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June 1999

Commentary - Hans H. Mathisen

LIFE LETTER for the month of June will probably surprise you: THE CONCLUSION: you're better off if you start taking your Canada Pension Plan benefits at age 60, rather than waiting until you reach age 65. What should you do? If you require an independent opinion, please give me a call.

THE STOCK MARKETS - It's worth confirming that Canada continues to be the worst performing equity market in the industrialized world. According to Professor of Business Paul Kedrosky of the University of British Columbia, writing an article in The Financial Post on May 22, 1999, Canada ranks #23 in the world among the "best countries" in which to invest. Because there are not 23 industrialized countries in the world, Canada must be way down on this list, together with The Ivory Coast and Serbia. High levels of government debt, poor GDP growth; and aggressive capital gains taxes are among the factors that caused Canada to place so poorly, according to professor Kedrosky.

If you don't have your money outside Canada, please call me to find out how you can be a winner in the world of investments.


Hans H. Mathisen




Life Letter

Start Your Canada Pension Plan as Soon as Possible

The rules for the Canada Pension Plan changed in 1987 to allow you to start receiving it as early as age 60 instead of waiting until age 65. You can also choose to wait until age 70. You lose half of one percent of the age 65 pension for each month you start before your 65th birthday, or gain it for each month it is postponed.

Think of it as getting 6% less pension for each year short of age 65, or 6% more for each year after age 65. So if you apply on your 60th birthday, you'll get 70% of the age 65 monthly pension. But, if you wait until you're 70, you'll get 130%.

Should you hold out for the higher income, or start your CPP early?

Start early and you're sure to get it. If you wait, and die before it starts, the income you could have had is lost to you and your heirs forever.

Start early and you'll get more. Every year you postpone it means twelve payments that you will never get. This is money you could be saving and investing. And your investments could produce far more than you might gain by postponing the start of your CPP income.

Tax laws now favour early starters. Revenue Canada "claws-back" Old Age Security payments if they take you above a certain income level. But OAS doesn't start until age 65. Your CPP payments could then put you into the claw-back level. But, payments received before age 65 would not be affected.

And because your early-start Canada Pension is lower, your post-65 income is less affected by the claw-back provisions than if you had waited for higher CPP payments.

Early CPP payments can augment your RRSP. If you don't need the income, and have contribution room, put it in your RRSP. Or, better still, put it into your spouse's to split future income, and further reduce the possibility or amount of OAS claw-back.

George Hoskins, for example, retired in 1994 at age 60. Though his company pension was adequate, he applied for his CPP. And because he and his wife, Elizabeth, had enough earned income to justify contributions greater than his CPP income, he put it all into her RRSP.

He had a heart attack just before his 65th birthday. George is okay now, but it made him change his life style and review his estate planning. One of the things he realized is that Elizabeth would have had about $30,000 less in her RRSP if he'd waited until 65 for his CPP.

His Old Age Security started this year, and thanks to his low Canada Pension Plan income, none of it will be clawed back next April. So, by starting his Canada Pension early, George will pay less tax next April than if he'd waited until 65 to start it.


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