In this 2-part series, we will explore both sides of the age-old question “should I take CPP (Canada Pension Plan) earlier or later?”
We’ve all met purported CPP experts at some point in our lives. It may have been a member of your family, your plumber, or your dentist. The fact is that everybody has an opinion on CPP and when it should be taken. What I’ll be attempting to do in this series is put an end to this debate by arguing both sides of the decision to take CPP earlier or later. The fact of the matter is that the decision to take CPP earlier or later does not have a “one size fits all” solution. Once armed with both sides of the argument, you’ll be able to decide based on your own personal situation what makes the most sense for you.
The difference between taking it earlier or later
I’ll start by exploring the arguments for taking CPP later. First, it’s important to understand that once you reach the age of 65, every month you defer taking CPP will increase your monthly benefit by 0.7%. Wait all the way until age 70 and you’ll have increased your monthly CPP payments by 42%. Alternatively, your CPP is reduced by 0.6% for each month that you take it before the age of 65. For example, by taking your CPP at age 60, you’ll have reduced your full CPP pension by 36%.
The break-even point between taking your pension early at 60 vs. deferring until 70 is around age 77 (assuming a 2% inflation rate). That is to say, if you add all the money you would have received from 60 to 77, it will equal the amount of money you’ll have received from 70 to 77. This math would suggest that if you believe you’ll live past the age of 77, you should consider waiting until the age of 70 to start receiving CPP as you’ll receive more money from the government in your lifetime. For people who live to age 90, the difference in CPP payments received between someone who starts at age 60 and someone who starts at age 70 is over $200,000! That’s a lot of extra government money you received by simply waiting to start collecting your CPP.
Don’t lose your OAS
Another consideration is OAS (Old Age Security) clawback. If your lifestyle expenses are being covered by other means and CPP is simply resulting in your OAS being clawed back, it makes sense to delay CPP. Why steal from Peter to pay Paul? Might as well delay CPP.
The other side of the coin
Now I’m sure some of you are thinking to yourselves “But wait, Colin, what if…” Don’t worry I’m aware there’s another side to this debate. There’s a reason 42% of Canadians choose to take their CPP at age 60. Make sure you keep an eye out for my next article: “An argument for taking CPP early.”
Colin Sabourin is a Winnipeg based Financial Advisor whose specialty is working with farmers. His focus is on farmers who are planning to sell or transition their farms in the next 5 to 10 years. Colin ensures the process is as smooth and tax-efficient as possible, while also creating plans to enable them to start the next chapter of their lives with confidence and security.
Disclaimer: The information contained herein was obtained from sources believed to be reliable. However, we cannot represent that it is accurate or complete. This report is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any securities. The views expressed are those of Colin Sabourin, Certified Financial Planner, and Investment Advisor and not necessarily those of Harbourfront Wealth Management Inc., member of the Canadian Investor Protection Fund.
