Canada Pension Plan (CPP) for High-Income Earners & Deferring until Age 70
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Although you can start receiving Canada Pension Plan payments as early as age 60, if you continue to be a high-income earner, you may wish to defer its start date to as late as your 70th birthday, if you believe that this deferral is to your personal financial advantage. And even if you initially make the decision to defer the start of Canada Pension Plan payments, you have the ability to subsequently start Canada Pension Plan payments prior to your 70th birthday and even request retroactive payments for a maximum of 12 months (11 months plus the month you apply), although there are no retroactive payments for a CPP retirement pension for months prior to one’s 65th birthday.
So, what is the principal reason for someone deferring the start of Canada Pension Plan payments until their 70th birthday?
Increased Monthly CPP Payments.
First, you would be foregoing the reduction in monthly CPP retirement pension payments that occurs when starting CPP payments prior to one’s 65th birthday, which decreases payments by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36% if you start at age 60. Meanwhile, by delaying the initial start date for receiving CPP retirement pension payments beyond one’s 65th birthday, the amount of your monthly Canada Pension Plan payments would increase by about 0.7% for every month (or by 8.4% per year) you delay for a maximum of 60 months. As such, if you delay the initial start date for receiving CPP retirement pension payments until age 70 (as opposed to starting at age 65), your monthly CPP retirement pension payment will increase by approximately 42% for the rest of your life.
Given this increased monthly CPP retirement pension payments, for each month that you delay its commencement, if you outlive the break-even date, you will net increasingly more over the period that you receive CPP retirement pension payments. Starting one’s receipt of monthly CPP retirement pension payments at age 65 (based on max CPP payments for 2024) as opposed to age 60, results in a break-even date at approximately age 73 after which the pensioner will net increase more over their lifetime from CPP retirement pension payments, such that by age 80 the pensioner would have netted approximately $40,000 more in CPP retirement pension payments. Starting one’s receipt of monthly CPP retirement pension payments at age 70 as opposed to age 65, results in a break-even date at approximately age 81 after which the pensioner will net increase more over their lifetime from CPP retirement pension payments, such that by age 90 the pensioner would have netted approximately $55,000 more in CPP retirement pension payments (and approximately $150,000 more as opposed to having started at age 60).
This analysis is undertaken in advance of the impact of personal income taxes, as Canada Pension Plan payments are subject to income taxation, which for high-income earners in their 60s would see those payments subject to their heightened level of income taxation. Meanwhile, should you subsequently retire and reduce your personal income below the highest personal income tax level, you would be retaining that much more of your CPP retirement pension payments after taxes in those later years of your life.
As you can see, there are legitimate financial reasons for deferring the start date for beginning your receipt of CPP retirement pension payments, especially where your life expectancy exceeds the break-even date for CPP retirement pension payments. When you are looking at the Canada Pension Plan, as a high-income individual, it also means that you are necessarily looking at other aspects of income and retirement planning.
And as our own legal work has demonstrated, there are very particularized opportunities available to high income individuals in the realm of income and retirement planning that are not known to many professionals. For that reason, you cannot limit your inquiry as to how you best plan your financial future with legal counsel until you have spoken with lawyers providing distinctive approaches having the potential to optimize your financial future.
If you are looking into CPP from the perspective of a high-income earner, our law firm provides legal services of potentially significant value, including estate planning, wills and trusts, together with all too frequently overlooked employer payment obligations due to Canadian employees at the end of their employment. To learn more, contact our law firm today to schedule a confidential consultation at Chris@NeufeldLegal.com or 403-400-4092.