Ask MoneySense: CPP payments

I recently retired at age 55. I contributed the maximum into the Canada Pension Plan for most of my 35-year career. If I wait to take my CPP until I’m 65 there will be a 10-year gap since my last contribution. What impact will this have on my benefits? Do I need to take it early?

—Susan Andrews, Pickering, Ont.

There are several factors that might influence your decision about when to take CPP. The first thing to consider is that if you start collecting CPP early, you get more payouts but at a reduced amount. As of 2016, you’ll get 7.2% less for each year you take it earlier than age 65. The earliest you can start is age 60.

However, according to MoneySense retirement columnist David Aston, another factor often tilts the decision in favour of starting CPP early. Your CPP amount depends essentially on averaging your contributions and “pensionable earnings” from age 18 until the point you start taking CPP. But you can exclude a certain number of your lowest-income years from this calculation. As of 2014, you will be allowed to drop 17% of your lowest-income years (eight years if you retire at 65, or about seven years if you retire at 60).

If you retire early and wait to start your CPP then you essentially add more zero-income years to the calculation, which brings the average down. In your case, it appears you will have already used about seven “dropout” years at age 60 if you stay retired, so that might tilt your decision in favour of starting CPP at age 60 or 61. For more considerations, read the story “CPP: Less now or more later?” at MoneySense.ca.

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