WEALTH Matters — FALL 2010

ARE YOU BETWEEN 59 and 64 and not yet receiving Cpp?

Then you have just about a year to decide whether to take your CPP before age 65 under the current rules. It’s about to get a lot more expensive to take your pension early.

We last wrote about these proposed changes in our Summer 2009 newsletter. Most of the changes won’t come until 2012, and are being phased in over several years to prevent large differences in value from one year to the next for those about to take their pensions at this time. The table shows the changes in the adjustments for taking CPP earlier or later than age 65, and how they will be phased in over time.

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There are two changes that may have a more significant impact right now. First, if you want to get CPP before age 65, you’re best to start planning now how to meet the ‘not significantly working’ test in 2011. Currently you can only start receiving CPP if you have substantially ceased working, which means those in traditional full-time jobs who intend to keep working may have trouble meeting this test unless they can take a leave and be assured of being hired back. But those who are self-employed or own a business may have an easier time qualifying even if they do intend to resume earning employment income after their pension starts.

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Are you between 59 and 64 and not yet receiving cpp?

Case Study—Taking more than the RRIF minimum payment

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Or are you over 65 and retiring now?

The second item that is of immediate importance is the timing of starting your CPP this late in the year if you are already over 65. Beginning January 2011 there will be a larger increase for those starting their CPP over age 65, so don’t start your CPP in 2010 – wait till January 2011 to get a larger increase. For example, someone just turning 67 in October 2011 would get 12% over the normal pension if they start now – 0.5% for each month over age 65. Waiting till January 2011 adds 3 more months, and all 27 months would be calculated at a higher rate of 0.57% per month for a total of 15.39% over normal pension. The extra 3.39% would pay back the lost 3 months in just over 7 years.

The same advice applies for anyone over 65 in the next 2 years – once we’re in the second half of the year, you may as well wait till the next January to get the larger increase for the next year of the phase-in.

Please call us if you would like some help with your own financial planning decisions.

Under current rules, the ‘breakeven point’ is at about age 82. That’s how long you would need to collect the full pension from age 65 in order to receive greater value than taking the reduced pension at age 60.

One other change will impact all CPP pensioners under age 65—even if they already started their CPP before these changes: they will have to continue making CPP contributions if they continue to work. The maximum contribution is over $2000 a year. Those contributions will create a further increase to your CPP benefit at age 65.

Under the new rules, once fully implemented, the breakeven point drops to about age 75 – lower than the average life expectancy for someone age 60, which eliminates the whole point of taking the CPP early unless your own life expectancy is short.

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