One of the most popular questions I get from those contemplating retirement is, when should I start my CPP income?
Canada Pension Plan (CPP), I make the case for delaying retirement benefits as long as possible – ideally until age 70, due to projected increases in future life expectancy. However it depends on the individual’s personal situation, everyone is different. There are some other very important factors to consider, when will the individual stop working, do they have a pension and does it have a bridge benefit, do they have other assets, RRSP, LIRA, TFSA, Cash that can provide added income streams in retirement, etc.
Life expectancy is a major player, the longer you are expected to live, the longer you should delay. We currently use age 90 as mortality age in retirement planning, but I was recently in Orlando at a retirement planning seminar with CI Investments, one of the keynote speakers was Preet Banerjee, who is a well known neuro-scientist who is working on the value of advice a financial planner brings to their client’s lives. One of his talking points was life expectancy, and Preet stated that in 30 years, Canadians will be living between the age of 115-120 on average with the advancement of health care and technology. If your life expectancy is for some reason lower than average, all bets are off and you may be better off taking CPP between 60 and 65.
You can start the CPP income at age 60, but you will lose 36% of your pension permanently if you take it early. It is reduced by 0.6% for every month before your 65th birthday. That's 7.2% per year. Alternatively, if you expect to live a long healthy life, you can delay withdrawal after age 65, which will add up to 42% more at age 70 by delaying or 0.7% more per month. That’s 8.4% per year.
Table 2: Maximum monthly retirement pension payments between the ages of 60 and 70 for 2018
Maximum monthly retirement pension before age 65 (0.6% adjustment reduction per month)
Maximum monthly retirement pension
Maximum monthly retirement pension after age 65
In practice, very few Canadians wait until 70. In fact, taking it as soon as it’s on offer at age 60 is the single most popular option: according to the federal government’s 2016 data, of the 312,251 who began collecting CPP that year, nearly half, 126,954 did so right at age 60, with the second most popular start date being age 65, when 93,460 started to collect. A paltry 4,844 waited until 70. To put that into context, in 2015 there were 13.98 million citizens still contributing to CPP. All told, as of 2016, there were 5.6 million CPP beneficiaries.
When to withdraw your CPP benefits is up for debate and depends on the individual’s personal situation as discussed above, generally speaking, if you are expected to live a long healthy lifestyle it is recommended you delay the monthly withdrawal from your CPP. Please consult with an experienced financial adviser who is proficient in working with those contemplating retirement. If you would like to learn more contact us today.