Canada Pension PlanShould you take it early?
I am of the school that believes you should take your Canada pension plan (CPP) benefit as soon as possible, simply because of the "future value of money" calculation. Which states that "a dollar today is worth more than a dollar promised next year." Deciding to take you CPP early is a personal decision hinged on the advantage or disadvantage to you in doing so. Canada pension plan works like this: X number of dollars are required by the government to be set aside each year for contribution to the CPP pool of money. In the case of employees the employer contributes half and the employee contributes the other half. With self employed or business owners as they are both the employee and employer and must contribute both halves. Once you begin collecting your CPP you are no longer required to pay it. So in taking it early there is quite a substantial financial swing. ExampleAn individual contributes $3,000 yearly to the CPP and the employer matches that for a total of $6,000.The individual retires for one month, applies for and gets their Canada pension plan benefit and then returns to work.(Assuming the person receives the maximum benefit)$700 monthly or $8,400 yearly; along with no longer having to contribute $3,000 yearly. The total net benefit is $11,400 more while earning the same pay. At the same time the employer is off the hook for their half. Saving them of $3,000 yearly. Which will allow them to continue paying the same salary with less cost. Taking CPP early will reduce the amount you receive monthly. Your benefit is reduced by .5% for each month early you take the benefit. Taking it at age 60 will reduce your benefit by 30% (.5% X 12 months X 5 years)Sidebar:The government is considering serious changes to the C.P.P. early retirement benefit beginning in 2012. Stay tuned!If you wait until age 65 or longer (up to age 70) your benefit will increase by 0.5% for each month you wait. My philosophy on government benefits is to take them as soon as you can and make sure you take every step to ensure you don't inadvertently cause them to be reduced.
See Insured retirement
Suppose you decided to wait until age 65 or 70 to begin collecting your CPP and you died before you started to collect. "Sorry for your luck" would say the government. When the government begins to run out of money, benefits will be reduced. The victims of this loss will not be those already receiving benefits, but those who haven't begun collecting theirs yet. With potential claw backs and huge deficits the majority of advisors recommend taking your government benefits as soon as you qualify. Government benefits are indexed to inflation and with governments around the world printing money. You can bet inflation will be the next major issue. Return to Government Benefits
Terry Johnston J C Mitchell Financial Services Inc. Phone: 866-721-7781 ext. 232 |
