It's Your Money  

Should you take CPP early or delay?

When to take CPP?

The decision to delay receiving Canada Pension Plan (CPP) benefits can be a strategic one, often influenced by various factors including financial stability, health considerations, and longevity projections.

However, determining the optimal time to start collecting CPP benefits can be complex, as it involves calculating the "break even" age – the point at which the cumulative benefits received from delaying CPP equal the benefits received from starting early.

The problem is, there are multiple ways to calculate this break even point and it is easy to find reasons to support moving it up or down.

Let’s look at some of the nuances of this decision-making process and some things to consider when doing your own calculation.

Understanding CPP benefits: The CPP provides financial assistance to Canadian retirees, with the amount received depending on factors such as contributions made over a working lifetime and the age at which benefits are claimed. While individuals can start receiving CPP benefits as early as age 60, delaying benefits results in increased monthly payments up to age 70. This trade-off between claiming early and delaying presents a significant decision for retirees, one that necessitates careful consideration.

Factors Influencing the decision: Several factors come into play when deciding whether to delay CPP benefits. Financial considerations, such as current income needs, other retirement savings, and expected future expenses, play a crucial role. Health status and life expectancy also factor in, as those in good health and with longevity in their family may choose to delay benefits to maximize their overall income in retirement.

The real break even age: Calculating the break-even age involves estimating how long it will take for the higher monthly payments from delaying CPP to surpass the total amount that would have been received by claiming earlier. While there are various methods for determining this age, including mathematical models and financial calculators, the real break-even age often depends on individual circumstances.

For those in good health and with longevity in their family, delaying CPP benefits can often result in a higher overall payout over the course of retirement. However, for individuals with health concerns or those in need of immediate financial support, claiming CPP benefits earlier may be the more prudent choice, even if it means receiving lower monthly payments.

Factors such as investment opportunities, inflation and changes in CPP legislation can also impact the break-even age. It's essential for individuals to regularly reassess their retirement plans and adjust their strategies accordingly.

Importance of long-term planning: Deciding when to claim CPP benefits is just one aspect of a comprehensive retirement plan. Long-term financial planning, including investment strategies, estate planning, and healthcare considerations, is essential for ensuring a secure and comfortable retirement.

Moreover, seeking guidance from a certified financial planner can provide valuable insights and personalized recommendations based on individual circumstances. These experts can help retirees navigate the complexities of CPP benefits and develop strategies to optimize their retirement income.

The decision to delay CPP benefits involves weighing various factors and calculating the real break-even age. While delaying benefits can result in higher monthly payments and increased overall income in retirement, it's essential to consider individual circumstances, including health, longevity projections, and financial needs.

Ultimately, the optimal time to start receiving CPP benefits varies for each individual and it should be calculated with modern financial planning software.

By engaging in comprehensive long-term financial planning and seeking professional guidance, retirees can make informed decisions that align with their goals and priorities, ensuring a secure and fulfilling retirement.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


Balance life with proper financial planning

Financial planning tips

In today's fast-paced world, finding the right balance between enjoying life's experiences and ensuring financial stability can be challenging.

Many Canadians grapple with the dilemma of living in the present while also preparing for the future. However, striking a harmonious balance between these two aspects is not only possible but essential for long-term financial well-being.

Here are some practical tips for Canadian consumers on how to properly balance life experiences with proper financial planning:

Define your priorities—The first step in finding balance is to define your priorities. Take the time to reflect on what truly matters to you – whether it's traveling the world, starting a family, pursuing higher education or building a successful career. By identifying your goals and aspirations, you can better align your financial decisions with your values and priorities.

Create a budget—Creating a budget is fundamental to effective financial planning. Start by tracking your income and expenses to gain a clear understanding of your financial situation. Allocate funds for essential expenses such as housing, utilities, groceries, and transportation, but also remember to set aside money for savings and discretionary spending. A well-thought-out budget can help you manage your finances more effectively and make informed decisions about how to allocate your resources.

Prioritize saving and debt repayment—Saving and paying down debt are key components of financial planning, allowing you to build wealth over time and achieve your long-term goals. Appropriate saving and debt service levels must come before discretionary spending. Consider automating your savings by setting up regular transfers to a savings or investment account, making it easier to stick to your savings goals.

Set realistic goals—When setting lifestyle and experience goals, it's essential to be realistic and specific. Only by proper budgeting will you know what amounts you have left for fun activities and your goals should match the amounts you’re able to allocate here. And once these goals are set you need to be sure to avoid overspending on these expenses.

Embrace frugality—Practicing frugality doesn't mean sacrificing all of life's pleasures. Rather, it involves being mindful of your spending habits and finding ways to live more resourcefully. Look for opportunities to save money without compromising on quality or enjoyment. This could include meal prepping instead of dining out, shopping for deals and discounts, or finding free or low-cost entertainment options. By living frugally day to day, you allocate more money towards things that matter to you most.

Seek professional advice—Navigating the complexities of financial planning can be overwhelming, which is why seeking professional advice can be invaluable. Consider consulting with a certified financial planner, who can help you develop a personalized financial plan based on your goals, risk tolerance, and financial situation. An experienced advisor can provide expert guidance and help you make informed decisions about saving, investing, and managing your finances.

Balancing life experiences with proper financial planning is a delicate but achievable feat.

By creating a proper budget and financial plan, you can purposefully set aside funds earmarked for living life to the fullest without sacrificing your future financial wellbeing.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Life insurance is a vital investment in your family's security

Importance of life insurance

In an ideal world, everyone would have ample life insurance coverage to protect their loved ones in the event of their passing. In reality however, financial constraints often make it challenging to prioritize insurance expenses over other competing needs.

