When to withdraw your CPP for maximum payout

I get anywhere from 400 to 600 email questions a week through my website. Many I’ve answered before and, no, I don’t answer them again. If I know I’ve dealt with the topic in a blog or article on my site, I hit delete. People have to accept some responsibility for finding answers to questions they have. But there are some questions people ask over and over, which leads me to believe that even though the answers exists, people just can’t find them.

I get a lot—and I mean a lot—of letters on whether it’s wise to take CPP early. Many experts support the “bird in the hand” approach to taking government pensions. I’m not one of them. People have to be very careful about taking CPP early because it can have a huge impact on how much you get.

Did you know, for example, that the average payout from CPP is less than the maximum Old Age Security payout? Did you know that in 2012 less than 10% of people on CPP got the maximum of $986.67 a month? Do you know why?

One reason is because they haven’t contributed enough to draw the maximum. To get the max from CPP you have to have contributed the max for 39.5 years between the ages of 18 and 67. The CPP formula allows you to drop about seven of your lowest-paid years. But if you plan to go back to school, stay home with children, or earn less than the year’s maximum pensionable earnings (YMPE), which is  $51,100 for 2013, you may fall short of the maximum and so will your CPP cheques.

Another reason people get less than the maximum is because they take their benefits before the age of 65.

Did you know that when you take your CPP early, the amount you receive is reduced based on your age? New rules have come into effect that reduce your payout by 31.2% if you take it at age 60, and that will keep going up each year until it hits 36%.

Wait to take your benefits and you’ll avoid the reduction. Wait longer and you could see your benefits go up by 42%. So the difference between taking it at age 60 or at age 70 would mean up to 78% more in income.

Did you know that your CPP maximum is capped at the maximum you’re entitled to when you first draw your pension, plus inflation adjustments? If you took your benefit at 60 in 2003, you’d be working with a maximum cap of $801.25. If you waited until 2013 when you turned 70, your maximum cap would have risen to $1,012.50. Having a higher cap can be particularly important if you try to claim survivor benefits from CPP.

There is no easy answer when it comes to CPP. You have to do the math to see what’s going to be best for you based on your contributions, how much you’re counting on that money for your needs, and how long you’ll live.