The CPP Dilemma: Should Future Retirees Invest Now or Wait?

Many people ask whether it makes sense to take their CPP early at 60 and invest it. To help answer this question, let’s walk through a detailed example using real numbers.

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The Setup: Mr. CPP

Mr. CPP turns 60 on January 1, 2023. He qualifies for the maximum CPP payout of $836 per month if he takes it at 60, which equals about $10,000 per year. If he waits until 65, his CPP rises to over $1,300 per month, or $15,600 annually. Both amounts increase each year with inflation.

Mr. CPP also receives a defined benefit pension of $4,000 per month. Like CPP, this pension is indexed to inflation.

Scenario 1: Take CPP at 60 and Invest It

Mr. CPP begins receiving CPP in February 2023. Because he misses January’s payment, he receives slightly under $10,000 in the first year.

Instead of spending the money, he invests it into his TFSA. After deducting an average 20 percent tax withholding, he contributes $7,356 in year one. The following year, with a full year of CPP payments and a 3 percent inflation bump, he contributes more. This continues for five years.

By age 65, he has saved just under $42,000 in his TFSA. If we assume a 5 percent return per year, the TFSA grows to over $48,000.

Scenario 2: Delay CPP to Age 65

If he waits until 65, his annual CPP would be over $19,800 due to inflation adjustments.

Comparing the Two Approaches

In both cases, Mr. CPP receives the same pension and starts OAS at 65. The difference lies in where the money comes from.

At 65, both approaches result in $63,809 of after-tax income. With early CPP, he withdraws $5,294 annually from his TFSA to match the income he would have received by waiting.

At a 5 percent investment return, his TFSA is depleted by age 75. If he earns 8 percent annually, it lasts until age 77.

To make the TFSA last until age 90, he would need a 12.25 percent annual return with no down years—an unrealistic goal for most investors.

What Else to Consider

If he passes away before the TFSA is depleted, that money can be passed to his heirs.

Taking CPP later may result in higher income, potentially triggering OAS clawbacks.

For couples, survivor benefits should also be factored in.

Final Thoughts

The decision depends on your personal situation. Use these numbers to help weigh your options. If you’re not sure what makes sense for you, consider checking out our website and booking an appointment with us.

Click here to book a free consultation with our team.

Watch the full video breakdown here.

Marc Sabourin is a Winnipeg-based Financial Advisor and Retirement Specialist with Harbourfront Wealth Management. His specialty is working with pre-retirees and retirees who are looking for retirement, investment, & tax advice. 

Disclaimer: The views expressed are those of Marc Sabourin, Certified Financial Planner, and Investment Advisor, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund

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