When to take your Canada Pension Plan benefit

When to take your Canada Pension Plan benefit

Readers of this blog will know I’m many years away from full-on retirement.  This means I’ve got a couple of decades to worry about when to take my Canada Pension Plan (CPP) and what that means as part of our retirement income.  (That doesn’t mean I don’t think about the possibilities, including when to draw down my RRSP before taking any workplace pension.)

When it comes to our Canada Pension Plan, to qualify for it, current rules dictate you must be over the age of 60.  CPP is a contributory plan. That means your income stream from CPP depends on how much you put into the plan (to a maximum contribution amount) AND how long you’ve contributed to the plan.   This makes CPP very different from another government benefit, Old Age Security (OAS).  Payments from OAS come from general tax revenues.

You can read about my hard take on overhauling OAS here.

Back to CPP, I don’t pretend to know all the rules nor ways to optimize the benefits of this government program so I enlisted some help for today’s post.  Enter Doug Runchey, CPP guru and pension specialist who has more than 30 years of experience working with both CPP and OAS programs.

Pension

I reached out to Doug to ask him some basic questions about CPP and what that program typically means for most Canadians.

Thanks for the chat Doug, welcome to the site!

Thanks for the invitation, Mark. As you mentioned, I’ve spent most of my adult life working with the CPP and OAS programs, and I welcome this opportunity to share my knowledge with your readers.

Doug, some individuals struggle with the CPP income formula, what they would need to contribute to the plan and for how long – to get the maximum income amount.  Can you outline that formula for readers?

It’s a complicated answer, and it’s about to get significantly more complicated under the “enhanced CPP” changes that start in 2019. For now, I’ll give you the simple answer for someone who wants to start their CPP at age 65 and who never took time away from work due to raising children or being disabled.

For this group of people, a CPP retirement pension is based on their best 39 years of earnings. For CPP purposes, “best” means in proportion to the Year’s Maximum Pensionable Earnings (YMPE). The YMPE was $5,000 when the CPP began in 1966; it’s $55,300 for 2017.

So here’s the basics:  in order to receive the maximum CPP retirement pension of $1,114.17 for 2017, you would need to have 39 years of earnings at or above the YMPE between ages 18 and 65.

If you have fewer than 39 years of maximum earnings, to estimate the amount of your CPP retirement pension at age 65, you can simply total your best 39 years (in terms of a percentage of YMPE), divide by 39, and multiply by $1,114.17.

Ok, so people need to think about their contributions “into the pie” for 39 years.  How much should Canadians expect to receive on average?   Can you discuss the averages for today’s retirees and retirees that might be about 10 years from now?

Based on my experience, very few people have the necessary 39 years of maximum earnings in order to receive a maximum CPP retirement pension, but many people receive 80 to 90% of the maximum.

Let’s walk through an example.

Sally is an RN at the local hospital.  Sally currently earns $75,000 per year.  She has been making over $55,000 per year for the last 20 years.  She plans on working another 10 years and then retiring at age 60.   How much might Sally earn from CPP at age 60?  (We’ll assume Sally’s income rises about 2% per year for the next 10 years.)

Because Sally plans to take her CPP at age 60, the amount of her retirement pension will be based on her best 35 years. (It’s actually 35 years and 2 months, but I’m trying to keep things simple.)  Also, because she’s taking her CPP at age 60, her maximum CPP is only $713.07 (64% of the age-65 maximum of $1,114.17).

This is a good time to remind you that CPP can be drawn as early as age 60 but benefits are reduced 0.60% for each month before age 65.  Conversely, you can take CPP as late as age 70 and benefits are increased 0.70% for each month after age 65.

Because of Sally’s good salary over her career, her 30 years of earnings above the Year’s Maximum Pensionable Earnings (YMPE) guarantee her at least 85.7% (30/35) of the maximum age-60 amount, or $611.10 monthly.

If Sally worked part-time while she was attending university learning to be a nurse, she could also include her best five years of those earnings. If they total the equivalent of two more years of maximum earnings, that would increase her CPP to 91.4% (32/35) of the maximum age-60 amount, or $651.75.

