When should teachers begin taking Canada Pension Plan?

Sandra Marcellus

Canada Pension Plan (CPP) payment is calculated by a retiree's average earnings, up to the Yearly Maximum Pensionable Earnings (YMPE), and number of years the pensioner contributed to CPP.

At age 65, retirees are eligible for an unreduced CPP pension. However, at age 60, retirees receive a reduced CPP pension. The reduction is ½ per cent per month (six per cent per year) that a retiree's age is less than 65 at the commencement of CPP. However, there is a ½ per cent per month increase to CPP pensions for every month a retiree is over age 65 when he or she begins receiving CPP. The maximum increase is 30 per cent or five years past age 65.

Let's consider the example of a female teacher who retired June 2003 with 30 years of service. Her annual CPP pension, calculated at age 65, is $8,240. If that teacher begins her CPP pension at age 60, her pension will be reduced by 30 per cent, making her CPP pension $5,770 per year. On average, female teachers have a life expectancy of 87 years. If this teacher takes CPP at age 65 and lives for 22 years, she will receive a lifetime CPP pension of $181,280, not including cost-of-living increases. If she takes CPP at age 60, she will receive a smaller annual pension, but it would be paid out for 27 years, resulting in a lifetime CPP pension of $155,790. The difference is $25,490.

Male teachers have a life expectancy of 84 years, so at age 65, their lifetime CPP pensions would be $156,560 and $138,480 at age 60. The difference is $18,080.

A shorter life expectancy reduces the difference between CPP beginning at age 65 and commencing earlier than 65. Teachers with shorter than average life expectancies should consider taking CPP at the earliest opportunity. Another consideration is the benefit of receiving the CPP pension income earlier and at a younger age. Most retirees find that their need for income is highest earlier in their retirement because of travel and major purchases. Teachers should calculate their CPP pension at several different ages and then choose the commencement date that best matches their financial needs.

For more information, contact Sandra Marcellus at Barnett House in Edmonton:
(780) 447-9403; toll-free outside Edmonton, 1-800-232-7208.