Newswire

Earlier or Later? Deciding When to Start Canada Pension Plan Retirement Benefits

August 9, 2023

Many individuals approaching retirement wonder if there is an optimal age to begin taking their Canada Pension Plan retirement pension benefits (CPP). The question often arises because CPP is calculated based upon the age at which an individual starts to receive monthly payments. Though the standard age to start CPP is 65, Canadians can start receiving CPP as early as 60 or as late as 70.

The standard CPP entitlement at age 65 is reduced by 7.2% for every year (0.6% per month) taken before 65 and is increased by 8.4% for every year (0.7% per month) taken after 65.

Should individuals defer taking CPP to take advantage of the increased CPP benefit entitlement? It depends.
The CPP breakeven age is a good starting point to evaluate one’s options; however, it should not be the sole factor in deciding.

What is the CPP breakeven age?

This concept is best explained with an example. Let’s assume Peter and Paul are both 60 years of age in 2022 and will be eligible for the maximum CPP benefit at age 65. For 2022, the maximum benefit at age 65 is $1,253/month ($15,036 per year).

Peter decides to take CPP now at age 60, and as a result his benefits are reduced by 36% to $802/month or $9,624 per year. Paul decides to wait until age 65 to start collecting his CPP benefits. The table on the right demonstrates the cumulative annual CPP payments they will each receive.

Peter has collected almost $50,000 before Paul has received his first CPP benefit payment. The general perception is that Peter will be permanently better off financially. This is incorrect. If Paul lives beyond the breakeven age of 74 (73.9 to be exact), he will not only catch up to Peter, but he will also receive greater benefits than Peter for having delayed receipt of his CPP to age 65.

This analysis does not consider annual inflation adjustments to CPP benefits, which may further increase the pension entitlement of an individual who chooses to delay receipt of their CPP benefits.

Key takeaways

CPP benefits, which are guaranteed and indexed over one’s lifetime, can be increased by 42% if deferred to age 70
If an individual is in reasonable health and has other assets and income streams to support their retirement lifestyle needs, it is generally recommended to defer taking CPP benefits as late as possible.
Lifestyle matters. Don’t delay taking CPP if it is needed to enjoy retirement lifestyle needs today!
While the breakeven age is a good rule of thumb, the optimal age to start CPP benefits should be decided in the context of a person’s overall financial situation. Consult a Wellington-Altus Advisor to discuss CPP benefit options.

Consider starting CPP early if…

Your current health (or your family history) suggests you might have a shortened
life expectancy,
You wish (or need) to retire early but lack sufficient savings, income and cash flow to achieve your retirement lifestyle requirements.

Consider delaying CPP early if…

There is a family history of longevity and you are in great health,
You expect to remain in the workforce but don’t yet qualify for the maximum CPP entitlement.
These additional years of earnings will increase your basic CPP pension.

Recent Posts

August Market Insights: Trump’s Fiscal Frenzy

At this very moment, the U.S. faces a fiscal predicament which urgently calls for proactive measures following the 2024 presidential election. The nation’s mounting debt crisis demands immediate attention, yet neither party has outlined a clear strategy to address this pressing issue. This election cycle has had no shortage of historic events, from the attempted assassination of Former President and Republican Nominee Donald Trump to Vice President Kamala Harris replacing President Joe Biden as the Democratic Nominee. Yet the underlying fiscal dilemma, if left unaddressed, risks triggering an economic crisis that even Wall Street may be underestimating—dismissing U.S. debt concerns as mere cautionary tales.

July Market Insights: Navigating The Dual Revolutions

Mark Twain once delivered a sobering reminder of humanity’s tendency to disregard transformative ideas while allowing misconceptions to persist. As we stand on the precipice of two seismic shifts—the AI revolution and an impending fiscal storm—his words resonate profoundly. The true potential of artificial intelligence may be vastly underestimated and dismissed as hype, while fears about its impact remain entrenched. Simultaneously, the era of unbridled deficit spending is ending, and conventional wisdom about fiscal policy faces an upheaval that could shake financial markets to their core.

June Market Insights: The Grand Chessboard

In the complex arena of global finance, as in geopolitics, strategic positioning can be just as crucial as raw power. This insight comes from Polish-American diplomat and political scientist Zbigniew Brzezinski in his book The Grand Chessboard, which offers a compelling parallel to the world of investing. Brzezinski’s analogy paints a vivid picture where nations are likened to chess pieces, with their geographic locations and potential weaknesses playing a pivotal role in the grand strategy of international relations.

May Market Insights: Out Of Options

U.S. Federal Reserve Chair Jerome Powell, deeply mindful of Arthur Burns’ missteps and inspired by Paul Volcker’s tenacity, is fully cognisant of the historical significance of his role. I have consistently argued that Powell would benefit from studying William McChesney Martin’s tenure as the first post-Second World War Federal Reserve Chair in the 1950s. Martin adeptly navigated through a period of fiscal dominance, a pattern that is emerging once again. As Sir Winston Churchill implied [1], focusing on the wrong historical period can lead to policy errors and financial turmoil.

The information contained herein has been provided for information purposes only. The information has been drawn from sources believed to be reliable. Graphs, charts and other numbers are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Market conditions may change which may impact the information contained in this document.  Wellington-Altus Private Wealth Inc. (WAPW) does not guarantee the accuracy or completeness of the information contained herein, nor does WAPW assume any liability for any loss that may result from the reliance by any person upon any such information or opinions.  Before acting on any of the above, please contact your financial advisor.