If Sally waited until age 65 to take her CPP, she would receive 82.05% (32/39) of the age-65 maximum of $1,114.17, or $914.18 monthly.  Check out this file for Sally’s calculations:  CPP retirement pension breakeven calcs_Sally Example – My Own Advisor November 2017.

Extra reading:  Canada Pension Plan – How much will you get?

Great details Doug.  Many near-retirees struggle with when to take CPP.  Age 60 or 65 or 70 or anywhere in between.  What general guidance can you offer Canadians on that?  Is there a break even point?

The problem I have with most break even calculations is that they often consider only the age-adjustment factor and don’t account for the reduction that may occur if someone waits until age 65 to start their CPP but have no earnings after age 60. (I refer to this as waiting to receive a larger slice of a smaller “pie” you mentioned above.)

Another problem with most break even calculations is that they compare only one choice against another, and they don’t show the progression of choices available or quantify the benefit of one choice over the other.

To address this what I prefer is to do actual calculations from ages 60 through 70, the range you could take CPP, and compare the cumulative payouts. The attached chart illustrates what Sally’s choices would look like, showing that her best choice is taking her CPP at:

  • Age 60 if she doesn’t live past age 72 (shaded boxes);
  • Age 61 if she lives past age 72 but not past age 75 (shaded boxes);
  • Age 62 if she lives past age 75 but not past age 77 (shaded boxes);
  • Age 63 if she lives past age 77 but not past age 80 (shaded boxes);
  • Age 67 if she lives past age 80 but not past age 81 (shaded boxes);
  • Age 68 if she lives past age 81 but not past age 83 (shaded boxes);
  • Age 69 if she lives past age 83 but not past age 85 (shaded boxes);
  • Age 70 if she lives past age 85 (more shaded boxes).

From this chart you should realize two big things – a link to Sally’s calculations is here again.

One, if you believe your genes are good, and you have a strong chance to live beyond age 85, then depending if you need the cash it may be beneficial to defer CPP until age 70.  This is only if you can afford to defer the income until age 70.

If not, and most people can’t afford to defer the money let alone see the future, then it often makes good sense to take CPP when you can – age 60.

Two, and what usually comes up in these calculations, Sally’s choosing to take her CPP at age 64, 65, or even 66 are not her “best” choices.

Great analysis.  Say someone is over the age 60 and still wants to work.  Should they delay taking CPP?  What considerations should go into this answer?

I believe the factors that someone in this situation should consider are:

  • If I delay taking my CPP and continue working, my future earnings and CPP contributions may increase my CPP. How does that compare to the lower CPP plus post-retirement benefits (PRBs) that I will receive if I do take my CPP and continue working?
  • What is the impact of adding to my taxable income if I take my CPP while still working?
  • If I’m receiving a CPP survivor’s pension, how do the “combined benefit” rules impact my choices?
  • Will I be eligible for any Guaranteed Income Supplement (GIS) once I’m over age 65 and stop working?
  • Will I be subject to the “OAS clawback” once I’m over age 65?
  • What are my other income streams after I retire, and are any of them indexed to inflation?
  • And of course, how long do I expect to live?

Lots of things to think about Doug.  Finally, what little known fact or facts should Canadians know about the CPP?

Everyone should understand that the estimates on the CPP statement of contributions (SOC) “pretend” that you’re age 65 on the date that it’s printed, which has the same impact as projecting your current lifetime average earnings through until age 65. If your actual future earnings will be higher or lower than your current lifetime average, your future CPP retirement pension amount will be higher or lower accordingly.

Everyone who’s receiving a CPP survivor’s pension should be aware that the “combined benefit” rules are not as simple as saying that they are subject to the maximum CPP retirement pension. The actual calculations are much more complex than that, and they always result in less than simply adding the two numbers together.

Everyone who has been separated or divorced should be aware that CPP credit-splitting often reduces one spouse’s CPP by more than it increases the other spouse’s CPP, especially if the lower-income spouse claims the child-rearing dropout.