When money is tight, ensuring you have adequate life insurance coverage becomes even more crucial. Here are some strategies to help you navigate this situation:

• Evaluate your needs—Before purchasing or adjusting your life insurance coverage, assess your current financial situation and your family's needs. Consider factors such as outstanding debts, mortgage payments, childcare costs, and the future lost income that you’re trying to replace. This evaluation will give you a clearer understanding of how much coverage is necessary to provide financial security for your loved ones.

• Understand your Options–Life insurance comes in various forms, including term life, whole life, and universal life policies. Term life insurance typically offers the most affordable premiums and provides coverage for a specific period, such as 10, 20, or 30 years. Whole life and universal life policies offer lifetime coverage but often come with higher premiums. You need to fully understand the differences between these options to choose the one that best suits your needs and budget.

• Shop around—Don't settle for the first life insurance policy you come across. Take the time to compare quotes from multiple insurance providers to find the most cost-effective option. Online comparison tools and insurance agents can help you explore different policies and premiums tailored to your budget.

• Adjust your coverage over time—Life insurance needs evolve as your circumstances change. While you may not be able to afford the optimal coverage now, you can adjust your policy as your financial situation improves. Start with a basic term policy that provides essential coverage now and increase it gradually as you can afford to do so.

• Avoid over-insuring—While having adequate coverage is essential, avoid purchasing more insurance than you need. Over-insuring can lead to unnecessarily high premiums, putting additional strain on your finances. Stick to the coverage amount that meets your family's needs without exceeding your budget.

• Take advantage of employer-sponsored coverage—Many employers offer group life insurance benefits as part of their employee benefits package. While these policies may not provide sufficient coverage on their own, they can serve as a valuable supplement to your existing coverage at little to no cost. Take advantage of these benefits if available.

• Maintain good health habits—Insurance premiums are often influenced by factors such as age, health, and lifestyle choices. While you may not be able to control all these factors, maintaining good health habits can help lower your premiums. Quitting smoking, maintaining a healthy weight, and staying active may qualify you for lower rates.

• Review and update regularly—Life changes such as marriage, the birth of a child or purchasing a home can significantly impact your insurance needs. Make it a habit to review your coverage annually or whenever a significant life event occurs. Updating your policy ensures that your coverage remains adequate as your circumstances evolve.

Adequate life insurance coverage is essential for protecting your loved ones' financial future, even when money is tight. By carefully evaluating your needs, exploring your options, and making informed decisions, you can secure the coverage you need within your budget.

Remember, life insurance is a vital investment in your family's security, so it's worth the effort to find a solution that works for you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Online or accountant: What's best at tax time?

Best way to do your taxes

As tax season approaches, Canadians are faced with the perennial question, "should I use online tax filing software or hire a professional accountant?"

With the rise of technology, online tax filing software has become increasingly popular, offering convenience and affordability. However, there are instances where the expertise of a professional accountant is invaluable. Understanding when to use each option is crucial for maximizing tax efficiency and minimizing stress.

Online tax filing software has revolutionized the way individuals manage their taxes. These platforms provide user-friendly interfaces, guiding users through the process step by step. For many Canadians with straightforward tax situations, such as employees with T4 income and basic deductions, online software offers a quick and cost-effective solution.

Moreover, these platforms often integrate with financial institutions and government databases, streamlining the process of importing relevant information.

One of the primary advantages of online tax filing software is its affordability. Many platforms offer free versions for individuals with simple tax returns, making it accessible to a wide range of taxpayers.

Additionally, the automated calculations reduce the likelihood of errors, ensuring accurate filings. This can be particularly beneficial for individuals who prefer a DIY approach and have confidence in their ability to navigate the tax system.

However, there are limitations to online tax filing software, particularly when dealing with complex tax situations. Canadians with multiple sources of income, self-employment income, investment portfolios, or significant deductions may find the software inadequate. In such cases, the expertise of a professional accountant is indispensable.

Here are scenarios where Canadians should consider hiring professional help:

Self-employment income: Entrepreneurs, freelancers, and small business owners often have complex tax obligations, including business expenses, deductions, and self-employment taxes. A professional accountant can ensure compliance with tax laws and maximize deductions, ultimately reducing the tax burden.

Investment income: Individuals with diverse investment portfolios, including stocks, bonds, and real estate, face intricate tax implications. Capital gains, dividends, and rental income require careful consideration to optimize tax efficiency. A professional accountant can provide strategic advice to minimize taxes and maximize returns.

High net worth individuals: Affluent Canadians with substantial assets and complex financial holdings benefit from personalized tax planning services. Professional accountants can devise sophisticated strategies to mitigate tax liabilities, preserve wealth, and ensure compliance with intricate tax laws.

Life events: Significant life events such as marriage, divorce, inheritance, or the birth of a child can have profound tax implications. Professional accountants can offer guidance on navigating these transitions and leveraging tax credits and deductions available to individuals in different life stages.

Tax audits or disputes: Facing a tax audit or dispute with the Canada Revenue Agency (CRA) can be daunting. Professional accountants have experience in representing clients during audits and negotiations with tax authorities, ensuring fair treatment and favourable outcomes.

While online tax filing software offers convenience and affordability for many Canadians, there are instances where the complexity of one's financial situation necessitates the expertise of a professional accountant.

I’m all for saving money where you can but sometimes, spending on professional services can save you far more than it costs and avoid potential headaches. By taking the time to genuinely look at your own situation and understand the nuances of each option, you can make an informed decision on which path is right for you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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