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Nahanni Ackroyd, B.A., M.Ed., CFP®

Certified Financial Planner®
Investment Representative
Freedom 55 Financial

The Canada Pension Plan

What is it and when do I take it?

The Canada Pension Plan (CPP) is an important part of any retirement plan. But most people I talk to tell me they have no idea if they’ve qualified or how much they’ll get. They’re not counting on it being available when they retire, so they’ve never looked at it.

This is great because I often have good news for clients – CPP still exists! And the odds are if you’ve ever drawn a salary in Canada, you’re entitled to something. However, what you’ll receive depends on your contributions. The fastest way to get an accurate estimate of your CPP is to look it up on your My Service Canada account. The estimate assumes you’ll work and contribute until age 65. You may also be eligible to apply for a child rearing provision or credit splitting with a former spouse. There’s also a CPP Survivor’s Pension or CPP Disability Pension and these will all affect how much you’ll receive too. CPP is also indexed to the Consumer Price Index, so it aims to keep pace with the cost of living.

There are many articles about the math and timing to take your CPP. You could decide to take it at 60 – that’s the earliest you can draw on it with a reduction, or waiting to 65 to take it at your full entitlement, or even waiting until 70 to get a larger payout. The articles mention how the calculations are made, how long you would have to live to get the same amount as someone who took the payment earlier and how on earth you decide what age you will live until.

Beyond the math

What’s often overlooked is that your CPP entitlement stops when you die unless you have minor children or a spouse. Most 60-year-olds don’t have minor children and if you don’t have a spouse, the money that you paid into CPP isn’t going to anyone after you die. It’s taxable income, but the odds are you’ll be ahead financially if you take it early. You’re younger and likely healthier than you’ll ever be again, so you may want to use the money to be active. If you have adult children who are not related to your spouse, why not draw your CPP and save it in an account that you can either use or leave to your children if you die without using it? When you die, your spouse will still get something from CPP and you’ll be able to provide an inheritance to your adult child.

Good news for those still contributing

Contributions in 2019 and going forward will count towards a higher eventual entitlement to CPP. The CPP program is being enhanced for those who are paying into it – you’ll pay more in, and you’ll get more out. It’s being phased in over a five-year period with further benefits for higher income earners being added in years six and seven.

When should you take your CPP? As you can see, it depends on your situation.