Upcoming changes to the Canada Pension Plan (CPP) could significantly impact when someone retires — with many employees choosing to postpone their departure from work.
That’s according to a report from the BMO Retirement Institute which advises Canadians to do their research before choosing a retirement date.
Currently, drawing CPP benefits prior to the age of 65 reduces monthly payments by 0.5 per cent per month, said BMO. In 2016, when the new rules are fully implemented, taking CPP five years early will reduce the monthly payment by 36 per cent, while holding off for five years will boost the monthly payment by 42 per cent.
So the annual payment for full CPP would be about $4,000 less if someone decides to start collecting at age 60 and about $4,600 more if she waits until age 70, according to the report When to retire: Age matters!. At age 90, the person who began drawing CPP at age 70 will collect about $100,000 more form the CPP than the early retiree who began collecting at age 60.
"The upcoming changes to CPP are just one example of why Canadians need to educate themselves on their retirement options," said Tina Di Vito, head of the BMO Retirement Institute. "In order for Canadians to start thinking about their retirement start date, they need to have a clear financial picture, be able to envision their goals and have a plan for the future."
When planning for retirement, people often focus on variables that are outside of their control, such as the economy and the markets. But retirement age and retirement income should be thought about strategically, said BMO’s report.
"Canadians should also consider the non-financial aspects that may affect their retirement start date," said Di Vito. "For many, work provides mental stimulation, a social network and a sense of purpose. Future retirees should think about how these psychological benefits will be impacted once they retire. Couples should also consider the impact of their retirement age on each other. For example, if spouses of different ages are planning to retire at the same time, they should keep in mind how this may affect their respective pensions."
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