Mark:  Thanks for this detailed post Doug, covering some Canada Pension Plan 101 and then some.  I look forward to more articles about CPP (and OAS) with you again here on my site to help soon-to-be retirees.

Doug Runchey is a pension specialist who has more than 30 years of experience working with both CPP and OAS programs.  Doug contributes to many Canadian financial forums and writes pension-related articles for many financial blogs.  He runs DR Pensions Consulting (no affiliation) and is committed to helping people understand the government pension puzzle.

Stay tuned as always for more articles on this theme and anything personal finance related really – on this site for free – for the good reader.

Got any questions for Doug about CPP?  What are your thoughts or experiences about taking CPP at a certain age?

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $500,000 - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

103 Responses to "When to take your Canada Pension Plan benefit"

  1. Ha Mark, you’re on it!

    Thanks for posting this Mark and thanks Doug (the CPP master) for your insight. I’ve only had a quick look and need some sleep now so will be back tomorrow!

    Reply
  2. I’ve tried to figure out CPP and whilst I can read all the words for some reason my poor little pea brain can’t wrap itself around the calculations. All them YMPEs, UPEs and all the other XXPEs just befuddle me. Suffice to say I ain’t gonna get the max and if I take it before I’m 65 it’ll be even less. I’ve decided to wait until I’m 59 and ask CPP for the three estimates one can request.

    Reply
  3. That was a great take on CPP. LOL, I’m no closer to deciding yet but certainly have more information to think about!

    In particular I found the cumulative payment for the years 64-67 for Sally revealing. The larger slice of a smaller pie is also definitely a factor for those of us with less working years, such as earlier retiree.

    I agree Lloyd having calculations done by the government would be worthwhile to help decide. I’ve done calcs for 3 ages but definitely would want them corroborated by an expert. Or ideally someone like Doug to look at more scenarios like the 11 in the chart above.

    Reply
    1. I have read the forum threads you gave in the other comment. It is very interesting to see if you have enough financial means and lots of imagination and innovation, you can find different ways for money management. Of course the precondition is you have enough financial means. Without a 1 Million portfolio, I guess it will be no brainer to get CPP/OAS as soon as possible. The bigger one’s nest egg is, the more choices one have.

      Also, crunching numbers is a must for any financial plan. I am on the way to improve my excel sheets. LOL.

      Reply
      1. Thanks for the feedback May. I think deciding on timing of CPP/OAS depends not only on portfolio size but the cash flow generated vs your needs/spending, other potential income sources, life expectancy and a ton of other things. But generally if you don’t have many other resources govt pensions may be even more important and you may have little choice to take it soon, after employment ends. Conversely for some people that don’t really need it taking it early could also be a good move.

        G/L with the spreadsheets!

        Reply
    2. Yeah, until I saw Sally’s numbers – I had no idea how much influence the actuarial-side of things really plays out.

      I hope to work with Doug on more scenarios in the coming months, I have a few for him! 🙂

      Reply
  4. Thanks Mark. Have been reading your emails for a couple of years and enjoy them. Same basic strategy I did and doing for last 15 years +.
    I think you will be well rewarded. In my case, I first calculated my expenses. Then what my RIFs would give my wife and I using about 4% dividends and interest. Then used the government website: cra-arc.gc.ca to give me what I could expect to receive from CPP. Ended up that I could begin my CPP at 63. (Now 67, wife is 60) My wife wants to wait until she is 70. Use my TFSA and taxable joint account for extras and top ups for longer vacations etc…and larger expenses to come.

    Reply
    1. Thanks Paul. Always great to hear from readers what they like (and don’t like).

      I know the order of our draw down plan will likely be RRSPs/RRIF then non-reg. then TFSAs.

      I think if you can wait until age 65 or even 70 to receive CPP – that’s great because I suspect that means a) you’ve saved enough money and b) you can shift some of the longevity risk to the government (and away from you). That’s a form of insurance – thoughts?

      Cheers,
      Mark

      Reply
  5. Many thanks Mark and Doug. This is very informative and educational. Females in my mother’s family all lived quite a long life. My grandma died at 99 years old. It’s still many years for me to make decision on this, now I am leaning to taking CPP later.

