Why You Should Take CPP at Age 70

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To help make good financial decisions today, that impact your tomorrow, you need to make some assumptions about the future. When you should take your Canada Pension Plan (CPP) benefit is one of those decisions.

So, when and why take CPP at age 70?

This post provides the goods including a link to one of our case studies.

What is CPP?

The Canada Pension Plan (CPP) is a retirement pension, that is paid monthly, but it’s a taxable benefit that is designed to replace part of your employment income when you retire.

When it comes to our Canada Pension Plan (CPP), to qualify for it, you should know that current government rules dictate you must be over the age of 60.

If you qualify, you’ll receive the CPP retirement pension for the rest of your life.

To qualify you must:

The standard age to start CPP is age 65.

However, you can start receiving it as early as age 60 or as late as age 70.

If you start receiving your pension earlier, age 60, the monthly amount you’ll receive will be smaller. If you decide to start later, age 70, you’ll receive a larger monthly amount. The maximum monthly amount you can receive is reached when you turn 70.

Why is taking CPP such an important decision?

There are many reasons to delay CPP to age 70, or even take CPP at the standard age of 65. The decision about when you take CPP can be related to one or more of the following:

  • Your desired or needed income stream.
  • Whether you plan on working while receiving your CPP.
  • How much you have contributed and what your benefit might be.
  • The sum of your personal savings, investments or company pension plan (in addition to CPP income).
  • Your current health, family health history or any disabilities.
  • Other income streams in retirement such as business investments, winding down a corporation, rental income, etc.

At Cashflows & Portfolios, we believe one of the inexpensive, safe and smart ways to boost your retirement income is simple: delay your CPP benefits. Yet most Canadians don’t bother.

In a study we read, according to the National Institute on Aging, a whopping 95% of Canadians take CPP at the age of 65 or earlier, with only one percent deferring until the maximum age of 70.

That’s incredible, given the following:

  • CPP incentivizes retirees who delay their payments past age 65 by 0.7 percent each month or 8.4 percent a year. This translates to a 42% income boost in CPP payments at the age of 70 compared to age 65 (and for life!).
  • In dollar terms, take even average CPP payments – at just over $700 per month at the time of this post for the average benefit to new beneficiaries – a 70-year-old would earn 42% more or a total of $994 per month. That’s a difference approaching $300 per month.

CPP incentivizes retirees who delay their payments past age 65 by 0.7 percent each month or 8.4 percent a year. This translates to a 42% income boost in CPP payments at the age of 70 compared to age 65 (and for life!).

The reasons most Canadians begin their CPP at 65 (or sooner) vary.

For some, a traditional retirement begins at 65 so it seems logical to collect their pension at that age. Others take their CPP early because they believe in “a bird in the hand is worth more” – money now is more valuable even though that not entirely true.

In other cases, maybe folks don’t feel they will live as long as they need to, to collect CPP money.

My Own Advisor offered up a great case study about a nurse and her break-even CPP point here.

For “Sally” in that case study, these were some takeaway messages:

  1. If you believe your genes are good, and you have a strong chance to live beyond your early 80s then depending if you need the cash it may be very beneficial to defer CPP until age 70.  This is only if you can afford to defer the income until age 70.
  2. If not, if you can’t afford to defer and you need the money of course – then take CPP when you can at age 60.

Finally, what usually comes up in these calculations and case studies, “Sally” choosing to take her CPP at age 64, 65, or even 66 are not her “best” choices.

As such, we continue to believe a larger, secure pension that’s guaranteed and inflation-protected for life is worth its weight in gold.

Do you even have a choice?

Thankfully, CPP is properly funded and well-run. So, you should put some fears to rest that it won’t be going anywhere anytime soon. You can read this detailed actuarial report on CPP if you wish, but take our word for it: the latest report includes contribution plans to the year 2095.

We think anyone thinking about any sort of retirement in the next 30-40 years from the date of this post today should be OK with that plan…

Now, choosing between alternative CPP benefit ages (age 60, 65 and 70 for key milestones) is still not trivial – since there is an infinite number of combinations and future factors that could make this decision perfect or somewhat flawed only in hindsight.

Here are some key options we’ve encountered with clients:

Option #1: Delay CPP payments from age 65 to 70, using a portion of your RRSP/RRIF savings and CPP at age 70 for income going forward. We believe this is the most popular choice for many Canadians (and many of our clients) with healthy to modest RRSPs/RRIFs balance sheets. This way, they slowly draw down their RRSP/RRIF assets and by delaying CPP to age 70, they transfer some of the longevity risks and inflationary risks away from their personal assets to CPP.

Option #2: Claim CPP payments at age 65 while combining a portion of your RRSP/RRIF withdrawals for income needs. This hybrid approach is also a decent option since it offers up a blend of government CPP benefits AND personal savings to manage income needs near or at the traditional retirement age for many Canadians (age 65). Add on OAS (Old Age Security) benefits and even without many TFSA assets – those income streams are likely enough for many Canadians.

Option #3: Claim CPP payments at age 60, but only if you need the money. Not everyone is blessed with long life, a good RRSP/RRIF balance sheet, nor other assets for their retirement preparations. If you need to fund your lifestyle in your 60s, and/or if you have poor health conditions, then you might wish to take CPP as early as possible.

Why you should take CPP at age 70 summary

If secure income is what you want – we believe taking CPP at age 70 is generally your answer. If your objective is to enhance the chance you’ll have a long lifetime of inflation-protected, secure income, then delaying CPP payments can be reasonably defined as one of the best risk-free investments you can make. Worse case, you take your CPP benefits a few years before age 70 but you’d be wise to avoid pulling the trigger on these benefits if you can before then.

Otherwise, if you want the money or need the money then by all means take CPP at an earlier age. Just don’t be too disappointed with the outcome when it comes to covering your inflationary retirement needs.

