How To Plan For CPP If You're Retiring Early
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- Опубліковано 7 вер 2024
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Are you thinking about retiring early? If so, you may be wondering how it will affect your Canada Pension Plan (CPP). In this video, we'll explore the factors that determine your CPP benefits and how retiring early can impact them.
If you have any further questions about this video's topic or any financial planning questions in general, I encourage you to find a certified financial planner in your area or book a consultation with us to get your retirement plan on track. You can learn more about our services at www.parallelwe...
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DISCLAIMER: The videos and opinions on this channel are for informational and educational purposes only and do not constitute investment advice. Adam Bornn is not registered to provide investment advice and as such does not provide recommendations - those looking for investment advice should seek out a registered professional. Adam is not responsible for investment actions taken by viewers and his content should not be used as a basis for investment trades.
Many Financial consultants push for an RRSP meltdown in your early stages of retirement and delaying CPP until 70. The thing about burning through your RRSP early is TAXES. I have a bridge benefit that stops at 65. If I meltdown my RRSP from 60 to 65 my income will push me into a higher tax bracket and OAS clawback. Not sure how many people have this issue, but a higher CPP can mean a lower OAS
Balance is the key.
Whoever heard of anyone actually getting OAS and not losing all of it in a clawback?
Just put enough money into something that produces no income to avoid the OAS clawback. Or give some of your money to your heirs at age 65 or 70 to avoid the clawback while there's still no gift tax in Canada.
You can't start OAS until 65, so doing an RRSP meltdown between 60-65 won't result in any clawback (except perhaps in the 65th year).
@TheCogitech that was my point. At 65 your OAS is based on the previous year. You should look into it
I’m now 60 and have been retired for 3 years. I contacted Doug at DR Pensions Consulting to do a full pension review for me. Money well spent, I highly recommend his services.
I retired at 54 with a Defined Benefit pension. I had Doug Runchey run my numbers and it was determined that it was best that I collect at 63 due to non contribution years. My numbers have changed a bit because I went back to work full-time for 6 months. Im still going to go with Doug's number however.
Yes, the "breaking even" is approximately 73-75 years of age ... I did the math...
Now, Here is the math:
Example: Let's say I live to the age of 80 years of age. I am currently 60. I started collecting my CPP at 60. I worked full time till age 56 (started at 18). You know what the difference is in dollars from me collecting my CPP now instead of 65 and living to the age of 80? Approximately $30,000ish dollars over a 20 year period.
If I live to the age of 85? It's approximately $50,000ish. I am using the numbers that I was given on my Canada Service account. I was paid exactly what they told me I was going to get paid so I know what I will get at 61 and 65. I know of way too many people that died, didn't collect or got really sick and lived and passed away in their 60's or early 70's. Is it really worth the extra say $30,000-$50,000ish dollars? I can make that money from 60-65 and invest. The government LOL wants you to collect @ 65 and are even trying to make the age of 70 look appealing. The money I am collecting now is going into my TFSA account and my trips that I have been taking. THINK ABOUT IT PEOPLE!!!! :)
Hi @ Mare MT - I couldn't agree more around your comment the $30K-$50K forgone by drawing CPP 5 years earlier spread out over 20-25 years, on an in your pocket net monthly difference really gets whittled down to a pretty small number. $50K divided by 300 months (25 years) X by 75% net after 25% tax rate = $125/mth. $125/mth isn't going to make or break my overall retirement plan or retirement lifestyle so I will be drawing CPP sometime before age 65 just not sure when exactly yet, probably 63.
In fact, I compared my age 63 against my age 65 cumulative benefit out to age 80 and it was only $6,777 cumulative difference ($220,153 vs $226,930) or forgoing about $399/year gross. If I live to age 86 it still only about $863/yr or cumulative $19,853 ($297,854 vs $317,707) over 23 years. All this is strictly cash flow without any time value of money considerations but well below my threshold for making any lifestyle betterment by delaying CPP further.
The government doesn't care when you take CPP. Penalties/benefits for taking it earlier/later are just fund management tools.
Your scenario works for you. For some, it's more tax efficient to delay until 70.
As you noted, some die early. If someone is anticipating an early death, then I agree - collecting CPP early totally makes sense.
Live for now, because you are dead a very long time
Delaying CPP gives you some longevity insurance
💯
@Richard Bruneau on the other side of the equation delaying CPP will also have an associated longevity risk attached to it? IE if you happen to fall outside the norms and don't make it as expected --- I was an overall healthy individual with no real health worries until I experienced a few cardiac arrests after my 56 birthday - now all is good but I definitely think about both potential sides of this decision a little more now than I did prior to that event.