    Reply
    1. Wow. 99. Amazing. I hope to have great health until age 80 or so then all bets are likely off! Time will tell. I figure if I eat modestly well, exercise enough, keep my brain active – there is a chance but so much depends on genes too.

      Good luck with your CPP decision and I hope to post more articles with Doug, more scenarios, in the coming months.

      Reply
  6. If you know how to invest (and most of you in here claim to be in the know) then why bank on the pooled CPP at age 65? This is not even a debate! Take it early (at 60) and start investing the early $$ . (that’s 5 years of early money you will get and can invest — to those who wait to age 65).
    At age 60 – when you collect the CPP – that becomes part of your fixed income assets. By taking it 5 years early – you take this $$$ and invest it and you will make more than the penalty for taking it early. FYI: It’s 1/2 your money anyways (1/2 of the contributions over the years – was your money that came off – your pay checks). The other 1/2 was your employer matching. So there it is – the GOV takes your money every pay period and then gives it back to you at age 65. And some of you want to delay this to age 70?
    Plus, none of us know exactly when we will die – so get your money back as soon as you can (and while you are alive)

    Reply
    1. Nothing wrong with taking CPP early Mike, rather as soon as you can at age 60 (I haven’t ruled it out) but the way I see it if there is some longevity risk (i.e., a good problem to have if you have your health) then I can see benefits, literally, in taking CPP later in life.

      Some people simply won’t have that option. For others at least it is an informed decision. No?

      Reply
  7. One thing I noticed with the Sally calculations is that it is predicated on her continuing to work until she decides to take her CPP. In my case, as well as others, we’ve retired before 60 and now are trying to figure out the numbers. The number of years we have contributed has already been determined and will not likely change.

    Reply
    1. Very true. I hope to run more scenarios with Doug in the coming months. One of them I am considering is:

      $500k RRSP at age 55 (e.g., someone who saved diligently) + no debt + 1x small workplace pension of $20k per year at age 55.

      Would it make sense to take CPP at age 60 or 65 or 70 given X expenses?

      This way some aspiring early retirees or those who might be forced into it through a buyout can “play” with the numbers a bit.

      Reply
      1. Keep the age at 55 and no debt, add in max CPP contributions since age 20, change the workplace pension to $27K, up the RRSP a bit and throw in a $85K TFSA . 😉

        Reply
    2. Lloyd, same boat for me. Less benefit than those who worked longer. I also had years of self employment etc (no contributions) and some leaner years in a pay for performance environment all my life.

      If you have your statement of contributions you can calculate your own benefit reasonably accurately. This could be a place to start with one of the simpler solutions. http://www.holypotato.net/?p=1694 You can check against service canada or pay Doug!

      There are also some good CPP threads dogger1953 (Doug) is engaged in on canadian money forum and financial wisdom.

      Reply
      1. Morning RB….I’ve read some of Doug’s stuff elsewhere so I know he knows of which he speaks. I’m not all worked up over CPP, more just an interest kind of thing. If I understand the general drop out provision correctly (might be a stretch there), one would desire to not have more than 8 years of less than max contributions. So by retiring at 55, and not beginning to max out until 19-20 ish, I would be shooting for somewhere around 61 or 62. In any event, I’ll likely just ask for the estimates from CPP when I hit 59 and decide then.

        Reply
      1. Hi Doug….Sorry, in all my other ranting I missed your reply.

        I must be missing something then. If Sally’s CPP at 65 is $914.18 then a 36% take-it-early-penalty would result in a $585.07 payment. Or is there some drop-out numbers coming into play there.

        Reply
        1. Hi Lloyd – Yes, you are missing something. The age-60 CPP amount is NOT necessarily 64% of the age-65 CPP amount. The age-60 amount is 64% of the “calculated retirement pension” at age 60, which is based on the person’s “average lifetime earnings” from age 18 to 60. If someone waits until age 65, their CPP is based on their average lifetime earnings from age 18 to 65. If they weren’t working between age 60 and 65, their average lifetime earnings MAY decrease, thus my reference to waiting until age 65 and receiving a “larger slice of a smaller pie”.

