I am 62 and have been retired for five years. I have not yet applied for Canada Pension Plan benefits, and I’m wondering if I should start CPP now or wait. I work part-time at a garden centre to stay busy and continue to have CPP contributions deducted from my pay. The amount deducted is, of course, much less than when I worked full-time, when I always paid the maximum. As an example, in 2022 my CPP deduction was just $214. My question is: Am I hurting or helping my eventual monthly CPP income by waiting to start my pension?
I ran your question by CPP expert Doug Runchey of DR Pensions Consulting.
“This is a very common situation, and while I would need to see the reader’s entire lifetime record of earnings and CPP contributions in order to provide accurate numbers, I can respond in general terms with what he has provided,” Mr. Runchey said in an e-mail.
On the one hand, if you decide to delay your CPP benefits, your average lifetime earnings will likely decrease because you are contributing far less than you did when you were working full-time. This will likely reduce your “calculated CPP,” before age-related adjustments, he said.
On the other hand, the longer you wait to collect CPP, the more you will benefit from the age-adjustment factor. If you take your pension early, the amount you receive will be reduced by 0.6 per cent for each month – or 7.2 per cent for each year – before age 65. If you start receiving your pension after age 65, however, your monthly payments will increase by 0.7 per cent for each month you defer those payments, or 8.4 per cent for each year, up to age 70.
“The analogy that I use to describe this person’s CPP calculation is that if he waits to apply for his CPP he will receive a larger slice of a smaller pie at that later age,” Mr. Runchey said.
“Some very ballpark estimates that I sometimes use are that since CPP benefits are generally based on your best 35 to 40 years, each year of zero earnings could reduce your ‘calculated CPP’ by approximately 2.5 per cent, but each year that you defer increases your age-adjustment factor by 7.2 per cent. Thus, you will always get more if you defer, but not as much more as you might if you were still working and contributing at a higher level.”
These are just rough estimates. To get more accurate numbers for your specific situation, try the online CPP calculator developed by Mr. Runchey and David Field, a certified financial planner. It is available at cppcalculator.com.
If I sell series A preferred shares of a company at a loss, then immediately buy series B preferred shares of the same company, can I still claim the loss for tax purposes?
Yes. The only time you need to worry is if you purchase a security within 30 days – before or after the sale – that is identical to the security you sold. Doing so would be considered a superficial loss, which you could not use to offset capital gains. However, because the preferred shares you are selling are a different series than the ones you are buying, they are not identical properties and the superficial loss rule would not apply.
I have a large sum in a U.S. dollar account at Tangerine. The interest rate is terrible, namely 0.1 per cent. What are some good alternatives?
If you don’t already have a discount brokerage account, now may be a good time to open one, as it will give you far better options for parking your idle cash.
Most discount brokers offer investment savings accounts, denominated in either Canadian or U.S. dollars, that pay much higher rates. BMO InvestorLine’s BMO USD High Interest Savings account, for example, currently pays an interest rate of 4.9 per cent, with a minimum initial purchase of US$1,000. Other bank-owned brokers offer similar rates. What’s more, such accounts – which you buy and sell much like a mutual fund, with no fees or commissions – are covered by Canada Deposit Insurance Corp., even when they hold U.S. dollars. (Check cdic.ca for coverage limits.)
There are other options. You could squeeze out an additional half-point or so of interest by choosing a high-interest savings account exchange-traded fund, but there are drawbacks to these products. You may have to pay a commission to buy and sell them. Moreover, not all HISA ETFs automatically reinvest distributions, so you won’t necessarily get the benefits of compounding. With broker-operated investment savings accounts, on the other hand, interest compounds automatically (unless you choose to receive the interest in cash).
For all of the above reasons, an investment savings account will likely meet the needs of most investors looking for a place to stash their cash. And the rates will crush the puny return you’re getting from Tangerine.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
John Heinzl