How To Plan For CPP If You're Retiring Early

are you thinking about retiring early if so you might wonder how your CPP is going to be affected by that decision as most of you know CPP the Canadian pension plan is a monthly payment to you that you can start as early as age 60 or defer it as late as age 70. now if you don't understand what the CPP is we have other videos on on that and we'll link that above but the CPP benefit comes to as early as 60 which if you retire before 60 you might think well there's years I haven't paid into CPP which means that I might want to start it early now we know that CPP is based on how much you put in it's a benefit OAS is based on how many years you're in Canada but when we look at the Canadian pension plan it's based on how many years and how much you've paid into it so the more non-contributory years that you have the lower amount that you're going to get now again there's typically between six to eight years that are knocked off that you can have no payment years there's also years where if you were ever on CPP disability or child rears which is years you were at home raising a child under the age of seven so there are periods of time that will be knocked off but if you have a long period of time let's say you retire at 55 and you know the calculation goes to 65 you're going to have more years that you didn't put into CPP which mean that it's going to lower your benefit so does it make sense to start earlier at 60 or should you still defer to 65 or maybe even 70. the core CPP number is based off age 65. so if you take it before age 65 you get a reduced amount in fact it reduces by 0.6 percent for every month that you take it early so if you're worried about well I retired at 55 if I wait till 65 I'm going to have more non-contributary years so I'm going to take it at age 60 but whatever amount you would have received at 65 is going to be reduced by 0.6 every month or 36 percent over that five years well that's a really big drop is it worth it to take early on that or do we again do we wait till 65 or defer to age 70 and these are the things that you need to think about and a lot of you I talked to a lot of you on a daily basis you think you know what I'm I retired early 50 55 58 whatever that number is and because of that I need to start taking my CPP early because I'm going to have too many years where I didn't pay into it the thought process is there but a lot of times I you know I always say talk is cheap put it on paper and show me the numbers and the numbers typically map out to ah it probably still makes sense to defer it so let's jump into an actual CPP calculator and figure out what those numbers look like and determine what makes the most sense now we're going to use some assumptions here in that the client paid into from age 18 when you can start earning into CPP or paying into CPP they did 50 until age 25 and then from 25 to 35 they did 75 of the maximum you can pay in and from 35 to 55 they did 100 so you know your student you have a job that's not full pain and then from 35 onwards you have a job that will pay in the maximum CPP the client retired now at age 55 and they're just looking to determine like how much uh will I get and when's the best time to take it so let's jump into the calculator and see what that looks like so let's jump into the software here a cppcalculator.com uh we'll link this below as well it's a great calculator again if you have CPP disability years or child rears then this calculator isn't the best you want to reach out to someone like Doug ranchey to get a proper calculation done now again like I said we put it at 50 all the way to 25 so ympe is kind of the maximum earnings that you can have to max out your CPP we put that at 50 percent uh then at stage 25 bumped it up to 25 and at age 35 we have it at full amount so assuming they've earned you know back in 2003 at age 35 they earn 39 900 now everyone's situation is different I just want to run through this but again from age 18 to 25 they've only paid in 50 so they've not maxised out their whole life like I'm not doing an unrealistic situation I think this is probably more conservative than most of the files that we see come through our office now I've run it to age 65 the client is 55 and we've assumed look if you continue at full amount of CPP what will it look like if you continue to work at 65 which we know the client's not but we hit the calculate and you can see here it will give you this chart and it'll say at age 60 the CPP amount would be 8 830 um at age 65 1396 and just over 2008 h70 and you can kind of hover over here to see the break even so again if you take it at 70 versus 60 the break-even is going to be about age 76 so quite early the break even for age 65 to 70 is a bit later kind of 80 to 81 range now I want to go back and say okay well what happens if we put these all at zero which is the concern right if we're retired at 55 there's nothing from age 56 it's onward there's no contributions that is going to drastically affect it so if we run this now you'll see calculate CPP the Breakeven so age 60 drops a little bit 806 to 747. you can see though it goes from 1300 and change down to just over a thousand and from about 2 000 down to 1500 so big difference but again we want to look at that break even point from age 70 to 60. so age 60 is this gray line that goes up age 70s the lighter Blue Line you can see the crossover happens at age 78. so if you took it at 60 you can see that right number there which is a cumulative amount you would have received 170 000 and 870 168 000. so that's kind of the break even just you know 78 and maybe a few months after that the Breakeven between age 70 and 65 you can see here age 70 uh let's say jd1 taking that 70 is 224 000 and it would have been 223 at age 65. so the break even 65 to 70 is age 81 but the Breakeven to take it at 60 versus 70 actually goes back to age 78 so if you think you're going to live past age 78 which statistically you you will um then deferring it to 70 makes the most sense um and again 65 to 70 what makes the most sense well if you're going to live past age 81 statistically you will then defer in it to age 70. so again that shows you that yeah even if you retire early and you get you know more non-contributary years it's still financially beneficial to wait to 65 and and really to wait to 70. now again what this doesn't consider is how do these numbers 747 1097 or 1557 how does that tie into the rest of your income and assets and and needs and all that that has to be a part of it so this is just looking purely at CPP you have to factor in your OAS any pensions savings all that any other type of income that you would have again this also breaks down you can click on every other number here and see how much you get over time and you can clearly see you know take any age here age 95 each 90 where everything falls and you can see that taking it at 60 it really is the lowest along the way from a vote again that's age 78 onwards it's the lowest number possible so every other age is better than taking it at age 60 and 70 from again from about that age 81 onward is the best result going forward so again work through these scenarios when you build out a financial plan make sure your financial planner is doing this for you it'll be a big benefit and a huge benefit to you in maximizing your income and again just because you retire early doesn't mean you should be taking your CPP early

Channel: Parallel Wealth

Views: 22,550

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, Savings, Passive Income, RRSP, TFSA, Wealth, Parallel Wealth, cpp, retiring early cpp, when to take cpp, canada pension plan

Id: hmxbJupIqXc

Length: 7min 48sec (468 seconds)

Published: Mon Jan 16 2023