Because of the money involved, the decision on when to start Canada Pension Plan retirement benefits demands your full attention.
Now, let’s say you make a choice and later feel some regret. It’s conceivable, given that retirement planning requires you to envision so much that is unpredictable. Maybe you expect to work a bit after retirement, and then decide not. Maybe your health changes for the worse – or the better.
Tens of thousands of lifetime dollars potentially ride on your choice of when to start CPP retirement benefits. Luckily, there are do-overs if you change your mind for both CPP and Old Age Security. You can start these benefits and then decide to delay, or you can countermand a decision to wait and start receiving money now.
The standard age for starting CPP is 65, but you can start as early as 60 and delay as long as 70. The longer you wait, the more you receive. OAS is somewhat similar – you can delay as many as five years from the minimum starting age of 65.
As you approach your retirement date, you’ll need to let the federal government’s Service Canada people know when you want to start both CPP and OAS. Pension consultant Doug Runchey says that applying three to six months in advance should be fine.
“It normally takes two to three months to process either application, if they’re straightforward and you’ve got all the documents you need, but it sometimes takes a little longer,” Mr. Runchey said.
Delaying the start of CPP past 65 gives you an additional 8.4 per cent in benefits for each year you wait, to a maximum gain of 42 per cent if you start at 70. Most people don’t delay, though. They may need CPP income right away, or they worry about dying young and leaving significant CPP benefits unused.
There’s a CPP survivor’s benefit for spouses of recipients who die, but it tends to disappoint. There’s also a CPP death benefit, but it’s puny at just $2,500.
The guaranteed return from waiting until 70 is powerful, though. If you don’t see the light before retirement, maybe you will after you stop working. You might feel more confident about living into your late 80s and beyond, or you might feel you have sufficient savings to draw from until you turn 70.
Mr. Runchey said you have up to 12 months after you start CPP to stop receiving your benefits. You’ll need to send a written request to Service Canada, and then repay the benefits you’ve already received.
You can also stop OAS benefits, but Mr. Runchey said the window for doing so is just six months from the date you start receiving payments. Again, benefits received must be repaid.
When you’re ready to restart CPP or OAS, you’ll need to submit a new application to Service Canada. You’re essentially treated as if you never applied before for these benefits.
Reasons for reversing a decision to delay CPP and OAS are easy to imagine in the form of a health setback or tight cash flow that would be eased by additional monthly income. If you’re 65 or older with your CPP or OAS delayed, you can apply for benefits to start immediately, or retroactively going back as many as 12 months including the month you apply.
If you started CPP benefits before age 65, there are no retroactive benefits available. As with OAS, which starts at 65, you’d simply start your formerly delayed benefits in the months after your application to start is filed.
Deciding when to start CPP and OAS is one of the most contentious questions in retirement planning. Actuaries like to highlight the strong financial benefits of delaying – more money per month, and less risk of outlasting your personal savings. The inflation of the past year has also demonstrated the value of the CPP’s annual cost-of-living adjustment.
But the emotions that argue against waiting are persuasive. People instinctively want to tap their CPP benefits earlier rather than later.
There’s a combativeness between these two approaches to starting CPP and OAS that need not exist. If you regret your choice, you have limited time to reverse it.
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Rob Carrick