For Canadians at or nearing retirement, the Canada Pension Plan (CPP) remains a bit of a mystery.
Here are some facts to shed light on CPP and some points to consider when planning retirement.
Fact # 1 – The CPP death benefit consists of a lump sum of up to $2,500 and a survivor’s benefit. However, if the spouse is already receiving a retirement benefit, the maximum amount (survivor’s benefit plus retirement benefit) cannot exceed the retirement benefit maximum.
Fact # 2 – People can start collecting CPP pension as early as age 60 and there is no longer a requirement to stop working to receive CPP between 60 and 65. However, for those taking CPP before 65, the early retirement reduction is gradually increasing between now and 2016 when the total reduction will be 36% for someone starting CPP at age 60. Those who choose to take their CPP pension early and continue to work must still contribute to CPP between the ages 60 and 65. Over time, these additional contributions will increase their annual pension benefit.
Fact # 3 – To increase CPP pension, people can delay CPP pension up to age 70. By the end of the 2013, their pension will increase 0.7% per month for each month over age 65 they delay taking CPP. In the future, this could increase CPP pensions by as much as 42%.
Fact # 4 – Those turning 60 and planning an early retirement will want to know which option is better. The first step is to obtain an Estimate Request for Canada Pension Plan, by visiting www.servicecanada.gc.ca or calling a local Service Canada office. Ask for two scenarios: starting CPP at 60 and 65. Once quotes are received, there are a number of personal considerations (ie. life expectancy, desire to continue working) before deciding when to start a CPP pension. People should review quotes with a financial advisor for an expert opinion.
Dan Allen is a financial advisor specializing in retirement income planning with Heritage Group in Guelph.
