables that assume that the average pensioner will live to 78.6 years of age.

The opposite is true if you should delay your pension past age 65.  Your monthly CPP retirement pension amount will increase by a larger percentage if you take it after age 65.

Before the changes (pre-2012), your CPP retirement pension increased by 0.5% for each month after age 65 (and up to age 70) that you delayed receiving it. This meant that, if you started receiving your CPP pension at 70, your pension amount was 30% more than it would have been if you had taken it at 65.

From 2011 to 2013, the Government of Canada will gradually increase this percentage from 0.5% per month (6% per year) to 0.7% per month (8.4% per year). This means that, by 2013, if you start receiving your CPP pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at 65.

 

"Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time." — Johann Wolfgang von Goethe