A:

The Canadian Pension Plan (CPP) is a retirement program from which contributing Canadians may receive payments at the age of 60 or upon a disability. The program, however, does not start immediately paying you upon retirement, disability or at the age of 60 because you must apply for payments. While deciding when to take CPP payments is a personal choice that you should make with a financial adviser, from a financial point of view it, may be wise to take these payments as early as possible.

Although you are not guaranteed to receive the maximum payments from the pension program, our example uses the maximum payment an individual can receive (as of 2005). Table 1 illustrates the maximum payments for the starting ages of 60, 65 and 70.

CPP1.jpg
Table 1

Table 1 shows that the older you are, the more money you receive each month and each year. However, this does not tell the whole story; we need to look at the total that would be withdrawn over time. Table 2 shows three situations: taking contributions starting from the age of 60, 65 and 70 until the age of 90. The values in the table are simply the growing total value of the payments - without the contributions being invested.

CPP.gif
Table 2

Table 2 shows that by taking CPP at the age of 60, you will have received a total of $215,822 by the age of 90. By taking it at 65 you will have a total of $258,570 and by taking it at 70, your total will be $271,488 by the age of 90. It is clear in the table that the later you take it the more you end up receiving in total if you were to live to 90.

However, the most interesting point the table shows us is how long it takes for those starting at the later ages (65 and 70) to catch up to the earliest date (60). If you were to take CPP at the age of 65 it would take you 11 years (when you are age 76) to catch up to the total value received by someone who had taken it at 60 years of age. If you started taking amounts at age 70, it would take 21 years (when you are 81) for you to catch up to someone who took payments at 60. This simple look at the CPP program does not take into consideration the investment of contributions but if the contributions were invested but it would take even longer for the 65 and 70 values to catch up to the value achieved by taking CPP at the age of 60.

The implications of what we show you here boils down to whether you want more now or more later. The higher monthly, annual and total payments received by those who start later may seem like a reason to hold off in taking your CPP payments. But, it takes many years to collect the same amount as someone who starts early, and there are no guarantees that you will live that long. If are not sure of what is best for you, it is wise to consult with your financial planner about taking the payments early.

RELATED FAQS
  1. How can you get your Canada Pension Plan (CPP) payments early?

    Learn about how Canadian taxpayers can receive benefits from their Canada Pension Plan before reaching normal retirement ... Read Answer >>
  2. Who is eligible for Canada Pension Plan benefits?

    Learn more about the Canada Pension Plan, who contributes to the plan and who can receive standard, disability, early retirement ... Read Answer >>
  3. What are the differences between Canada Pension Plans (CPP) and Social Security Benefits?

    Learn about the differences between the U.S. Social Security system and the Canada Pension Plan, and discover why one is ... Read Answer >>
  4. How are payments calculated on a Canadian Pension Plan (CPP)?

    Learn what factors are considered when calculating your Canada Pension Plan retirement benefits, and discover how to get ... Read Answer >>
  5. What are Canada Pension Plan contribution requirements and rules?

    Learn about the Canada Pension Plan contribution requirements for Canadian workers and how those contributions determine ... Read Answer >>
Related Articles
  1. Retirement

    Raising The Retirement Age: 5 Countries Testing The Waters

    Many countries are raising the retirement ages for their citizens. Find out what this means to you.
  2. Retirement

    Retiring Early: How Long Should You Wait?

    Maximize your Social Security benefits by choosing when you retire.
  3. Retirement

    Why Early Retirement Is a Bad Idea

    8 good reasons to put off your retirement date
  4. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  5. Retirement

    Is Waiting till 70 for Social Security Right for You?

    Should you wait until 70 to start receiving Social Security? It depends on a variety of factors. Here is what you need to consider.
  6. Retirement

    Longevity Insurance for a Comfortable Retirement

    Don't face a retirement that goes on long after your money runs out. Longevity insurance guarantees you income once you reach age 85.
  7. Retirement

    401(k) Planning: How Much Should You Be Saving?

    We look at how much you should contribute to your 401(k) and when. And also, how much you should have in your account during certain times in your life.
  8. Retirement

    Stages of Retirement Planning

    From twenty- to sixtysomething, here are some age-targeted ways to plan for your life post-job.
RELATED TERMS
  1. Attained Age

    1) The age at which the beneficiary of an insurance policy, retirement ...
  2. Year's Maximum Pensionable Earnings - YMPE

    A figure set each year by the Canadian government determining ...
  3. Issue Age Policy

    An insurance policy whose rate is dependent on the age of the ...
  4. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  5. Mortality Table

    A table that shows the rate of deaths occurring in a defined ...
  6. Payment Protection Plan

    An optional service that lets a disabled or unemployed consumer ...
Hot Definitions
  1. Five Cs Of Credit

    A method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics ...
  2. Straddle

    An options strategy in which the investor holds a position in both a call and put with the same strike price and expiration ...
  3. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  4. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  5. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  6. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
Trading Center