June 2019 issue

Feature

Applying for my retirement pension: what age is best?

One of the advantages of the Québec Pension Plan (QPP) is that it provides a certain level of flexibility with respect to the age at which you can apply for a retirement pension. An individual can start receiving a retirement pension at age 60 or apply at a later age. This flexibility, however, leads many to ask themselves, "at what age is it most advantageous for me to apply for my pension?" Many have tried to answer this question, but there are as many answers as there are workers!

Make your calculations...

Although you are eligible to receive a QPP retirement pension once you turn 60, the age at which you apply is not without financial consequences. You are eligible to receive the full amount of the pension only at age 65. Therefore, if you choose to start receiving your pension before that age, the amount is reduced by up to 7.2% for each year prior to your 65th birthday. This means that, if you request your QPP retirement pension at age 60, the amount you receive will be a maximum of 36% lower, which is a significant reduction!

Note that the reduction will be applied to the amount of your pension for the rest of your life.

On the other hand, if you apply for your pension after age 65, the amount will be increased by 8.4% for each year after your 65th birthday. Therefore, if you apply for your pension at age 70, the amount you receive will be 42% higher.

These considerations can be a starting point for your decision. Some people will say, "I want to receive my pension as soon as possible to have more money at my disposal, since I do not know at what age I will die", while others will say, "I'm going to apply for my pension as late as possible in order to receive a larger amount".

Applying for your QPP retirement pension does not necessarily mean "retiring"! You can receive a pension and continue to work until you decide to leave the job market permanently.

Whatever your decision, it is important to know that it will have an impact on the amount of your pension for the rest of your life. The decision to delay applying for your QPP retirement pension, however, has advantages that should also be taken into account such as:

    • income that is protected against inflation: your QPP retirement pension is indexed annually. Therefore, the higher your pension, the greater the proportion of your retirement income that will be protected against inflation.
    • guaranteed income until death: contrary to personal savings that can eventually run out, the QPP retirement pension is paid until death. Accordingly, the higher your pension, the lower the risk that you will incur a substantial drop in income in the last years of your life.

But that's not all!

The decision to apply for your QPP retirement pension either sooner or later is not an easy one. Other factors should also be taken into consideration:

  • your state of health
  • your financial assets
  • your other sources of income
  • higher life expectancy
  • whether or not you have a spouse
  • the tax impact of receiving a pension.

This is why Retraite Québec recommends that you exercise judgment when deciding the moment to apply for your retirement pension. Make sure that your QPP retirement pension, your personal savings and/or your Old Age Security pension will be enough to maintain your standard of living throughout your retirement.

The Old Age Security Program, which is administered by the Government of Canada, offers the following benefits:

  • Old Age Security (OAS) pension, which is payable to eligible retirees as of age 65
  • Guaranteed Income Supplement (GIS), which is payable to eligible low-income retirees aged 65 or older
  • Allowance, which is payable to eligible low-income retirees aged 60 to 64 whose spouse is receiving the GIS
  • Allowance for the Survivor, which is payable to eligible low-income retirees aged 60 to 64 whose spouse is deceased.

We recommend that you learn more about financial planning for retirement or meet with a financial planning specialist in order to develop an action plan that is adapted to your needs and in line with your circumstances and objectives.

Something else you should know...

Contrary to the OAS pension, which is the same amount for all eligible retirees, the amount of the QPP retirement pension differs from one person to the next. The calculation of your QPP retirement pension is based primarily on the contributions that you make to the Plan during your lifetime. While the maximum annual QPP retirement pension for an application made at age 65 is approximately $13 855 in 2019, this is not necessarily the amount to which you will be entitled. In fact, less than 5% of all new beneficiaries receive the maximum amount at age 65. To obtain an estimate of the amount to which you will be entitled, make use of our SimulR and CompuPension retirement simulation tools.

Working after retirement

Whatever the age at which you apply for your QPP retirement pension, you can still keep on working. If your employment income surpasses $3500 annually, you will continue to contribute to the Plan. These contributions will in turn entitle you to a retirement pension supplement, which will automatically be added to your QPP retirement pension. Should you wish to return to work after retiring or choose to receive a pension while you are still in the workforce, we recommend that you consult closely with your employer regarding the tax impact of such a decision.

Summary