As I reported on my own site, when an introduction and overview was released on April 11, the delayed-gratification strategy can more than double ultimate monthly benefits: in fact they may be a whopping 2.2 times more when started at 70 compared to the opposite tactic of taking them as early possible at age 60. Similar dynamics are at play with Old Age Security, but less dramatic because the earliest you can take OAS is the traditional retirement age of 65.
This month’s Retired Money column looks in more detail at two related benefits from postponing CPP as late as possible: it provides a greater hedge against continued inflation, and provides an annuity-like longevity hedge against outliving your money. These two are intimately linked, of course, since the longer you live, the more pernicious long-term inflation is likely to be.
Get free MoneySense financial tips, news & advice in your inbox.
What the research says about delaying CPP
You’ll probably see much more press on this as the NIA is releasing a paper on this topic each month between May and December. May 8 will be general education on the Canadian retirement income system while July 17 will explain the mechanics of delaying CPP (and QPP) benefits. The lead author is Bonnie-Jeanne MacDonald, PhD, FCIA, FSA, director of financial security research for the NIA at Toronto Metropolitan University. She is assisted by three contributors.
After I wrote about the NIA’s introductory papers, respondents to my post told me they’d never seen the precise 2.2 times figure before. No surprise there, as this seems to be news to many Canadians, despite being a staple of media personal finance articles, often promulgated by financial advisors. The NIA cites a 2018 Government of Canada poll that found an amazing two thirds of us didn’t understand that the longer you wait, the higher the CPP payout. Therefore, most Canadian retirees take CPP long before they turn 70.
While seemingly irrational, this is just human nature, says York University finance professor Moshe Milevsky. The author of multiple personal finance books doesn’t blame the common pre-retiree mindset that they’ll take benefits as soon as possible. He articulates the typical reasoning as some version of “Yeah, I can wait eight years and get so much more from this government faucet, but hopefully it doesn’t go down another drain.”
The so-called “surprise” at how much more one can get from CPP by waiting is 40% driven by government mispricing and 60% driven by consumer financial illiteracy, explains Milevsky. “Also, one thing nobody seems to account for is the ever-changing tax rules & rates … and how that uncertainty makes any long-term financial planning quite risky.”
Long a proponent of “longevity insurance”—aka annuities—Milevsky says “delaying CPP is the best ‘annuity-buying strategy’ you can implement. Everything else is just Plan B.” (He’s currently writing a book titled A Babylonian Centenarian & the True Story of the Oldest Biblical Annuity.)
Not everyone’s convinced to wait on CPP
Long-time retirement expert Malcolm Hamilton, now retired from Mercer, says the 2.2x bump is “mildly misleading.” While technically correct, the way it’s presented is an invitation to misinterpret, he tells me in a telephone interview. It shouldn’t be interpreted as being twice as valuable: “To a large extent if you’re getting twice as much a year for half as many years, it’s not like the huge gangbuster gain that people will assume.” Someone collecting CPP at 70 who dies at 80 receives 10 years’ fewer benefits, relative to someone who starts collecting CPP at 60. The increase for deferring and reduction factors calculated by Ottawa’s chief actuary are supposed to be financially neutral for CPP, Hamilton says. “Bonnie’s conclusion is correct: it is often advantageous to defer, but only for those who can afford to defer … and who are in good health with normal life expectancies.”
1) working class men aren’t likely to live long enough to appreciate the increase and
2) if the current government gets “re-elected” again, look for them to legislate it back into General Revenue, especially in the light of an “emergency” created by their own policies, to whit: buying up mortgage bonds with borrowed funds into a real estate bubble.
I personally started taking my cpp at 60 and my oas at 65,and invested every penny, today I am years ahead of the government,or what would get after 70,
What really burns me about MY cpp,this is personal , If I add up my life time contributions and my employer s contributions, and had it invested equal to the TMX for 47 years ,I would have more than $600000. in the pot, I know I will never get a third off that out off our government, which I believe is totally wrong,
I personally believe what need s to be done is start teaching financial planning at age 13 or grade 9,instead off some other use less political B S in high school ,cause gov doesn’t really do a whole lot for us
When calculating the “break even” age for taking CPP at age 60 as opposed to 70, the calculation must make use of an assumed interest/discount rate. Obviously, if you took CPP 10 years early and invested it at a 10% return, you would have more than 2.2 times your money by age 70 and would be better off. What rate did these researchers use in their calculations?
How much CPP should you get starting age 70 and have contributed since 1981?
When I turned 60 years I contemplated applying for CPP. I requested a statement to review what my contributions had been over my years of employment.
I felt that early withdrawl may reduce my benefits but
financial concerns made it feasible to use CPP for expences.
I started to take CPP at age 61, calculating that I would receive full payback of my contributions to the CPP by age 67.
As it turned out I continued in my trade till age 69….continuing to pay CPP until retiring.
I have recouped all my pension contributions & had less stress with the extra income.
This method worked well for me but everyone should look at their options before following my decision.
Best of luck with your future.
That doesn’t take into account that if you’re lower income, your GIS will be reduced significantly by your higher CPP/QPP payments.
Hey there, with the average Senior getting 738.00$ for CPP payments, & the average couple living to about 85. The I figured taking CPP at 63 to 65 is best. At 85 I will probably be close to death in a wheel chair wearing diapers. Due to a very rare blood disorder and resultant mistreatment by doctors my expectations are limited. Divorce is a way to maximize OAS and CPP as I pay 1850.$ support to my ex and thus less income tax as income is split. We both live at same address, but are technically apart. We were hoping to get income splitting under Harper government, but the Liberals stopped that. CPP premiums since 1997 have sky rocketed, but payments to seniors have not grown substantially. The transfers of premium overages has allowed huge growth of CPPINVESTMENTS aka CPPIB. They need to start paying more CPP to recipients.
Why don’t you ever speak about CPP Disability income ? As to how poor it is and if there is any extra help for people on it ? As a 1000.00 a month to live on is below poverty and yet NO ONE SEEM TO CARE OR COME TO HELP THESE PEOPLE OUT ! As your on it till you hit 65 and then it switches over to CPP OLD AGE PENSION! But you have no help with your income while on the disability or never get much increases from the government!! Why I like to know as who can live on 1000 a month does not even cover rent or bills and they wonder why people are homeless!!!!!