How Can You Make the Most of Your CPP Benefits?

A few “No Dumb Questions” ago, I took on talking about how business owners might want to pay themselves, depending on whether you plan to minimize or max out your Canada Pension Plan, or CPP contributions.

CPP planning for business owners is all well and good. But there’s also a practical and closely related “No Dumb Question” that gets a lot of buzz, and it applies to business owners and worker bees alike: What can you expect to receive from the CPP to begin with?

That’s a honey of a question, which I’ll cover today, short and sweet. 

Have you ever seen an outfit that looks awesome on the online model? You order it up, and can’t wait for it to arrive for real. Sometimes, it’s everything you ever hoped for … the color, the fit, the feel – all perfect. Other times? Let’s just say it’s a good thing most virtual stores have decent return policies.

When it comes to your Canada Pension Plan, or CPP, there is no “returning” your plan if the fit isn’t right. Once you start taking your benefit, you’re basically locked in for good.

And CPP benefits are hardly “one size fits all.” You can view your expected payout by setting up a My Service Canada Account or otherwise requesting a copy of your personal CPP information. But there are quite a few factors that can cause your actual benefits to differ from these upfront estimates. Some of them are within your control. Others not so much, but they’re still worth being aware of, in case there are extra actions you can take, to make the most of your benefits.  

What factors influence you CPP payouts?

One of the biggest factors that influences your CPP payouts is when you start taking them. CPP benefits are initially calculated assuming you begin taking them right on traditional schedule at exactly age 65. However, you can actually start taking them as early as age 60 and as late as age 70. If you start taking your monthly payouts earlier than 65, they are reduced by 0.6% for every month you’ve jumped the gun. If you postpone taking them, they’re increased by 0.7% for every month you wait.

Another factor that heavily influences your CPP benefits is how long you’ve been paying into the program. Have you ever seen one of those signs in a store’s window: “No shirt, no shoes, no service”? It’s similar with CPP: “No employment, no contributions, no payments”!

As I covered in my recent, related video, this detail is especially relevant to incorporated business owners. You may have been working hard your entire career, but if you never paid yourself salary, from which your CPP contributions are made, you are not accumulating CPP benefits.

Also, whether you’re an employee or self-employed, there are several provisions that can offset time you take off for critical lifetime events such as going to school, raising your children or caring for family members. By taking advantage of these provisions, you may be able to prevent the time off from counting against your CPP benefits. Here are more information about eligibility.

Some of these provisions kick in automatically, without your having to do anything to receive them. For example, the government automatically disregards “a number of months of your lowest earnings” when calculating your CPP benefit, in case you were briefly un- or under-employed. Others, such as the child-rearing provision, require you to apply for them if you want to benefit.

Bottom line, if you’ve got special circumstances that may help you retain CPP benefits you might otherwise miss out on, you’ll want to read the fine-print on how to handle them.

Without going into excruciating detail, there are all sorts of other circumstances to factor into your CPP planning. To name a few: 

1. When you die, your estate or equivalent designee can receive a modest lump sum death benefit. In addition, your spouse becomes eligible for survivor benefits – even if they remarry – and your children may receive a children’s benefit if they qualify for it.
2. What if you start taking your CPP benefits, but you continue working and paying into it? Your continued contributions will go toward “post-retirement benefits,” or PRBs, which can further increase your payouts.
3. The CPP also provides for disability benefits, although you must meet Service Canada’s definition of “disabled” to be eligible.  
4. Of course the ordinary income taxes you pay on your CPP payouts places a drag on their worth. The potential to split your CPP payouts between you and your spouse is one provision worth managing on that front.

Whew, this may sound like a lot to talk about … and this isn’t even the complete conversation. But the CPP has helped a lot of Canadians retire more comfortably.

How else can I help you keep your own financial underpinnings performing as planned? Send me any queries that you have in this area and more, and I’ll answer them on a future episode.

How long have you been paying into the CPP? When do you want to start collecting your benefits? What other factors may come into play (such as your marital status, and whether you’re a business owner paying your own salary)? I’ll be taking on these details and more in today’s “No Dumb Questions.”