Planning on retiring early on rental and dividend income. Planning on using RRSP from retirement date to 65. At 65 turning to CPP and OAS. Probably be close to similar amounts comparing RRSP and Government Pensions.
Thank you so much, this was just what I was looking for
Good to hear Shannon! Thanks for watching
Retired at 56. Hugely relevant to me.
Murray - great to hear. Hope the video helped!
Can you do a video breaking down the cost of having a financial planner like you? How much you cost, today, tomorrow and years later? I do wonder how much a planner will cost yearly over my pre and post retirement .
Your videos are so good. I watch and learn from all of them. Sometimes I think I can do it own my own, but you give me some doubt. hopefully you will do a break down. Either way, I will continue to watch and learn.
Hi, yes I am juggling the same question. My partner and myself do not have a lot of savings and do not have huge paying jobs, we are approaching 60 and I wonder how to calculate at what point is it valuable to pay a financial planner.
Yes, I will get something out very soon on this. Thanks,
My situation is unique in that I commute to the US and have so for over 15 years. So I have not contributed to CPP in that time. Every time I go to Service Canada to see my estimated CPP payment it has declined. I think that in my case I need to take CPP at 60. Now I am fortunate that I qualify for Social Security that I will take between 62-65. I have multiple sources of income that will be staggered thus I should be fine.. Enjoy your content.
My DB Pension has two components till age 65. Then my Bridge Benefit ceases. Calculated and paid to 65. Whether I collect CPP b4 or not.
Good to know my exact CPP payout (my bridge) since my early, at 56 years old retirement. But I will delay BOTH CPP and OAS till 70. And melt down my RSP (non-registered) over those 5 years (35K year) when I lose my bridge at 65.
With that 35K meltdown (27K net?), I will continue to top up my TFSA Contributions.
Great advice. I plan to take my CPP at 70; I am about to turn 64 and retire in the next 6 months.
Thank you so much! This is the content I was looking for.
Glad it was helpful!
Excellent content! Thank you!
Glad you liked it!
Why do all FI's recommends deferring to 70? I know you'll likely receive more if you live past to Canada's life expectancy but I think quality of life is more important. ie: Spending CPP when you are young enough to enjoy it. Sure you'll be ahead in your 80's but most seniors are not going to be too active at the age.
You are statistically ahead from day 1, not age 80. It's not that FI push for 70, it just makes the most financial sense. I find most banks push for 60 so you keep your money with them longer.
It all depends on what other funds you have and health. Some people need to take it earlier than others for those reasons. Everyone needs to crunch their own numbers and be realistic about what they think their retirement is going to look like. I'm in great health (so far - never a guarantee), will retire early and have other funds to rely on. Taking it at 70 works best for me. People need to be honest about their own realities. I have an older coworker (age 63) - obese, has already had one heart attack, smokes, and he's paranoid about running out of money at 80, so he is taking it already. The chances are he will never make it to 75. So taking it early is probably the best decision for him.
Great content as always Adam!
Thanks Kimmy
If a couple has 2 more-or-less full CPP contributors/recipients, would you ever recommend that one person takes the CPP earlier, to get the immediate financial benefit of the CPP (cash in hand), and one takes it later, to get the benefit of getting more money by deferring? We are retiring early (62 for me, probably 60 for my spouse).
the CPP calculator produces error when you input more than 5 yearly numbers manually. When I contacted the site creator for help, the reply was download the HTML from CRA. Too bad the manual entry portion does not work.
Great content - ps. Anyone considering a new Financial plan with consolidated investment ideas, and a great documented cash flow plan I HIGHLY recommend Adam and Parallel Wealth - They have put my mind at ease as I move to retirement. - Adam is one of a few that are truly motivated to help people retire.
Thanks Ron.
I retired from fed gov at 56. I will be 62 this year. I didn't max out CPP. I had no idea that was the case when I retired. Generally speaking, should I take a part time job until I bump up to the max, or is it not worth my while for the outstanding difference? I plan to wait until I get closer to 70 or at 70 to withdraw benefits.
If you reach out to Doug Runchey he could calculate your CPP benefit as is today and likely predict what you might get with various working scenarios. That’s your best bet.
