Blog: The Mysterious Man I Met on the Train in 2017
By Jeff Pollock
Several years back, I found myself sitting on a train beside a very chatty seatmate. Before the train had departed Toronto’s Union Station enroute to Windsor, the Stratford native had dropped Justin Bieber’s name once, then twice, then three times. My destination -- 4 hours and 21 minutes away -- couldn’t have come sooner. Thankfully, the subject then changed from the Biebs to something (anything) else.
To my surprise, the man was a financial planner. He looked quite young but said he had no choice but to retire. I presumed with the cost-cutting exercises for which many banks are notorious, the decision wasn’t his despite many years of dedication. He said the best advice he ever gave his clients was to take CPP as early as possible, which is age 60. At the time, I didn’t quite know enough about CPP’s technical details. I wish I had asked “why?”
You can start taking CPP at any time between age 60 and 70. Whichever year you choose within that 10-year span, you’re required to apply because payments will not flow automatically. Provided you made at least one CPP payment since you were 18, you are eligible to participate.
Everyone has unique circumstances. Just because your neighbour took their CPP at 60 does not mean you should do the same.
Your monthly CPP will depend on your age, how much and how long you contributed to CPP, and your average earnings throughout your working life.
The earlier you take CPP, the less you receive. Let’s use age 65 and $929.20 per month as a benchmark. You will receive 0.6% less for each month earlier that you take CPP. So, if you take it at 60, it will be 36% less than that $929.20 benchmark (0.6%*12 months*5 years = 36%), or $594.69 per month. The later you take CPP, the more you receive. Let’s keep using age 65 and $929.20 per month as a benchmark. You will receive 0.7% more for each month later that you take CPP. So, if you take it at 70, it will be 42% more than the $929.20 benchmark (0.7%*12 months*5 years = 42%), or $1319.46 per month.
Taking CPP at 60 means the cash flow starts coming earlier. Taking CPP at 70 means you’re getting 42% more each month than if you had started to take it at 65.
Everyone is different and the point at which you start taking CPP is unique to you. Remember this is taxable income, so if you are receiving pension or RRIF payments, the more you receive, the more you will be taxed. But if you need the money to pay your bills, taking CPP earlier may be the best option for you. It’s also true that people are living much longer now than before. In fact, the average life expectancy is 80 years for men and 84 years for women. But, not everyone benefits from this statistic.
Sadly, though I didn’t ask the man on the train “why”, the answer dawned on me years later. In the months leading up to his visit in Toronto, he had actively crossed off all the items on his life’s bucket list – performing stand-up comedy on a live stage, fixing up an old barge so he could have parties that upcoming summer with his friends on the canal, and making good with the charities he and the Biebs support in Stratford while he had the time left to do so.
Just like we design a customized portfolio to suit the needs of the person, we also discuss issues like this one with our clients.
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