Some believe it’s better to have a higher income later
because of the rising costs of health care. Whatever you
believe, you should plan for. It might be worthwhile to
look around your life and see the spending patterns of
70, 80 and 90 year old’s to assess how much they are
really spending. Are they spending more or less than
they did when they were in their active retirement years?
What happens if you leave money on the
table?
Let’s go back to Beth who could collect $327.30 at age
60. Let’s pretend that she gets cold feet and decides to
delay taking CPP by one year to age 61. What’s happened
is that she ”left money on the table.” In other words, she
could have taken $3,927.60 from her CPP ($327.30 x 12
months), but chose not to, to be able to get more money
in the future. That’s fine as long as she lives long enough
to get back the money that she left behind.
Again, it comes back to the math. For every year she
delays taking CPP when she could have taken it, she
must live one year longer at the other end to get it back.
By delaying CPP for one year, she must live to age 75
to get back the $3,927.60 that she left behind. If she
delays taking CPP until 62, then she has to live until
76 to get back the two years of money she left behind.
Why wouldn’t you take it early given this math? The
main reason is that you think you will live longer and
you will need more money the older you get.
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My two cents
I think if people understand the math of Canada
Pension Plan, most people will take it early. Since 2012,
you could take it early even if you weren’t working. The
bad news is you would get hit with a bigger reduction
with the new rules. Some say it’s also bad news because
you will have to keep paying into CPP if you are working
(under the new rules). To me, that’s not such a bad thing
because paying into it also increases your future benefit
so it’s not like you are not going to get your money
back. I don’t think the increased reduction is enough
of a deterrent because a bird in your hand is better than
two in the bush.•
Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial
Speaker on wealth, retirement and personal finance. Currently,
Jim specializes in putting Financial Education programs into
the workplace. For more information you can follow him on
Twitter @JimYih or visit his website: retirehappy.ca
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