Clients retiring early have always asked if they should start taking their Canada Pension Plan before they turn 65, but the changes to CPP have added a few more wrinkles to making that decision.

There are several changes but what stands out is the one that reduces CPP even more for people who opt to take it earlier. That creates a dilemma. Do you take the money and run? Or do you hold out until you’re 65 when your Canada pension payments will be higher?

Several clients have come to us with that question. Unfortunately, there’s no black-and-white answer. But let’s start by comparing the case of two early retirees we’ll call Joan and Susan.

Joan had planned to start drawing CPP when she turned 60. She knew under the old rules that for every month she took a pension ahead of her 65th birthday, she’d be forfeiting 0.5% of what she’d otherwise receive if she waited to age 65. That meant by 65 the reduction in her CPP would have been 30 per cent.

The trade off was worth it for Joan. While she wouldn’t be making as much on her CPP as her friend Susan — who waited to age 65 — she was collecting a pension for five years longer. Joan and Susan would have both been 77 before Susan pulled ahead in the overall amount of money she received from CPP. That was the break even point before the rules changed.

Joan loves to travel and the extra money helped finance her wanderlust at a time when her health was good. The decision to take her CPP at 60 made sense.

But before Joan turned 60 the rules changed. Now for every month ahead of her 65th birthday that Joan draws CPP, her pension is reduced by 0.6% so by the time she is 65, her pension will be 36% lower every month than her pal Susan’s.

She’ll still be ahead of Susan for a number of years but the break even point comes earlier. Joan will be 74 instead of 77 when Susan pulls ahead.

Joan’s question: “Do I wait until I’m 65 or take CPP now and enjoy more money in my early retirement?”

Every person’s situation is different but here are four points to consider:

1. Your cash flow needs at age 60. If you need the money, you might want to take it now rather than waiting five years.

2. It used to be you had to live to 77 to make it worthwhile waiting to collect your pension at 65.  Now it is 74. Consider your needs over those 14 years — maybe the money is more important to you now than losing out after 74.

3. Your health. That is a huge factor but one we don’t always have control over nor one that we can necessarily predict. You may have health problems already at 60, or you may be like the octogenarian marathon runner. You have to make the decision that seems best for you.

4. Your personal preference. There is the ‘bird in the hand’ argument espoused by many that suggests taking the money now is the smarter move. Even if you don’t need it, maybe you’d rather be investing the money than leaving in government coffers.

While the question of ‘to take or not to take CPP early’ is the one raised most often there are a number of other changes to CPP that are being phased in through to 2016 for you to consider.

Among other changes:

• Your monthly CPP will increase by a larger percentage if you defer drawing it beyond age 65, although I’d point out you will have to live a long time to make it worthwhile waiting to collect.
• Starting in 2012 if you decide to take your pension before 65 you can still continue working.
• Also starting in 2012 if you’re under the age of 65 and working while you get CPP, you and your employer will have to continue making CPP contributions.
• If you’re aged 65 to 70 and you work while drawing CPP, you can choose to continue making CPP contributions and (starting in 2013) this will increase your CPP benefits.

There are other minor changes. For details on how they may affect you, check Service Canada’s web site here.

While the current maximum for the Canada Pension Plan’s retirement benefit is about $934 a month, many people don’t qualify for the maximum. So the first step in your CPP decision-making should be making sure you know how much you will receive. If you don’t know ask Service Canada for a Statement of Contributions. Call them at 1-800-277-9914 or sign up here for your own Service Canada account so you can access information on your Employment Insurance, Canada Pension Plan, and Old Age Security.