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This is the latest article in an ongoing series, Planning for the CPP, in which Globe Advisor reporter Brenda Bouw explores the decisions behind the timing of when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.
A voluntary reduction in income of up to 36 per cent may not sound like a good idea, but it’s a conscious choice many Canadians make when they take their Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits at 60, the earliest age possible.
People take their CPP benefits at 60 for many reasons, even when they know they’ll get more if they wait until age 65 or even 70. Some need the money sooner, have a lower life expectancy due to health issues, or take the benefits and invest them. Some believe that since they contributed to the CPP during their working years, they don’t want to wait to get it back – especially given the uncertainties of life. The decision comes down to personal circumstances and choice.
Globe Advisor spoke with three Canadians about why they took their CPP benefits at 60.
Read the full article here.
The human trait that causes Canadians to take their CPP benefits early
The standard age for Canadians to take their Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) retirement benefits is 65; at least, that’s what the federal government says. In reality, about one-third of Canadians start taking their CPP benefits when they turn 60, the earliest age possible.
For some, taking the pension sooner is an obvious choice if they need it to pay the bills or have serious health issues that could shorten their life span. But those who can wait would be financially better off in the future. So, why don’t they?
The Globe spoke recently with Lisa Kramer, a finance professor at the University of Toronto who specializes in behavioural economics, about what compels Canadians to take their CPP benefits early:
Why do so many Canadians take their CPP benefits sooner than they should?
It’s such a common phenomenon that it has a name in behavioural science: present bias. It’s the tendency to focus more on the present than the future when making decisions. It can lead us to overvalue immediate rewards and undervalue longer-term ones. Scientific studies show that most people prefer to receive money sooner, even if we know that we could get more if we wait.
Read the full article here.
For more from Globe Advisor, visit our homepage.
The TFSA dilemma: Tax shelter your dividends or your growth?
This is the time of year that everyone should be planning on making their tax-free savings account contributions, writes contributing columnist Nancy Woods in this Opinion article. For 2024, the limit has been increased to $7,000 from $6,500.
I suggest you contribute as early in the year as you can to gain more tax-sheltered protection for any income or growth your investment may have.
The name of this tax-sheltered account is a bit misleading to some. Many people think of it as a savings account like your bank account. This is not true. Any investments, as with your registered retirement savings plan, can be bought or transferred from your non-registered investment account into your TFSA. Funds inside a TFSA can be used to invest in stocks, bonds, mutual funds, guaranteed investment certificates and so on.
The decision on what to invest in requires more thought than most people think.
Do I keep it “safe” and buy a GIC? Do I shelter the dividend yield I get from a stock? Do I buy a mutual fund and reinvest the income and let it sit for the long term?
These are some of the questions you should ask yourself.
Read the full article here.
Beware of tax pitfalls when contributing stocks to your TFSA
In this Investment Clinic article, a reader asks this question of Investing columnist John Heinzl: I have a stock in my non-registered account that I want to move into my tax-free savings account to make use of my TFSA contribution room. Do I need to report a capital gain as though I have sold it when I move it in?
With the annual TFSA limit having risen to $7,000 as of Jan. 1, not everyone has sufficient cash to max out their contribution, replies Heinzl. What’s more, about 90 per cent of Canadians have unused TFSA room from previous years, including many high-income earners who have failed to contribute the maximum each year, according to the Canada Revenue Agency.
Transferring securities “in-kind” to your TFSA can be a great solution. But you need to be aware of the tax implications.
When you transfer shares with an unrealized capital gain from a non-registered account into a TFSA, the CRA treats the transaction as if you’d sold the shares. To determine the capital gain, subtract the adjusted cost base of the shares from their fair market value at the time of the in-kind transfer. The good news is that only 50 per cent of the capital gain is taxable.
Read the full article here.