Have you done or can you do a video on when to start CPP for dual citizens that are able to collect CPP and Social Security ? With less than 20 years of SSA contributions. Initial thought I’d start CPP early and delay SSA so the WEP is lower later
I have watched most of your videos and I understand the concept but does the calculator you used factor in the cost of withdrawing investments from age 60 to 70 and the loss of the return on those investments for that time period? For example, the S&P 500 over the last 20 year (2002 to 2021) was 9.87% average per year (yes that isn't including 2022 but that is what google returned and 40 years is 10.69). At 9% average interest rate, it only takes 8 years for your investment to double. So with a 10 year gap, a CPP payment of $900 at age 60 would be worth $1,800 at age 68 in an investment that just tracked the S&P 500. With this effectively occurring every month, do you ever reach a time when delaying reaches a break even as it appears the investments would almost outpace CPP increases? Since your CPP payments are low (government controlled with some adjustments for inflation) and do not grow at the rate of investments, does this change the math when factoring in taxes paid (RRSP melt down strategy)? To me, you can't just use a straight line math with no potential investment growth as part of this calculation?
Is it possible to beat 7.2% / 8.4% plus inflation, guaranteed, for 10 consecutive years? Maybe. But the probability is really low (I would say likely impossible). Just one “2022” could ruin the opportunity to do better. It’s not worth the risk to me. I’ll plan for the guaranteed return every time, unless there’s clear evidence to suggest below average mortality (after reaching age 60).
@@James_48 Again, S&P average over 40 years was over 10%, I used the 20 years due to being a bit lower. This includes everything from the 80's until 2021. This was based on Google search results. So yes, based on 40 years of results, it is possible, on average.
💯 it does and can be adjusted per client request.
@@robschultz9262 What throws these examples to the garbage bin is not taking into consideration the return on the CPP collected. ( if not spent as if you held off to 70). You have this money in your hands and can spend this down in later years.
My analysis has found that if we each start our CPP payments at age 62, with a 6.5% return on our investments, and inflation running at 3% p.a. over the next 25 years, our breakeven point is in our mid-80s when looking at our net worth. Our plan is based on us both expiring on my 85th Birthday!
At a crossroads as what to do. As of Dec 22 on disability. Just turned 57 in Dec. Have worked part-time. Have a work pension as well. Not certain what to apply for. Unfortunately might not be here long enough to apply for CPP.
So much in this video is new info for me. Thanks for this!
Glad it was helpful!
Can you or have you done a video breakdown on retirement at 65 but start taking CPP at 60 and rolling your CPP into a RRSP to avoid the tax for 5 years. My CPP for 5 years is around 45,000
Len, coming this Friday and next week. 3 part video series
*Great video one question. Where would I find the input numbers from when I started working in 1978?*
My Service Canada. Create an account and then search your CPP contributions.
The average Canadian male lives to age 81 and female to 84. So shouldn’t roughly 1/2 of Canadians just take their CPP early? As well, aren’t people in their 80’s hitting that no-go stage where spending drops?
well i immigrated around 20 years ago, and worked part time jobs. worked like 13 years out of 20...never made 15000 year mostly because of poor health,,,and lived and worked in quebec....if i retired now,,, at 60 ,,,and contributed very less to qpp or cpp,,,,,,,can any one has any idea,, what is at leasst i will get from cpp as i worked very less income jobs..the guy here didnt mention any thing,, about people who work very less how much will they will get minimum from cpp,,,,, someone told me usualy govt pays 100 dollar a month ..if in past ur annual salary is low..thanks
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What if you retire at 55 with a pension that has a bridge to 65. Wouldn't it make sense to take it at 60 as you're basically getting it twice for those five years?
Nope, not how the math works
I was a Permanent Resident of Canada till 2015. I moved permanently back to my country due to family matters. While in Canada, I did contribute to CPP while I worked there. Now I am 43 only and not planning to return to Canada. How can I claim my CPP?
Contact Service Canada and they will let you know the process. You will need to wait until 60 at the earliest though. If you moved to a Country that has an agreement with Canada, then possibly integration between government benefits.
@@ParallelWealth Thank you for your reply. Will contact Service Canada then.
If I have payed the maximum cpp contribution for 38 years and I take cpp at 65, will I get the maximum payment? Why doesn't someone come out with an actual cpp calculator that is straight forward?
www.cppcalculator.com
How does the CRA/SSA totalization agreement deal with years when no pensionable income was earned on the Canadian side? My understanding was CPP credits you for those years, but is it full YMPE?
My understanding is yes if you hit the max outside Canada. But best to call My Serviuce Canada to confirm your specific case.
