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Retire Now or Later? How CPP Changes will Affect You

Posted by on Jan 4, 2011 in Moneyville, Retirement | 1 comment

By Sheryl Smolkin | Mon Jan 03 2011


Toronto Star

Changes to the Canada Pension Plan start taking effect this month and are designed to encourage people to work longer before they start drawing a government pension.

The changes take place gradually over the next five years and make it much harder to figure out when to retire and how to ensure you receive the maximum benefit.

What’s changing is that incentives to retire between 60 and 64 are being reduced, while incentives to start taking the pension later are being improved. Ottawa is doing this to encourage people to retire later and allow them to collect CPP and continue to contribute to the plan until age 70 if they are still in the workforce.

Here are the new options and what they mean to you:


One Comment

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  1. Jan Coward

    Your article is very topical. It is a conundrum.

    I am in the position of making application for early CPP effective as early as Sept 2011 & find myself in the position of doing some serious investigation. A friend told me about your article. After reading the info posted at the CPP website & your article, I continue to lean toward taking an early pension. I would like to get back out of it, those contributions that I have made into it.

    I have no significant-other, or dependents. This pension will be to & for me, only. I suspect this is a growing demographic group.
    At my death, the pension stops.
    When I die, whether now, (pre 60 yo) or at 65 yo, or at 70 plus, the maximum possible CPP payout to my estate is:
    NOT the residual of those cumulative contributions that I’ve made (est. $31,000) ,
    or better yet, some amount in which a formula would factor in what my employers contributed over all those years, but
    a grand total of $2,500. In my case that’s approximately 8% of my contributions.
    In very simple terms, that seems flawed. Unfair. “Theft”. of my contributions & all those made by others in similar circumstances.

    The conventional scenarios focus on: whether a person is taking a late pension, or at 65 yo, or
    a person taking a pension at 60 yo, = would be taking a reduced pension, & if to live past the 72 yo (& effective 2011 onward, at some later date)= the break even factor, the cumulative early CPP payout, evens out with what one would have received, & then falls behind, had they begun payments at 65 yo.

    In my scenario, with my seemingly unique sense & perspective of “fairness”, my goal is that if there is no “fair” payout to my estate, I would like to try to be payed/collect at least the total of those contributions that I’ve made into CPP.
    Using your eg. Mary who will get $672 & Joan $614 & a simple average $643/mo, it would take approximately 48 mo/4 years to collect, so from age 60 yo until age 64 yo.
    Using the eg. at $960/mo, starting from age 65 yo. would require living until 67 2/3 yo.
    I’d have to guess that I have a better chance of living until 64 yo than until 67 2/3 yo to collect.

    So for me, the incentive to hold off/defer taking an early CPP until a later age eg 65 yo, would need to include a CPP revision that would make provision for payout to the estate of at least the cumulative amount of those contributions that the person made.

    I do recognize that CPP may well pay out for many years after age 67 & is indexed, & it’s many other attributes, and I will be grateful for that, with the constant pressure of increasing costs. But… the issue above needs to be addressed also.
    For the record, I do believe that the CPP is a better alternative to the newly proposed contributory pooled pension plan. & for most of the reasons already covered by the media. I’d have to guess the current government is NOT in support of an enhanced CPP d/t the cost to the government. It’s only saving grace may be (although who knows?) that it might/should factor in an estate payout of those contributions made. I can only hope that reason will prevail.

    Jan Coward

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