Where It’s Too Close To Call, Take The Money!
January 8th, 2010I had a recent request from a client who was interested in considering his options under the changes to the Canada Pension Plan (CPP) which become effective on January 1, 2011. This individual has retired from work and will be 65 later in 2010. His question is whether he should apply for his CPP benefits immediately or wait until he reaches age 70. He has a spouse who is age 60 and is still working. They have no immediate need for the CPP income.
Under the CPP, participants may defer taking their retirement pensions until as late as age 70. Current rules provide for a pension increase of 6% for each year that the commencement is deferred. Under the new rules the increase will become 8.4% for each year, and this change will be phased-in over three years starting in 2011. So, if the client starts his CPP at age 70, he will receive a pension that is increased by 42% (8.4% times 5), but he will have missed out on five years of payments at the regular rate. My calculations suggest that this is a winning proposition if he expects to live past age 85.
A full analysis of this situation would have to include:
- A review of the couple’s overall finances
- Consideration of potential spousal benefits following the death of either party
- A look at the potential for them to split their benefits in retirement
However, my advice in situations where the choice is too close to call: take the money!
Patrick Longhurst
