Q&A: When to start CPP?

Question: I am age 60 and substantially retired with some
modest self-employment income. I thought it best not to draw CPP until age 65
because I don’t need the income. However, recently I realized that because my
income will be very modest for the next five years, maybe I am making a mistake
in waiting.

Can you explain the complex pension earnings formula used to calculate what
my pension will be if I wait until I am 65 to draw CPP? – Patrick L.

Gordon Pape answers: If you begin drawing CPP before age 65,
your pension will be reduced by 0.5% for each month that remains before your
65th birthday. So if you started to draw CPP in the first month after turning
60, you’d receive 70 per cent of what your entitlement would have been
at age 65.

That’s only part of the equation that you need to consider (you’re
right, it is complex). Since you are still working, even though your income
is modest you must continue to make CPP contributions. As you are self-employed,
you must make both the employer and employee payments, thereby doubling the
cost. All this means you are still in a “contributory period” as
far as CPP is concerned. Since your earnings during the contributory period
determine the amount of the pension you will eventually receive, these low-income
years could reduce the amount you’d be able to collect at 65.

On balance, it seems to me that you should consider applying now especially
since you say you are short of cash. You’ll eliminate the need to make
any more contributions (they stop once you start drawing benefits) as well as
the risk these low-income years could reduce your pension entitlement. Just
be sure you are effectively retired when you apply – see the CPP website
for details.

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