FP Answers: Should I take CPP at age 60, even though I only have a small pension and no other investments?
Ryan is 59 years old and still has a mortgage. Should he apply for CPP now and use that money to pay down his mortgage, or invest?
By Julie Cazzin, with Janet Gray
Q: Hi, I’m 59 years old and fully employed. My annual salary is $70,000. I don’t have a registered retirement savings plan (RRSP) or other investments, but I do have a small pension from my employer that will pay me about $1,500 a month at age 65. I still have a mortgage of $200,000 at 2.4 per cent, as well as annual bill payments totalling $22,000. Should I apply for the Canada Pension Plan (CPP) now and use those funds to invest or pay down my debt? Or should I wait until I’m 65? — Ryan in Penticton, B.C.
FP Answers: Your question is one I hear a lot from pre-retirees. CPP is a pension funded from employee and employer contributions made during your working years. The amount you receive in retirement is based on three main criteria: the starting age of receiving the benefit, how much and how many years you contributed to it, and your average earnings while working. The 2022 maximum benefit at age 65 is $1,253.59 month, although the average benefit (as of June 2021) is $619.68.
Now, if you wait until age 70, your age 65 amount increases by 8.4 per cent annually, or 42 per cent at age 70. Instead of $1,253.59, your age 70 benefit would be about $1,780. But it’s not just about waiting for the larger amount. Some people might have a reduced longevity or have few other income sources. Not everyone will qualify for the maximum benefits since it’s based on your years of contributions (40 maximum) and the years of maximum qualified income (that was $61,600 in 2021).
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