The Canada Pension Plan (CPP) is changing in phases that began last year and end in 2016.
These changes, and your personal circumstances, could mean that you should rethink when to begin receiving your CPP pension.
Retirement has many meanings these days and 65 is no longer the 'magic' retirement age. The CPP changes are intended to provide more financial flexibility depending on each individual's chosen retirement path and to encourage Canadians to work longer before starting to draw a government pension.
That's why the changes provide greater incentives for those willing to work past the traditional retirement age and significant reductions for those taking CPP benefits before age 65.
Generally, the new rules make it more attractive to delay receipt of your CPP benefits — but only if your health is good, your life expectancy above average, you have a reasonable income, and/or intend to continue working after 65.
You should consider taking your CPP benefits earlier if your life expectancy is below average, you have an illness that doesn't qualify for CPP disability, you have little or no other income, or you are permanently unemployed.
There are other changes you should know about:
• The work cessation rule has been eliminated. Now, starting at age 60, you can continue working and still receive CPP benefits. Under the old rules, once you began collecting CPP benefits, you stopped contributing to the plan. Now, if you're under 65, and working while receiving a CPP pension, you (and your employer) will have to continue making CPP contributions that will increase your CPP benefits beginning in 2013. If you are 65 to 70 and work while receiving CPP benefits, you have the choice of not making any more contributions or continuing to make them, resulting in an increase in your CPP benefits in 2013.
• The earnings dropout provision has been changed. Under the old rules, if you retired at age 65, you could drop out seven of your lowest-earning years from age 18 to 65 when you were eligible to contribute to CPP. Now, that dropout period increases to 7.5 years in 2012 and eight years in 2014.
If you're approaching retirement, you have a lot of financial decisions to make, including how to get the most out of the CPP changes for your situation. Your professional adviser can help guide you down the right path to your best possible, and most financially stable, retirement.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc.. His column appears every Wednesday.