          Reply
          1. What I did was take the chart in isolation to the story. My bad, I should have known better especially with me being in a similar boat. Delaying CPP beyond the drop out provision will have an effect on my CPP as I retired at 55. Thanks for the clarification and setting me straight.

  8. I have been hearing comments about when to take CPP for quite some time, including suggestions from my accountant. I retired at 55 and we have a decent amount of savings and investments that are providing an income stream. Family longevity history isn’t that great on my side but my wife has much better history, although who really knows ?. 6 years into retirement now, we have decided to split the difference and have applied for our CPP to start the month the first of us turns age 62. The extra income will just mean more that can be invested.

    Reply
    1. It sounds like you’re in a great position Steve because you have those “decent amount of savings and investments that are providing an income stream.” It is my hope that my wife and I can be in the same position…in another decade by our early 50s.

      Back to you, I think it comes down to options. Because you saved so well, you have a few options – that’s great.

      Reply
  9. From the above article: “Quote”
    To address this what I prefer is to do actual calculations from ages 60 through 70, the range you could take CPP, and compare the cumulative payouts. The attached chart illustrates what Sally’s choices would look like, showing that her best choice is taking her CPP at:

    Age 60 if she doesn’t live past age 72.

    My Comment:
    The above is not accurate. Sally could invest the money she collected from age 60-65 (rather than take it at age 65) and then can live well past 72. In fact she would be better off taking it early at age 60!

    Lets just make it simple. Lets say Sally would collect $1,000 monthly at age 65. But would only make $640 per month if she took it at age 60. She decided to take it early at age 60 – and invested all the money she received from CPP from age 60-65. At age 65 she would have over $54,000 LIQUID – (38,400 of CPP payments invested and compounded at 6% over 5 years). Now the $54,000 grows faster each year (gains & divs) than what CPP would increase each year. I would think $54,000 invested in Cnd bank stocks would give at least 4% dividend and yearly average growth / gain of another 6 – 8 %. Do the math for what the $54 K would be worth at age 70 and then 75.

    Reply
    1. This assumes Mike that Sally doesn’t need the CPP income for living expenses. Most folks that take CPP early (I assume, because I’m not there yet), need the income for living, not for investing.

      There are certainly pros of taking CPP income age 60 or 65 or whenever and investing that money to churn out more income. I would think most 60+ who are still accumulating assets and not drawing them down are intending to leave a legacy. Nothing wrong with that either – just that I would assume (again) this is not the majority of retirees.

      I could be totally wrong though. I would be interested to hear from other readers on that since I’m in my 40s – not there yet 🙂

      Thanks for thoughtful investing comment.

      Reply
      1. Well if Sally was going to wait to age 65 and then collect and use $$ as income to live on – what is the difference then with her taking it at age 60 and investing it and then using it all at age 65 for living expenses?

        Reply
        1. “what is the difference”

          The BIG difference is safety. All your calculations and suppositions are predicated on guaranteeing a dividend as well as the safety of principle. Care to speculate on the probabilities of that happening over the remainder of ones life? Is a person going to really gamble with the funds for their post-retirement living expenses? CPP is a rock solid, life time payment with inflation protection. For many (me as well), that is a HUGE consideration.

          Reply
        2. The big difference to me is who assumes the risk. There is more risk taking it at age 60 and investing it on your own vs. taking the money at age 65 and letting the government assume the risk, while you get the higher inflation-protected benefit.

          There is no right or wrong answer here – everyone’s financial decision is different. At the end of the day whether anyone takes CPP at age 60 or 65 or 70 is one that is largely based on financial needs. If you have saved enough money at least you’ll have some financial options that you mentioned – to invest it – that’s good!

          Reply
          1. That was always my point, it moves the risk to you. What if you take it just before the market crashes, how many people can hold out and keep investing. Secondly as mentioned you need to actsave the money. If you can segment the CPP payment you probably could do better

          2. Very few could “hold out” and keep investing when skies turn dark. It will be interesting to see if I can follow my own advice in the next crash. It’s bound to happen.

