Should I Take My Canada Pension Plan Payments Early?
The Canada Pension Plan (CPP) is a retirement benefit available to most working residents of Canada. With the exception of Quebec residents, who have the Quebec Pension Plan instead, Canadians make mandatory contributions to the CPP on a pay-as-you-go basis throughout their working careers. To qualify for CPP payments, you must be over the age of 60 and must have made at least one valid contribution.
While benefits are available from ages 60 to 65, it may be better for you to delay taking payments until after you turn 65. Here’s what to consider when planning when to take your CPP payments.
The amount of funds you receive from CPP payments depends on a few factors, including the age you start your pension, how much and how long you contributed to the CPP, and your average earnings throughout your working life.
If you choose to start your CPP payments before age 65, your payments will be reduced. It’s important to keep this in mind when deciding when to start taking CPP payments, especially if you plan to continue working past age 60. For some, especially those who are retired, it may be beneficial to have a little extra income at age 60, depending on their specific circumstances.
On the other hand, if you wait until after age 65 to start your CPP payments, your payments will be higher. In addition, if you continue to work while on the CPP, you can still make contributions up to age 70. This will allow you to qualify for the CPP post-retirement benefit to receive extra payments every year for the rest of your life.
Keep in mind that your CPP payments are taxable income, so you'll be required to pay the appropriate taxes on your full benefit payment amount. You may choose to share your pension with your spouse or common-law partner in order to decrease your taxable income. It’s important to factor this into your calculations when figuring out how much you may qualify for.
If you’re considering taking your CPP early because of a disability, you may apply for the CPP disability benefit. You may qualify for the disability benefit if you’re under 65, have made enough contributions throughout your life and have a long-term mental or physical disability that regularly stops you from doing work.
If you become disabled between the ages of 60 and 65 and already receive CPP benefits, you’ll be eligible to receive CPP post-retirement disability benefits in addition. Once you turn 65, whichever disability benefit you receive switches over to a regular CPP retirement benefit.
Receiving the CPP disability benefit can also be helpful if you have children under the age of 25. If you are receiving your disability benefit and your child is under 18 or between 18 and 25 and attending school full-time, they may be able to receive a monthly payment.
Applying for CPP
If you decide to apply for CPP, early or otherwise, make sure it's the right time for you. Once you start to receive CPP payments, you’ll get them for the rest of your life. You won’t be able to pause or defer payments at any time.
When thinking about whether you should start taking CPP payments, consider what you may use the extra funds for. Do you need that money for assistance with necessary living expenses? Or are you thinking about investing it? Ultimately, everyone’s scenario is different, so if you’re unsure about the details of the Canada Pension Plan and the effect it may have on your finances, it’s best to discuss your options with a financial professional.
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