Further Reading:

Need any support with your retirement income projections?

Knowing how to save and invest wisely, to help you get the most out of your portfolio, is something we can help with. We’ve been there!

In addition to that asset accumulation work, if you need some help solving your retirement decumulation puzzle (including when you should take CPP at age 60, 65, or 70 and what your retirement income spending might be) – we can help with that too!

If you are interested in obtaining private projections for your financial scenario, read more about our retirement projections service.

A reminder to those who have recently joined our readership and new fans of the site – our site is growing thanks to you!! As an example, a big thanks to Rob Carrick for mentioning our site and services in The Globe and Mail. From Rob:

“TODAY’S FINANCIAL TOOL

Cashflow$ & Portfolios is the name of a website built to help people learn how to reach their long-term financial goals with budget and long-term investing. Brought to you by a pair of veteran personal finance bloggers.”

Yup, that’s us! We appreciate every comment and email and every client interaction.

We look forward to posting more great content and case studies over time. Thanks for reading.

CAP

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12 thoughts on “Why You Should Take CPP at Age 70”

  1. Well, that’s one way of looking at it. However, if you don’t just look at the spending side, but instead look at the possible returns, you may get a different answer. This is an interesting calculator that looks at breakeven age taking returns into account. https://www.financialcalculators.net/steadyhand/cpp-take-early/ If you play with numbers you will see at higher returns (above 7.3%) you are better off on an NPV basis to take it sooner. I also built my own spreadsheet to confirm this and got a similar result. At returns higher than the CPP discount you are better off to take it sooner not later

    Reply
    • Thanks Ed. We figured someone would chime in on that part, i.e., the ability to generate returns greater than CPP could. For sure, that is always possible and a similar argument could be said for taking the commuted value of your pension and investing it on your own. There was a good post on My Own Advisor about that too 🙂 Ha.

      https://www.myownadvisor.ca/should-i-take-the-commuted-value-of-my-pension/

      So, assuming, you can get higher, annualized returns (above 7.3%) to your point on your own vs. CPP, then taking the money and investing CPP could be wise. The reality is, I suspect most retirees don’t take CPP at age 60 or age 65 to invest it. They are taking it because they really need or want the money = bird in hand. I could be wrong. Not in our 60s or 50s even ourselves.

      Great points to add to the discussion Ed.
      CAP

      Reply
      • Well you know one now who is doing it. I am 62. I have been retired for 14 years and my overall CAGR is above 7.3%. So I had been operating on the assumption that I would wait until 70 since that seems to be the current conventional wisdom. But seeing that calculator and doing some of my own spreadsheets made me re-think the question. So I have now applied and will start getting it soon!

        Reply
        • Ha. Great to hear. Assuming you always get 7.3% or so and more on average, that’s a bit of an “if” of course except for 2021 returns (!) then more power to you of course Ed and nothing wrong with sticking to your plan. We still believe deferral to age 70 is a simple, low-risk, inflation-protected decision for many but we appreciate your counter views!

          CAP

          Reply
  2. Those who are choosing to exit work force after 20 years in service and retire at the age of 55, wouldn’t they benefit more from taking CPP at 60?

    Reply
    • Hi Michael – do share more. We believe, for the most part, if you can wait until age 70 for CPP that offers a low-risk, inflation-protected way to earn more secure retirement income.

      If you need the money to live from at age 60 then by all means, take it. Many retirees need to.

      Thoughts?

      Reply
      • With no further CPP contribution after the age of 55, my concern would be $$ lost while delaying until the age of 70. Wouldn’t the CPP total contribution actually average down by the time one start using this benefit at the age of 70, for someone with only 20 years of total contribution?

        Reply
  3. I’m in the “defer CPP to 70” camp. My CAGR for the last 20 years is well above 7.3%, but I’d rather have the guaranteed income at 70 since I’ll have no defined benefits pension. To me, CPP is more like basic income insurance over capital for re-investment.

    So how do you feel about OAS deferral to 70?

    I’m quite confident I’ll have retirement income to support me through my 50’s and 60’s without CPP/OAS, so my current thinking is to defer OAS to 70 as well – i.e. more insurance to address longevity risk.

    Reply
    • Totally Greg, CPP is like a bond and better = secure, inflation-protected income for life. The government is giving you a 42% income boost for waiting five years from age 65 to 70. Think of this in another way. Your return, each year, from a bond no-less, is 8.4% each year you delay. Where does anyone get that return from a bond these days?

      There are many retirees that may wish to take CPP money, and invest in, and return more than 7% or even 8% over a 5- or 10-year period or more. That is totally fine. But they are always taking CPP bond-like money and turning it into equities to do so – taking more risk.

      There are few other low-risk, secure ways to boost retirement income than taking CPP at age 70.

      As for deferral to OAS – if you don’t need the money – you can defer for just that – longevity risk. But if you’re going to defer one or the other we believe deferring CPP to age 70 over OAS is better.
      https://www.cashflowsandportfolios.com/what-is-old-age-security-oas-and-what-is-oas-clawback/

      Thanks for your comment.
      CAP

      Reply
      • Great! We’re clearly aligned in our thinking about CPP and OAS. From what I recall the deferral incentive for OAS is a bit less than CPP – 30%-ish vs. 42%. Still, I’m sure this is much better than the risk-free rate of return you’d see from bonds in that 5-year period.

        I take more risk with the equity side of my portfolio, so its nice to have the option to increase cashflow on the risk-free side of the equation through this time deferral.

        Reply
        • That’s where we see the benefit. Retirees can keep the CPP as a bond, for secure income (which is more at age 70 than age 65) and they can take-on any equity risk in their personal portfolios as they wish.

          Reply

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