When should I take my Canadian Pension Plan distributions?

By Investopedia Staff AAA
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 However, this does not tell the whole story; we need to look at the total that would be withdrawn over time.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. What are the 403(b) contribution limits?

    Determine whether 403(b) contributions meet federal guidelines. Contribution limits to this retirement plan are determined ...
  2. Can I roll over a 403b plan?

    Learn whether distributions from a 403(b) plan can be rolled over, where they can be rolled over to and what the income tax ...
  3. What is the difference between a 408 (k) plan and a 401 (k) plan?

    Learn key differences between 401(k) and 408(k) plans. Employers provide different options to help employees save for retirement, ...
  4. Is a 408 (k) the same as a Simplified Employee Pension (SEP)?

    Find out the differences and the similarities between a 408(k) retirement plan and a simplified employee pension (SEP), and ...
RELATED TERMS
  1. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  2. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all ...
  3. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  4. Peri-Retirement

    A term for the period of time leading up to actual retirement. ...
  5. MyRA

    A new tax-advantaged retirement account that President Barack ...
  6. Provident Fund

    A compulsory, government-managed retirement savings scheme used ...
comments powered by Disqus
Related Articles
  1. 10 Common Retirement Planning Mistakes ...
    Retirement

    10 Common Retirement Planning Mistakes ...

  2. 7 Steps To Evaluate A Financial Adviser
    Investing Basics

    7 Steps To Evaluate A Financial Adviser

  3. 6 Retirement Planning Tips For Late ...
    Retirement

    6 Retirement Planning Tips For Late ...

  4. Set It And Forget It Doesn’t Work For ...
    Investing Basics

    Set It And Forget It Doesn’t Work For ...

  5. 5 Ways Americans Sabotage Their Savings
    Economics

    5 Ways Americans Sabotage Their Savings

Trading Center