It is a new year, and some of you may have just celebrated your
60th birthday or soon will be. With the excitement of this life
milestone comes the option for you to begin receiving your pension
benefits. But before you blow out the candles, and start cashing
in, there are some important things you should know.
The Canada Pension Plan (CPP) provides
retirement, disability and survivor benefits to individuals who
have contributed to the plan and are at least 60 years of age. The
amount that you will receive depends upon your average salary and
the number of years you have contributed to the plan.
If you begin to receive CPP before the age of 65, the monthly
amount you receive is reduced. Conversely, if you delay receiving
CPP benefits until you are 70 years old, the monthly amount you
will receive is higher. For example, if a person starts receiving
CPP in 2013 at age 60, the monthly CPP would be approximately 32
per cent less than another person starting it this year at age 65.
Further, if a person starts receiving CPP in 2013 at 70 years, then
he/she would receive approximately 42 per cent more than a person
starting this year at age 65 would.
Service Canada's website has a CPP calculator to help you
determine what age to start receiving CPP is best for you. It will
take into account your life expectancy, expected rates of return
and inflation effects. By working with your accountant or financial
advisor, he/she can also help you make the choice that best suits
Once you decide at what age you will apply, you should allow for
six months, for the application and approval process, before you
start receiving your benefits.
Effective 2012, you can still work and receive full CPP
benefits, but if you are under age 65, still working and receiving
CPP benefits, you and your employer are required to continue to
contribute to CPP. Between ages 65 and 70, continuing to contribute
is voluntary, although continuing to contribute can result in
higher benefits later.
A husband and wife can share their CPP benefits. Therefore, it
may be possible to tax a portion of the benefit in the lower income
spouse's hands, which can result in lower taxes. If the
marriage ends, CPP rules also allow a split of CPP credits that
spouses have accumulated during the time they lived together to
otherwise equalize their credits, even if one spouse did not
contribute to the CPP. An application must be made to Service
Canada and complex rules must be navigated properly.
There is also something called the CPP Disability Benefit, which
is a benefit payable to an individual under the age of 65 that has
made CPP contributions for a prescribed number of years, has a
disability that is both "severe" and "long
term," and has stopped working because of the disability.
The CPP Survivor Benefit is a three part benefit consisting of
a lump-sum survivor benefit of up to $2,500;
a monthly survivor pension paid to the spouse; and
Finally, if you live outside of Canada, there is a non-resident
withholding tax of 25 per cent on CPP payments. This is subject to
any tax treaty deductions or special elections filed.
About the Author
Steve Brown is a senior manager in Crowe Soberman's Audit
& Advisory Group. He is experienced working with both public
and private companies.
Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.
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