In case you missed it
This retiree turned his tech career and love for classical music into a steady gig
“I officially retired in December 2018, at age 69, after a career in the computer industry, mostly as a consultant,” says Howard Mednick, 74, Toronto, in this Tales from the Golden Age article. “I had been cutting back on work for about four years before I retired while dealing with my wife’s illness. She had a condition called Parkinsonism after suffering a bad fall 10 years ago, which left her incapacitated. That changed my life.”
Her condition got worse and she ended up living at the Baycrest Apotex facility in Toronto, he says. “She passed away in 2018. I tried to keep working after she died, but I lost focus. I didn’t want to risk my reputation or my clients’ reputation.”
While visiting his wife at Baycrest, Mednick was inspired to combine his computer background and love for classical music to develop a music program for the residents there. He continues doing it for Baycrest and other places, including retirement homes, social clubs, churches and synagogues. “I call myself a ‘classical music DJ’ and have a website. It’s like my full-time job now – and is a lot of fun. Any modest fees I get from my work are usually donated to charity in my wife’s memory.”
From a financial perspective, Mednick says he diligently put money into a registered retirement savings plan during his working years and has other investments. The couple also sold after downsizing into a condo after his wife became ill. “I eventually sold the condo in January 2022, luckily just before the real estate market dropped, and am now renting an apartment,” he says.
“I’ve also worked with a good financial advisor over the years who invests my money.”
Read the full article here.
Are you a Canadian retiree interested in discussing what life is like now that you’ve stopped working? The Globe is looking for people to participate in its Tales from the Golden Age feature, which examines the personal and financial realities of retirement. If you’re interested in being interviewed for this feature and agree to use your full name and have a photo taken, please e-mail us at: goldenageglobe@gmail.com Please include a few details about how you saved and invested for retirement and what your life is like now.
Retirement Q & A
Q: I am over 65, eligible for the maximum CPP and delaying taking CPP until age 70. However, I am doing some part time work that takes CPP at the source and some consulting work (considered self employment) that the government takes as CPP at tax time. With these additional CPP contributions, will my CPP at age 70 be even higher? If not, can I stop paying CPP if I am not collecting it?
We asked Bob Gore, CPA, at Robert Gore & Associates in Toronto, and CPA Canada financial literacy volunteer to answer this one.
It brings some frustrations once someone reaches 65, who is still working and wants to delay starting CPP benefits until a later age, as late as age 70. You may choose to stop CPP contributions after age 65 if you are still working, only if you are collecting your CPP pension (see form CPT-30 instructions).
If you are not yet 70 and not yet collecting CPP, then your employment (and self-employment) earnings are subject to CPP contributions.
You will continue to earn CPP credits, which will help increase your CPP benefits if you have not reached the maximum contribution amounts each year and years of service (40 years). The 2024 maximum earnings limit is $73,200 and the CPP maximum employee deduction / contribution is $4,055.50, matched by the employer for a total of $8,111.00. This indexes annually by an inflation related amount.
If you are collecting CPP, you no longer have to pay into it. If you do you will earn CPP post-retirement benefits on top of your base level CPP payments BUT these top out at $40.45 per month for each year of maximum CPP contributions (Now close to $8,000 per year combined employee and employer contributions) (2023 data) so the added benefits are small.
If you have already worked 40 years at the CPP maximum contribution rates, then no added regular CPP will be earned for your added years of contribution.
In my own case I’ve done the math and as one who owns my own business, it does not make sense for me to pay into CPP after age 65, rather – I will be forced to collect CPP so that I can stop additional contributions which will be of minimal value to me as I have worked enough years to have maximized my CPP pension.
Having to take CPP to avoid the added contributions is not what I would prefer, but as the added contributions would do me almost no good, I will be forced to collect CPP at age 65, in order to be allowed to stop paying into the plan.
If you have not worked enough years to have reached the maximum years of contributory service, then continuing to contribute after 65 is a good way to increase your CPP income.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement Newsletter.
