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investor clinic

My thanks to readers who sent in questions after last week’s column on the Canada Pension Plan. Today, I’ve invited CPP expert Doug Runchey of DR Pensions Consulting to answer some of them.

I plan to retire soon and will qualify for the full CPP pension at 65. How much higher is the benefit if I wait until the age of 70, and how long would I have to live for that option to make sense?

If you delay taking your CPP until the age of 70, it will increase by 42 per cent compared with the amount you would receive at the age of 65 – even if you’re not working during those years. That is because any months or years of zero earnings after the age of 65 can be dropped out during the CPP calculation, in addition to the general 17-per-cent dropout applied to years before 65. Ignoring inflation and the investment opportunity of taking your CPP at 65, you will be better off by delaying until the age of 70 as long as you live until at least 82. If you are in poor health and have a shorter life expectancy than 82, that would tilt the decision toward taking CPP sooner.

Apart from life expectancy, what other factors should I consider when determining the best age to start my CPP?

Other factors include: whether you need the cash flow now; the impact on other benefits such as the guaranteed income supplement or the CPP survivor’s pension; your marginal tax rate now versus later; and the fact that CPP is fully indexed, so you may want to maximize your CPP if your other sources of income are not fully indexed. I explore some of these factors in greater detail on my website,

I am seriously considering starting CPP at the age of 60. I realize that my monthly benefit will be reduced by 36 per cent compared with the amount I would get at the age of 65, but if I can earn a return of, say, 8 per cent on my money, wouldn’t that strengthen the argument for taking CPP earlier?

Yes, if you can guarantee an 8-per-cent return on your investments and you don’t need the money right now, that would definitely swing the argument in favour of taking your CPP sooner rather than later. Because investment returns vary from individual to individual, I do not consider them when doing my “break-even” calculations to help people determine the best time to start CPP based on various life expectancies. I always recommend that people contact a qualified financial planner if they want to include investment return expectations when deciding the age to take their CPP.

I am 92 years old and contributed to the CPP during my working years. However, I never applied for CPP benefits and have not received a penny. If I apply now, will I get paid in arrears for all of the years that I missed?

The CPP legislation allows for a maximum of 11 months in retroactive payments, so unfortunately this reader has now lost out on more than 20 years of payments. He should immediately apply online before the end of this month, or he will lose another month’s payment. The lesson here is that you need to apply for CPP; the government won’t do it for you. The government was recently musing about legislation that would automatically approve CPP retirement benefits to anyone who had made CPP contributions and who hadn’t applied by the time they reached the age of 70. My biggest concern with that solution is that it will likely result in CPP payments being issued to long-dead contributors whose estate never applied for the death benefit or in payments going out to addresses that are out of date.

I have a question about the child-rearing dropout provision. Is this something that my wife needs to notify Service Canada about? If so, what proof does she need to provide that she was out of the work force and raising children under the age of 7?

She needs to complete the questions about child-rearing when she applies for her CPP benefit. She doesn’t need to provide any proof of low earnings, as that will already be determined according to her lifetime record of earnings and contributions that Service Canada maintains. However, she will need to provide proof of the children’s birth dates, and for that purpose she can use either their social insurance numbers or birth certificates.

How much income from my registered retirement savings plan can I have before my CPP benefits are clawed back?

Income from your RRSP – or any other source – does not affect your CPP, as there is no clawback of CPP benefits. There is, however, a clawback of Old Age Security benefits that starts at income of $77,580 for the 2019 tax year.

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