I know so many people who decided to take their CPP at 60. All these people were and or are still working. None of them “need” the extra income.
Before they started I suggested they should wait to take their CPP. Why? Well, for one, it’s taxable income. Two, if you wait, the amount of CPP you’ll get increases by 7.2% every year. That’s way more interest than any TFSA will offer right now. The highest Tax Free Savings Account in Canada as of Feb 15 is 1.5% (for a limited time.) most are 0.05%.
So why would you not only choose to pay tax on your CPP, but also leave behind a 7.2% increase? Here’s what every single person said. “What if I die before I quit working. I would lose all that money.” My response is always the same… “What if you live?”
If you’re worried about not making it to be 65, then I say “What the fuck are you doing working right now?” You best live your best life now. Get going, do what you want. But, the reality of it is that all these people expect to live past 65. Yet, they are completely irrational about getting there and having the most money and security when they do arrive.
Alright! I can’t talk you into NOT taking your CPP how should you invest your money? Well if you’re going to take your CPP and pay tax on it, I would strongly suggest you put all that you can in to an RRSP and maximize the crap out of it.
Think about this only 23% of people aged 25 to 34 put money into an RRSP. If you’re over that the number jumps up to about 31% and only 31% of those people maximize their RRSP savings. So the odds are you have lots of room to contribute into your RRSP.
Here’s a basic example of how putting your CPP into an RRSP could save you money. If you make $50,000 a year and put in the “average monthly payment” of say $650 a month that’s $7,800 a year. On average you would pay about $1,800 less in taxes or $150 a month (think of it as interest and it looks pretty good). This is calculated at a marginal tax rate of 29.65% (if you live in Ontario). If you live in Quebec you could be saving as much as $2,400 a year.
It’s your money, you need to be smart with it and think about how you can save more and pay less.
If you are working full time and are getting close to 60 here’s what I suggest. And remember this is only a suggestion, always seek professional advice or do your research before making any decision.
Ok, so you’re about to hit 60, here’s what I suggest.
- Take your CPP and retire. (If you can.)
- Take your CPP and go to part-time work and enjoy more of your life.
- You want to keep working, hold off on your CPP until you stop working full-time. And then move to option 1 or 2
- Take your CPP, keep working, and put it into your RRSP.
Chip and Honey Toodee