The Canadian Pension Plan (CPP) is one of the most important government programs for our aging population. It supplies a small but key amount of money every year for a person after they retire. Despite it being a universal program, however, many people aren’t sure how to apply and the different scenarios that happen when they apply.
Today, we look at how to apply for the CPP, when to apply and why you should think carefully about your own application. A quick note before we dig in. There are technically two pension programs for Canadians: the CPP and the QPP (Quebec Pension Plan). While much of the information provided here can apply to both, it’s important to research the specifics of QPP if that is your program.
How do you Apply for the CPP?
The CPP application is found directly on the Canadian government website. This page offers you a simple way to apply and go through all the steps properly. Before you begin, you will need to make sure you qualify and think about when you would like your benefits to start (more on that in the following section). The site lets you apply either online or via a paper application, if you are more comfortable with a physical document.
When Should you Apply for the Canadian Pension?
You can start getting your CPP benefits at 60. From there, you can choose three options of when your benefits will start:
- As soon as you qualify
- The month after your 65th birthday
- A specific date of your choosing before the age of 70
Essentially, the amount you get every month depends on your contributions throughout your lifetime, your average income throughout your life and when you started drawing CPP. In general, your monthly amount will decrease by 0.6% each month (7.2% per year) that you start drawing benefits before the age of 65. So, if you draw starting at exactly 63, your monthly amount will decrease by 14.4%.
Your monthly amount will increase by 0.7% each month (8.4% per year) that you start drawing benefits after 65. So, if you start at 70, your monthly amount will increase by 42%.
In general, people start drawing earlier if they planned to retire early and aren’t dependent on the CPP for their retirement income. It’s also something to consider if genetic factors will lead to a shorter lifespan. The only reason to wait until 70 for most people is because they are still working and contributing to the CPP. While you can work and draw at the same time, CPP benefits are taxable.