    2. Mike, I agree with what Lloyd said and please allow me to provide a contrarian view.

      Indeed what Doug is saying is accurate. The quote you have above suggests taking it 60 (if she doesn’t live past 72) and you’re arguing for the same thing age wise???

      It seems you’re meaning to write an alternative to her taking CPP@65. Taking it at 60 and investing the 5 yr payments introduces another variable vs CPP guaranteed fixed income = (not exactly the same thing). It’s certainly possible she may do better by investing/applying for CPP early this way, or she may not. However neither the capital nor the growth are in any way guaranteed and you also introduce sequence of returns risk. ie After this long in the tooth bull (or for any time frame ahead) is 10-12% CAGR reasonable especially for a short window of 5 years? If you have read anyone like Kahneman, Tvesky, Ariely you know it is human nature to be overconfident in your investing ability as like with drivers – everyone believes they are above average. Most Canadian investors buy mutual funds with avg. 2.3% MER (low investor knowledge) meaning their growth will be reduced by this cost accordingly. Your scenario is possible but maybe not so simple, and maybe not likely. That’s for each of us to decide based on our own situation.

      Regarding CPP: If you are someone who worked a fair number of years before 1996 you are likely collecting or will collect more than you contributed to CPP, not the other way around as you suggest. This is because before 1996 contributions were only 1.85% for employees (the plan was not sustainable), and was raised to 4.95% to protect the integrity of the plan. If full benefits were transferable to spouses or go to children the benefits overall would need to be reduced or contributions increased.

      For the record I am a big advocate for people taking charge of their own money/investing. However when it comes to CPP I recognize there is much more than a simple consideration of take it early and invest and do better. For some they actually need that money, and for others their risk tolerance or financial acumen may not be up to it; or you may not do better in any case. YMMV

      Reply
      1. LOL, The CPP (GOV) can change the age to collect – without you being able to do anything about it! They set the rules (with your money). As we tend to live longer the GOV will change the age from 65 to a higher number or the CPP will run out of $$$. RBULL – I hear your points – and many others here about living so long – BUT – how would u like to die at – from ages 60 – 65 and not get any of your money back from the CPP pool? How would u feel if u waited to age 70 to collect – but died at age 69?
        As I stated “YES” this is simple. If you know how to invest – you take it early… Control your own money or let the GOV control it for you. Its that easy!

        Reply
        1. “How would u feel if u waited to age 70 to collect – but died at age 69?”

          I don’t know about others but I’d be dead so it is likely I’d feel nothing.

          Interesting that you seem to have no problem with “what ifs” so I’ll give you one. How about a 50% cut to dividends at the same time as a 25% market correction but still need those lost funds for living expenses?

          Reply
          1. CND Bank stocks have never cut Divs. BMO been around 100 years. Don’t take gains during a correction. (but u already know this right Lloyd?) Maybe u would feel nothing but it wold have been nice giving your kids or a charity the $$$ – rather then leave it in the CPP pool. 🙂

          2. Well, if we are going to discount “what ifs”, the government has never changed the age to collect CPP. Are you advocating to invest in nothing but BMO?

            “Don’t take gains during a correction”….there might not be gains, there may be losses and if one needs the $$ to pay property taxes or buy food then one will likely have to sell at a loss.

            I no longer have any descendants and there really is not much difference between losing my CPP to other Canadians or giving it to charity.

            If it’s not too rude may I ask how old you are? Feel free to tell me it’s none of my business, it won’t hurt my feelings.

          3. Every one looking for “Safety” and passing on “Risk” to others. LOL. Sounds like the herd is speaking!
            So you think the CPP pooled $$$ is SAFE? and you think passing the risk on to our GOV is better than you controlling your own money>? If that is the case – you are not a confident investor and should let the GOV handle your money.
            Whats my age have to do with this?

          4. “Every one looking for “Safety””

            First off, no one except you said every one is looking for safety. I think most of us said it is a consideration for some.

            “So you think the CPP pooled $$$ is SAFE?”

            I don’t know about the pool being safe but I think (based on the numerous economists that say so) that my benefits will be safe. Younger folks might think otherwise.

