CPP/QPP may not be enough to support your standard of living; but it can be an integral part of your income plan when it is understood and optimized.
What you may know about CPP/QPP:
• CPP/QPP is a program into which both you and your employer have contributed throughout your working years. If you are self-employed, you have contributed both the employee and employer portions.
• The default age at which Canadians will begin to receive a CPP/QPP retirement pension is age 65. Your pension is actuarially-adjusted if it is initiated earlier or later. So, if you choose to initiate CPP/QPP before age 65, you will receive less per month; but with the potential to collect the pension for more months. In contrast, if you choose to take CPP/QPP after age 65, you will receive a more-generous monthly payment but presumably for fewer months.
• The CPP/QPP program includes disability, survivor and orphan benefits.
• CPP/QPP can be “shared” with a spouse for tax purposes; achieving some measure of retirement income splitting if your spouse has a lower taxable income than you do. The amount paid to your spouse is calculated based on your respective contribution histories and your years of cohabitation.
What you may not know about CPP/QPP:
• Business owners who receive only dividend income are not building their entitlement to CPP/QPP. You would have to accumulate in excess of $300,000 in additional retirement savings to make up for this lost benefit.
• If you work past age 65 and are collecting CPP/QPP, you can stop contributing to CPP/QPP; thereby increasing your net income.
• Enhancing your CPP/QPP by deferring the onset will not improve the survivor benefits paid to your surviving spouse. The maximum survivor benefit continues to be based upon what a retiree would collect at age 65.
• Collecting CPP/QPP Disability benefits will not reduce your retirement pension even though you do not contribute to CPP/QPP while collecting disability benefits.
• CPP/QPP credits are often “split” during separation and divorce proceedings.
Strategies to optimize your CPP/QPP benefit:
• Your health and your family history of longevity are the most important factors influencing your decision to as to when to initiate your CPP/QPP retirement pension. If you have other sources of income from which to draw, are reasonably healthy or come from a family that is long-lived, you should consider deferring your CPP/QPP to age 70.
• Like CPP/QPP, OAS is also actuarially enhanced if it is initiated after age 70. However, OAS payments are not factored into the OAS clawback calculation while deferred and enhanced CPP/QPP pension income is considered in the OAS clawback calculation. The enhanced CPP/QPP that you collect could therefore result in an OAS clawback. So, you might be better off deferring OAS than CPP/QPP.
• For those who have accumulated substantial registered investment assets, deferring CPP/QPP and drawing measured amounts from your RRSPs in the meantime, can smooth out your tax burden during retirement.
Clearly, there is a lot to consider. If you have not yet initiated your CPP/QPP, it is recommended that you visit your My Service Canada Account to pull your own Statement of Contributions. This report will also provide you with an estimate of your CPP/QPP entitlement at age 60, 65 and 70. Once you receive this statement, please share it with me and together, we can make an informed decision that would be best for you.
