Taking CPP...now or later

[Topaz]

The Tories have put in new rules for CPP which I think we all know about but the main question for Canadians is do they take it at 60 or wait to 65? Of course, if one takes it at 60, one loses 36%, up from 30%. There's one item that I became aware of and its taxes in retirement and CPP. A relative was forced to retire because the company closed up shop. He managed to get his pension after a year of debating with the company. His company pension is around 2400 and CPP was around 697.00. Was? yes he had to give up about 70.00 on the CPP because he would have to pay $2000.00 in income yearly, even though his yearly income comes in around 42-43000. yearly, which is half of what is was making when he was working and paid little or no tax. Some may think that this is a lot of money for retirement but my relative said he was forced into retirement, they still have a mortgage and the usual bills and after paying into CPP for many many years and paying the taxes on it then, the government turns around and taxes it a second time, but he said he's not going to complain too much because he know there's people other there worse off than he is. I do, feel more Canadians will take the age 60 CPP, but they should first find out how much income taxes they may have to pay.

[msj]

The Tories have put in new rules for CPP which I think we all know about but the main question for Canadians is do they take it at 60 or wait to 65? Of course, if one takes it at 60, one loses 36%, up from 30%.

The decision for CPP, and OAS, is more complicated than this.

The decision now could be an combination of: Take CPP early (between 60 and 65) and take a penalty of 0.6% per month (so 7.2% per year or 36% if you take it 5 years early).

One may wait to take CPP up to age 70 (so after 65 but by age 70) and increase you CPP pension by up to 42% (if you wait to age 70 your bonus is 60 months * 0.70%).

If one chooses to take CPP early and continues to work then one has to continue paying the premiums.

When one turns 65 and wishes to continue to work one has to opt out of paying into CPP using form CPT30. A person could, however, continue to work and pay into CPP until age 70 if they so choose (I have not yet done the math but I imagine the break even point for this would likely be living well into ones 90's).

OAS now has similar rules if you choose to take it later. Of course, one cannot get OAS early as you must be 65 or older to receive it.

One also has to consider OAS clawback if one has income that is going to exceed $68,000.

Then there is the GIS pension for low income people and various other programs (medical premium and/or pharmacy programs that are based on income) to consider.

There's one item that I became aware of and its taxes in retirement and CPP. A relative was forced to retire because the company closed up shop. He managed to get his pension after a year of debating with the company. His company pension is around 2400 and CPP was around 697.00. Was? yes he had to give up about 70.00 on the CPP because he would have to pay $2000.00 in income yearly, even though his yearly income comes in around 42-43000. yearly, which is half of what is was making when he was working and paid little or no tax. Some may think that this is a lot of money for retirement but my relative said he was forced into retirement, they still have a mortgage and the usual bills and after paying into CPP for many many years and paying the taxes on it then, the government turns around and taxes it a second time, but he said he's not going to complain too much because he know there's people other there worse off than he is. I do, feel more Canadians will take the age 60 CPP, but they should first find out how much income taxes they may have to pay.

As for your relative, well, those who fail to plan plan to fail don't they?

CPP, and OAS, is taxable income.

As for the figures you provide - who knows what his tax return looks like unless one sees the entire thing.

But to claim that your relative paid little to no tax on $86,000 of taxable income and is now paying more income tax on $43,000 of income is beyond credibility.

In Ontario, a person making $86,000 in wages, filing as a single taxpayer, without any deductions (marginal tax rate is about 43% so a $1,000 RRSP contribution would defer $430 of tax) would pay about $21,000 of federal/provincial income tax.

Of course, that tax would be deducted from source so he may have received a refund at the end of the year so perhaps that's what you meant by "which is half of what [he] is was making when he was working and paid little or no tax."

A person making $43,000 (presumably $8,400 of CPP, $28,800 of other pension from the company pension and $5,800 of other income) would pay less than $7,000 of taxes.

In fact, in this scenario the taxpayer is paying about $2,100 of taxes on that $8,800 CPP (effective tax rate of ~24%). So at least you got the number for the taxes on the CPP right.

But last time I checked $21,000 is 3 times greater than $7,000 so don't tell us that someone is paying more tax with half the income when, in fact, that person is paying 1/3 the taxes on 1/2 the income.

Of course, if your relative is married/common law then he has the opportunity to split his company pension (and, in future, RRIF's) with his spouse which can save thousands of dollars of tax.

When he turns 65 he gets OAS and also gets the Age Amount tax credit (although that will be partially clawed back due to his income).

It is never pleasant to be forced to do anything and sometimes even the best laid plans don't work out.

However, it is far too common for people to carry mortgage debt into their retirement whether they are forced into retirement or not.

And too many people are house "rich" and financial asset poor when they retire.

And that is going to bite a lot people in the butt when they realize that the house isn't worth as much as they hoped, the net equity they extract from it to then downsize and hopefully have something to live on isn't going to provide that comfortable retirement like they thought.

That's what happens when people don't write down a plan, don't revisit that plan yearly, and don't do the math to figure out that they should be saving more in the first place.

Edited August 4, 2012 by msj

[kimmy]

Minor note: If you were born after 1962 (that's most of us, I assume) the age of eligibility for OAS isn't 65, it's 67. That was implemented this year.

Suggestion for younger members: plan your retirement based on the assumption that the age of eligibility is going to keep increasing, and the benefits aren't going to keep pace with the cost of living. In other words, we're on our own. Save now, and save hard.

-k

[blueblood]

Minor note: If you were born after 1962 (that's most of us, I assume) the age of eligibility for OAS isn't 65, it's 67. That was implemented this year.

