CPP changes in the works for boomers
Proposed changes to the Canada Pension Plan will increase flexibility for boomers, making it easier for workers to phase into retirement.
To begin, the new rules will let you start collecting CPP before age 65 even if you're still working. Currently, you must stop working or significantly cut back your income for two months to qualify for CPP between 60 and 64. And, if you're receiving CPP and still working after 65, you'll be able to continue making contributions in order to boost your CPP benefits.
While the penalties for taking CPP before your 65th birthday will rise slightly, the rewards for delaying it will increase proportionately more. You'll earn an extra 0.7% for each month after 65 you postpone CPP, for a total increase of 42% if you wait until 70 (up from a 30% bonus today). For each month you start before 65, you'll forfeit 0.6%, to a maximum reduction of 36% at 60 (vs. 30% currently).
Under the new rules, when calculating CPP entitlement you'll be able to drop your eight lowest-earning years instead of only seven years now.
From our experience, we know a lot of clients underestimate the potential value of CPP. But it's actually quite valuable to most people. In 2009, it provides up to $908.75 a month, or nearly $11,000 a year (more than $14,000 if you start at age 70). In addition to providing a secure, lifelong source of income, CPP is fully indexed to price inflation. And if you and your spouse are 60 or older, you can opt to share your pension - potentially reducing your total tax bill.
If approved, the changes will be phased in starting 2011 but won't affect anyone taking CPP before then. People nearing retirement may want to consider drawing an early pension before the new rules take effect.
If you have yet to start your pension, it's important to plan ahead to ensure you make best of use of CPP within the context of your retirement plan and personal circumstances. We would be happy to review your plan and provide some guidance.
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