Consider ways to maximize your Canada Pension Plan. This could include early retirement, contributing past age 60, and splitting or assigning CPP benefits to a spouse.
First, you need to know how much you are entitled to receive (and your spouse if you are married) as well as your net income for all sources (and that of your spouse). Your entitlement can be determined by a call to the CPP office, toll-free, at 800-959-8281. Your net income can be found on your income tax return statement.
Early Retirement
To begin with, you are entitled to receive CPP at the age of 60. If you have contributed the maximum over your working life, you are probably better off receiving CPP early.
Although you will receive a reduced amount, inflation at 3% will probably offset any gain in your contributions if you wait until the age of 65 to receive them.
Contributing past the age of 60 may be beneficial if you are short one or two years of maximum pensionable earnings. This will assure the maximum available to you at the age of 65; otherwise you may never receive the maximum allowable to you. If you have missed more than three years’ maximum contributions, then you will not receive the maximum. Your normal CPP benefits are based on a complex formula involving your inflation-adjusted pensionable earnings.
Splitting CPP with Your Spouse
Secondly, upon retirement, couples may assign up to 50% of their benefits to their spouses. The condition is that they are both at the age of 60. Under the Income Tax Act, the attribution rules of giving income to your spouse to avoid taxes does not apply for CPP. For example, Bob from Qualicum Beach retires with the maximum available. His income is higher than his spouse, Mary. Therefore, he can assign half of his CPP benefit each year to Mary and lower his net taxable income. This is an effective technique to split income and can be simply done by completing a form available from Canada Revenue Agency (CRA).
Call 800-O-CANADA for more information, or you can visit the following website: <www.servicecanada.gc.ca>
Life’s a voyage that’s homeward bound. – Herman Melville
Published with permission from Grant Hicks