Two Big Timing Questions as You Get Closer to Retirement

Retirement brings no shortage of decisions: When to stop working? How to fill your days? Should you work part-time for a while? Two of the biggest, though, come down to timing. When you start drawing from certain income sources, and when you shift from saving to spending, can affect how much income you will have and how long it may last. Neither has a single right answer, but both are important to think through well before your last day of work. Here’s how to approach them.

Question 1: When should you start taking CPP?

You can begin your Canada Pension Plan (CPP) retirement pension any time between age 60 and 70. It’s worth noting, however, that 65 is the standard age, and your decision relative to that number makes a lasting difference. For instance, if you start before 65, your pension is permanently reduced by 0.6 per cent for each month you’re early – up to 36 percent if you begin at 60. If you wait past 65, it grows by 0.7 per cent for each month you delay – up to 42 per cent if you hold off until 70.

So, which direction is best for you? It depends on your personal goals and situation, including:

What does this mean for you? It’s not a one-size-fits-all choice. The decision you make affects the rest of your personal financial situation, so it’s worth looking at the whole picture rather than CPP on its own.

Question 2: When should you shift from contributing to drawing income?

becomes the money you live on. Deciding when to make that shift – and in what order to tap into each source – is its own timing question.

There’s often more flexibility here than people expect. For example, you might keep contributing to your RRSP right up until the end of the year you turn 71, when it converts to a RRIF and withdrawals begin. You might draw from a TFSA or non-registered savings first to keep your taxable income low in the early years. Or you might do a bit of both – contributing to some accounts while drawing from others – depending on your income needs and tax picture in any given year.

Here are a few things to consider:

Retirement isn’t a single switch you flip. For many people, it’s a gradual transition from saving to spending – the timing of which is worth planning out ahead of time.

How an advisor can help you weigh both questions

These two questions are connected – when you take CPP affects how much you need to draw from savings, and how you draw down your savings affects your taxable income… which loops back to CPP. It’s a lot of moving parts to keep track of, and the right answers to all the ensuing questions depend on circumstances specific to you.

This is where an advisor can help. They can model different scenarios so you can see the trade-offs clearly. They can also help you revisit the plan as things change, because a decision that made sense at 58 may look different at 64.

If you’re within a few years of retirement, it’s a good time to start having these conversations. The decisions ahead are meaningful, but you don’t have to tackle them alone. Making them with a clear view of the whole picture can help you feel confident about the years to come.