Suggestion for younger members: plan your retirement based on the assumption that the age of eligibility is going to keep increasing, and the benefits aren't going to keep pace with the cost of living. In other words, we're on our own. Save now, and save hard.

-k

Then there is our frenemy inflation that has to be looked at. Those savings have to provide returns that keep up or do better than inflation.

For business owners its a tricky balancing act to update machinery/expand while at the same time having savings. Its a huge problem in the ag community because lots of people are on the expand bandwagon.

[jacee]

When it comes right down to a decision whether to take CPP at 60 or 65, there's only one consideration: Yes you get less at 60 but are you going to live long enough for that to matter?

By 65 you will have accumulated about $40,000 in CPP benefits, more if you invest it and it will be worth even more (in assets and cash flow) if you use it to pay down a mortgage or other debts.

If you live to 75 you'll have collected the same total amount of CPP either way: Only past 75 will you reap the benefit (in total assets) of waiting til 65 ... and is it worth it to you then?

And if you started at 60 you probably had more fun with it.

Take it at 60. If you don't 'need' it, invest it for your children/grandchildren ... OR ... take a cruise or do something you may not be able to at 75.

The only sure thing is ... You can't take it with you.

Edited September 16, 2012 by jacee

[msj]

Take it at 60. If you don't 'need' it, invest it for your children/grandchildren ... OR ... take a cruise or do something you may not be able to at 75.

The only sure thing is ... You can't take it with you.

Generally good advice that likely applies to a good portion of the population.

Sadly there are many people who should and/or need to work to 65 or even 70 (and some people want to work to those ages).

I have far too many clients who should have waited because they either didn't have enough assets to retire on in the first place, failed to invest the CPP which is the smart thing to do, or some combination of living for today while forgetting that they will want to be comfortable 10 or 20 years from now too.

[Pliny]

Suggestion for younger members: plan your retirement based on the assumption that the age of eligibility is going to keep increasing, and the benefits aren't going to keep pace with the cost of living. In other words, we're on our own. Save now, and save hard.

-k

Good advice. Government won't like that though as it doesn't grow the economy like consumption.

[Pliny]

When it comes right down to a decision whether to take CPP at 60 or 65, there's only one consideration: Yes you get less at 60 but are you going to live long enough for that to matter?

By 65 you will have accumulated about $40,000 in CPP benefits, more if you invest it and it will be worth even more (in assets and cash flow) if you use it to pay down a mortgage or other debts.

If you live to 75 you'll have collected the same total amount of CPP either way: Only past 75 will you reap the benefit (in total assets) of waiting til 65 ... and is it worth it to you then?

And if you started at 60 you probably had more fun with it.

Take it at 60. If you don't 'need' it, invest it for your children/grandchildren ... OR ... take a cruise or do something you may not be able to at 75.

The only sure thing is ... You can't take it with you.

When it comes right down to a decision whether to take CPP at 60 or 65, there's only one consideration: Yes you get less at 60 but are you going to live long enough for that to matter?

By 65 you will have accumulated about $40,000 in CPP benefits, more if you invest it and it will be worth even more (in assets and cash flow) if you use it to pay down a mortgage or other debts.

If you live to 75 you'll have collected the same total amount of CPP either way: Only past 75 will you reap the benefit (in total assets) of waiting til 65 ... and is it worth it to you then?

And if you started at 60 you probably had more fun with it.

Take it at 60. If you don't 'need' it, invest it for your children/grandchildren ... OR ... take a cruise or do something you may not be able to at 75.

The only sure thing is ... You can't take it with you.

More good advice for the older crowd.

[cybercoma]

Minor note: If you were born after 1962 (that's most of us, I assume) the age of eligibility for OAS isn't 65, it's 67. That was implemented this year.

Suggestion for younger members: plan your retirement based on the assumption that the age of eligibility is going to keep increasing, and the benefits aren't going to keep pace with the cost of living. In other words, we're on our own. Save now, and save hard.

-k

The problem is that the unemployment rate for young adults is double the national average and they're saddled with even more debt than they were in the past. Moreover, few are able to afford homes (more young people are moving into apartments and condos than homes now), which in the past were a way of building equity over a person's lifetime. In other words, "Save? Save what? I'm just trying to survive!"

Edited October 29, 2012 by cybercoma

[Mr.Canada]

The problem is that the unemployment rate for young adults is double the national average and they're saddled with even more debt than they were in the past. Moreover, few are able to afford homes (more young people are moving into apartments and condos than homes now), which in the past were a way of building equity over a person's lifetime. In other words, "Save? Save what? I'm just trying to survive!"

.

This is exactly what Obama has done in the US yet you support him.

I don't rely on the government for my retirement. I do that myself. If I live to 67, awesome, if not...well I had a good run and had a lot of fun along the way. RRSP is the way to go. It basically triples or quadruples the money you put into it.

[cybercoma]

I don't rely on the government, says the guy on Ontario Disability.

Of course you rely on the government. And there's nothing wrong with that.

[Mr.Canada]

I don't rely on the government, says the guy on Ontario Disability.

Of course you rely on the government. And there's nothing wrong with that.

Cyber, were you talking to me? I am not on disability. If not disregard my post please.

[cybercoma]

Sorry, I thought you said in another thread that you're on disability.

[Mr.Canada]

Sorry, I thought you said in another thread that you're on disability.

Hehe, no worries. Another member, "new teddy", is on disability I believe and he/she got me interested in it so I started reading about it because of him.

That's what made me an advocate for raising the social assistance rates in Ontario. I think I'm turning into a socialist.

Edited October 31, 2012 by Mr.Canada