Conventional financial planning wisdom today says that in order to maximize out your CPP benefit you should hold off on taking your benefit until age 65. So, case closed right? Not necessarily. As I have said to many of my clients in the past the only way to know the exact answer as to when you should draw your CPP is if we knew the day you were going to pass away. Given that we typically are missing a key variable in that equation we need to make decisions based on our best knowledge of the day. So, here is what we know.
You can start taking CPP as early as age 60 and as late as age 70. Depending on when you take it your monthly payments could be significantly different. For example, if you are 60 years old today and your annual CPP benefit is calculated to be $8,867 today, if we were to defer it to 65 then your benefit would increase to $13,855 per year or an additional $415.67 per month. In this scenario, by waiting until age 65, the crossover point for when you would have received more total money from the CPP is age 72 approximately. Given that the typical life expectancy is beyond age 72 this would seem like a no brainer that you should defer your payment to 65, right? Well maybe but that depends. The first question I would consider in that is if you don’t take your CPP at 60 where are you getting your cash flow from? If you are retired and you will be drawing your money from personal assets including RRSP’s, TFSA’s or other investment accounts then something you need to consider is what return you are getting on your investments. Recently, our financial planning team had run some projections for a client who had retired prior to 60 and are considering when to take their benefit. What we determined is that be taking their benefit at 60 they were able to preserve more of their personal assets and with a rate of return of 5.5% (which would be conservative for many) that their net worth in their later years was significantly higher than had they deferred taking their CPP at 65. To clarify this, we did not make any adjustments to their retirement income in either scenario so their lifestyle spending was the exact same but since the rate of return was high enough on the assets that remained invested they put themselves in a position to have far more liquid assets in their 80s and 90s.
Another consideration to make is related to your OAS benefit (Old Age Security). For higher net worth families, or those of you with really high paying pension plans, deferring your CPP may have the unintended consequence of increasing your OAS clawback. In these situations, any additional benefit you receive by deferring your benefit may be completely negated by the clawback you incur on your OAS benefit which completely defeats the purpose of delaying all together.
As you can see, there is no “one size fits all” answer to when you should take your CPP. In fact, in the world of financial advice, I would argue that there are no single answers that can be applied to each individual. Every situation needs to be evaluated and in the case of CPP your own personal goals and comfort levels play a big role in determining the appropriate answer to this question. If you plan on living a long life then taking CPP at 65 or even 70 may be the best answer and could help give you peace of mind in knowing that you will always have an income stream provided for you that is inflation adjusted. Others might prefer to leave a larger inheritance to their heirs or even a charitable organization. The decision to take CPP early, on time or delay it comes as much down to personal preference and emotion as it does to numbers. All we can do is make an educated decision based on our best information today but what is certain is that there is not just one golden rule when it comes to CPP.
-Grant White, CIM, CFP®
Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.