‘I’m a 62-year-old single, divorced woman living paycheque to paycheque. Should I apply for CPP early?’

I am a single, divorced woman, aged 62. I have a pension from my current job, where I have been working for 28 years. My ex was entitled to part of my pension when we divorced after 20 years of marriage. I have a car payment that will be paid out December, 2026, no Registered Retirement Savings Plan and credit card debt. I am currently living paycheque to paycheque and was thinking of applying for Canada Pension Plan early. My intention is to use my CPP payments to directly pay off my debt and hoping to be debt-free when I retire at 65. Is this a good idea?

We asked Howard Kabot, vice-president for Financial Planning Specialists with RBC Wealth Management, to answer this one.

When to start taking CPP is perhaps the most common question from readers. According to Statistics Canada, more than 40 per cent of Canadians who are eligible choose to take CPP at age 60 while more than 90 per cent will opt to take it by age 65.

There is a lot of additional information required to allow a more complete analysis of your question. A way you may truly feel comfortable about your financial future is to run your data through a planning tool and/or online calculators, Mr. Kabot said. (The Globe offers this one, for example).

First, he noted, you’re going to need as much income as you can possibly get to adequately fund your retirement years and make up for the portion of your pension to which your ex-spouse is entitled. Mr. Kabot suggested you ask yourself these important questions: How much will that leave you? Will you be able to live off of that amount? If not, how short on income will you be?

“You mention that you’re living paycheque to paycheque and that you would like to be debt-free by age 65, so I can definitely see how taking CPP now will help you with your monthly cash flow and paying off your debt.”

That said, Mr. Kabot also suggested considering another aspect of this decision. “Taking CPP early, in your case at age 62, will result in you having 21.6 per cent less than you otherwise would get at age 65. This is a considerable amount,” he noted.

‘We’re in our mid-50s. Do we have enough money to retire comfortably in a decade?’

Currently, a 65-year-old who is eligible for a full CPP payment would be getting $1,433 per month or $17,196 a year. “By taking it three years early (assuming you were eligible for the full payment to begin with, which might be an incorrect assumption), your monthly payment would be reduced to $1,123 per month or $13,480 annually,” he said.

To be eligible for full CPP, you must have contributed the maximum amount from your paycheque for at least 39 years between the ages of 18 and 65. “Also, don’t forget that at age 65 you can begin collecting Old Age Security payments (OAS). The current OAS maximum payment is $740 per month or $8,880 per year.”

“I know you’re focused on the short term, re: paying off your debt, but keep in mind that you could easily live another 30 years and that the longer you can delay taking CPP means that there will be more to support you through your retirement years,” Mr. Kabot said. “Just as an aside, if you can defer taking CPP past 65, you will get an additional 8.4 per cent a year up to a maximum of an extra 42 per cent at age 70.”

Mr. Kabot is generally not in favour of taking CPP early but, he added, “if you feel that this will really help you and provide you with peace of mind, then I would not be against it.”

If it’s possible to hold out a little longer to maximize the amount of CPP that you would eventually receive, Mr. Kabot recommends waiting.

Do you want advice on a financial planning or retirement issue that’s affecting you? Send us an e-mail.

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