            “Whats my age have to do with this?”

            I try to consider a person’s age in determining their level of knowledge and experience. If I am speaking to a twenty something I cut them some slack over a 50 something. For example, a younger person might not have the experience of the income trust massacre.

          5. Read your above post. You said “The BIG difference is safety”
            Age has nothing to do with this. My 25 year old son knows more about investing, life planning and retirement planning then most people I know in there fifties & sixties. Maybe, I should ask your age? Na, I can tell your already collecting CPP at 65 or older (delayed). I’ll cut you some slack! 🙂

          6. Quote: “Interesting that you seem to have no problem with “what ifs” so I’ll give you one. How about a 50% cut to dividends at the same time as a 25% market correction but still need those lost funds for living expenses?”

            Well, the CPP board – invests the CPP pooled $$$$ (your money) in stocks as well. In fact – they are considering an investment in bitcoin. No Thank- You! I will invest my money in safer stuff than bitcoin. Hello Canadian banks!
            * Control your retirement income and plan to retire better than what CPP offers. There is more risk in CPP than you think.

        2. Mike, you haven’t responded to most of the points I made above.

          I also don’t think you read the links on the other thread I posted- the ones May refers to below. It might help expend your knowledge base and help you understand that the decision really is not as a easy as you want to make it, as I referred to above, even with the caveat you added “if you know how to invest”. Everyone’s situation is very different, assets, risk tolerance, needs, financial acumen, family circumstances, longevity etc to name some. I’m not sure why this is so difficult to understand.

          Yes, the government “could” change things on ages. However if you have done research on CPP, the sustainability, the hybrid approach etc and really think about it you would understand how difficult, unnecessary or unlikely that would be. How do you “know” the CPP will run out of money and how do you “know” they will change the ages? It seems to me you’ve done little to understand CPP. Since you like what if’s….Do you personally have control on the dividend payouts that companies decide to pay now and in the future? Could these change for the worse or be permanent or could there be long term or permanent losses on your stocks? Are you in control of this and is there a guarantee that is better than CPP?

          If I wait until 65 or 70 and don’t collect anything or only a small amount before dying I won’t care. I’ll be dead. Financially my spouse will actually be better off. I have thought about this. I’m not sure why you are worried about this for others.

          Reply
          1. Thanks for your comments Bull! Please read my posts down below. YES, I have done research on the CPP and that’s why I have made comments here – to try help others to look at it differently. In fact, I will say I have spent many hours planning for my retirement – to figure out how to maximize the Gov plans. I apologize for not answering some of the questions here – I just presume people know – not to buy just one bank stock or sell in down markets or think they can control a company’s dividend payout. What I can say is – you can select stocks that have a history of always paying the Divs and have been around a while and that the Gov regulates. I understand everyone’s situation is different but the best result for EVERYONE is to take the CPP at 60! There is no reliable reasons to wait! (unless you know for certain your gonna live to 125)

          2. Mike, just to chime in – you have your reasons to do what you wish with CPP (early) income. Invest it. I think that’s great. Not everyone has to have the same financial plan. Thoughts? Cheers – Mark

          3. Bull: I went and read those links you provided. 1) that guy should not cash in some of his equity $$ – i think is was around 47K to fund the 5 year wait time to collect CPP at the later date. It lowers his one million portfolio – for what? just to buy 5 years time to collect more in CPP. (if he dies – at any time – he just lost out on 47K plus – that he could leave his spouse) 2) the other link talked about a ladder GIC plan – also very poor idea. The talk was about the OAS – as well. The problem there is – when you die – the OAS is gone | finished | toasted – it ends! & the CPP gets a 40% hair cut. So your spouse loses 100% of your OAS and 40% of (your money) CPP. (and people want to delay collecting – because they will get higher payments in the future?) * These higher payments either get slashed by 40% or end to nothing.

    3. I used this calculator, compound every month, and come up with only $44,876.08, not $54000.

      http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

      If the purpose to take money early is not needing the money, but invest it, I think you have to consider tax here. So, for the $640 you take, you will have less to invest. So most likely, at the end of five years, you will not even have $44876 even you can have guaranteed 6% return. And all we know, it’s difficult to get 6% guaranteed return if not impossible.