Does the app used to create chart for break even include the increase due to cpi each year.
Yes
If I delay until 70, how accurate are the calculators? Am I basing a business decisiion on approximation?
Quite accurate. You could also hire Doug Runchey for precise number too
@@ParallelWealth So I can hold the Gov to their quote, good to know. Tbanx
Great content Adam, What happens if I contribute to CPP for 10 years (Lets assume I contribute CPP highest slab rate with income 200k+/yr for 10 years) and go back to my home country and for tax reasons I may be Non-resident Canadian as I hold investment account with Canada (RRSP, TFSA, Cash Account). Do I still receive my pension for contributing to CPP while in Canada? Thanks.
Yes you do. Roughly 25% of the maximum possible. ( since 10 years out of 40 is 25%)
@@mstefa007 They'll cheat him like they cheated my friend and he had to retire because he nearly died so he couldn't get off the floor to file for disability. He had a couple of good days and filed for CPP but waited one month too long and they never processed his letter like its the employees money it comes out of or something.
okay, sorry to ask a very silly question, but what exactly do you mean when you say "the break-even points"?
Death. Live less than the break-even and you are better to take it early, live longer than the break-even and you are better to have taken it later. Die on the break-even date and it doesn't matter which way you did it, you broke even.
It basically means at what age do you start to lose money by having taken CPP earlier. Or said the opposite way, if you wait to take CPP until age 70, at what age will you receive at least what you would have gotten had you started at age 60. You can do these comparisons with any pair of dates.
hi! I have cpp widow's benefit... how des this effect my own ccp when I retire?
I would highly recommend having Doug Runchy run through numbers for you. It could drastically affect when you take CPP yourself.
This is an important question that I dont see addressed properly. My understanding is that the most that can be paid to one person who is eligible for their own CPP and the survivor's pension is the maximum CPP for any individual which is around $1300 per month. You should definitely research and make sure.
@@Pmjay00 That's what I read too... I dislike that they piggy-back my pension (WCB does the same) My spouse earned his pension and I earned mine, so why do they reduce it?
In the grave, no CPP needed. Enjoy it now at age 60. Yes if you wait more, monthly amount will be more, if you survive high inflation and interest rate.
My good friend Parkerbonehead got fleeced by the cockamamie mathematical formula for CPP. He got poisoned and had to stop working at age 35. He couldn't file for disability because he couldn't get off the floor. Even Einstein would have had nightmares with that one.
Are you a total idiot or a village idiot?
Great video. I will be retiring at 55 and I am considering taking CPP at 60 instead of 65.
What is the break even age taking CPP at 60 vs 65 if you stopped contributing at age 55?
Looks like age 75 according to the graph he presented. But that is based on example numbers, not your numbers.
@@Taliesen. I saw 60 vs 70 and 65 vs 70 but not 60 vs 65?
Use the calculator link and run your numbers. Everyone will be a little different.
@@blackwatch7151 You need to read the graph, not the text overlay.
Hi @Blackwatch - I have run the numbers for a number of different individuals and without any consideration of time value of money, the cash in hand cumulative total of taking 36% reduction (age 60 amount) vs no reduction (age 65 amount) is just before age 74 (ie later in 73rd year)... So if you lived upto or longer than your 74th birthday you would get cumulatively more dollars by waiting to start drawing your CPP at age 65.
The above being said if you take time value of money into consideration the crossover point in the calculation change. Let say you take the CPP money and invest all of it or alternatively you don't spend your money that is invested and spend your CPP dollars. Also let assume your investments earn 5% return then all of a sudden the crossover point moves to age 79 (6% is just about age 82). So the answer to your question or analysis isn't as straight forward as one would think as it really depends upon the assumptions used and the philosophical beliefs you have and want applied to the time value of money calculations being made. That is of course if you even believe time value of money calculations should be considered in this analysis as many don't.
About only 20% of people I have known live past 78, lol.
Stop calling it a benefit I paid into it!!!
So you are going to get out exactly what you paid in to it? Or will you benefit by getting more out than you paid in? That'll depend on how long you live for.
Fred, what would you prefer I call it?
It definitely is a benefit, its not 100% your sole contribution moreover someone else is managing it for you
Sorry had a brain fart.. mixed it up with entitlement that some people say and it makes my mind go crazy. My bad people.😖😖😖
If I had to do it all over again I wouldn't work ever, never and never have to worry about getting cheated on my CPP by a government who can make up any figure they want for my CPP.