Q&A: Draw CPP now?

Question: My husband and I have been self-employed since 1993. He turns 63 in March 2010. We have not been able to draw a salary in 2009, due to the economic downturn’s impact on our business. Thus he has not contributed to CPP in 2009.

We are contemplating having him start to draw on his CPP. Is this a wise decision? Should he wait till 65? (His chances of earning over the next two years are next to none). He has about $80,000 in his RRSP. The house is mortgage free. We have an outstanding home equity loan of $6,900 (our only debt).

I am younger at 48 and have secured a 30-hour job at minimum wage. – N.C.

Gordon Pape answers: It may be a good idea to start drawing CPP now especially if you can use the extra income. Waiting two years might give him a higher pension but not necessarily. In calculating the amount of your husband’s pension entitlement, the CPP will drop off the lowest 15% of his earning years over his lifetime contributory period. The contributory period begins at age 18 and continues until a person starts drawing a pension or turns 70. Since he made no contribution in 2009 it will be one of the years dropped off. If he waits two more years, they will also be included. By taking the pension now, two earlier low-income years will be substituted instead.

If the total amount of the pension entitlement is important, you would have to ask a CPP representative to run the numbers and tell you which course is more beneficial. My guess is that applying now will turn out to be the best choice.

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