      Just say you are lucky and you actually got $54000. With 6% that’s $3240 income per year. This is still much shorter of the ($1000 – $640) * 12 = $4320.

      Everybody’s situation is different and focus is different too. For me, I guess I will focus more on income, not asset in my retirement. My current plan is taking Cannew as my role model, trying to live off dividends and touch the capital as little as possible. We also have life insurance and we plan to always live in a paid home. So I will have enough assets to leave to my kids and my favorite charities already. From income point of view, this approach will not provide more income. Instead, calculation in the links given by RBull provides more income and it’s safer.

      Will I regret if I actually die early? I don’t think so. It does not affect my living time at all, isn’t it? It’s just that my survivors will be left with less money. I definitely hope they are doing well financially and this amount of money will not have a big impact in their life.

      In retirement I think we need less risk, more insurance and more certainty, looks to me delaying CPP provides exactly that.

      Reply
      1. Well thought out. I see delaying CPP, if you can, is a means to a) fight longevity risk but just as importantly b) transfer that fixed income investing risk to someone else – the government. That’s a good deal when it’s indexed to inflation as well.

        Therefore like you and others May, as I’ve always said, having a tax problem and financial decisions to make in your 50s and 60s is an excellent problem to have. I hope I have the same troubles 🙂

        Reply
        1. its indexed to inflation but you would do better than that in Div paying stocks, no? (u are a div investor right?). Plus the CPP $$ is taxable! (at a higher rate than divs & gains)…

          Reply
          1. Yes, I am a dividend investor – I own 30+ CDN stocks. I simply feel spreading my risk around is a good thing. Besides, I’m not sure I’ll be wealthy enough to receive CPP and still invest a good portion of it. I don’t intend to let my assets accumulate too much in my 60s. No point 🙂

      2. Very nice job May.

        You’ve run numbers, discovered some truths, have thought about your goals and plans and how CPP would fit in properly.

        Well done. It’s clear you’ll choose the right path.

        Reply
  10. Plus, you could leave some $$$ to your kids when you die ($54,000 if you die at age 65. More if you live longer). If you have a spouse and you die – he/she would get 60% of what you were collecting. (that’s a 40% hair cut on YOUR MONEY that you put in). What happens if you die and then your spouse dies shortly after? Will the CPP give your kids your money back? NO – it will go towards other Canadians that did not pay into the plan – like you did. Just plan for you and your spouse to start CPP at age 60 and have 54K X 2 = $108,000 at age 65!
    Control your own money!

    Reply
    1. I prefer to base my assumptions on probabilities and not what-if-I-get-hit-by-a-bus-tomorrow conspiracy theories. A 60-year-old living today has an average life expectancy of 22 years (die at 82). That would mean the optimal age at which to take CPP is 68. The greater risk is not dying early but outliving the average life expectancy and running out of money. Delaying CPP lessens that risk by increasing your monthly benefits for life.

      Reply
      1. My grandmother died at age 98 and she took her CPP early – as did my grandfather. When he died (b4 her) she received 60% of his CPP (was 60% of a LOWER AMOUNT as he did not get the full amount as he did not take it at age 65). {it would hurt more if she lost 60% of the higher amount}.
        They did not need the $$$ at first so they invested it (in our banks). They did much much better than if taking the the CPP $$$ at age 65. Keep in mind she lived to age 98 and most of us wont. She treated what $$$ the CPP ended up giving her as fixed income and the invested $$ in Divs and gains from our banks also as a secured income stream (she was right). Keep in mind CPP $$ is income that gets taxed! (so lower payments is better) AND Dividends have little to NO TAX! Also, by taking the lower amount of CPP early you may get the free fixed income gift called “GIS”. There is NO way waiting to age 70 or 65 is better! Stop worrying about when your going to die or how long you might live. Control your own money and get it back – b4 you die!. Geesh!

        Reply
          1. I think I made my points May. Its up to you to decide what’s best for you. Like most people the GOV has your money and your willing to wait 5-10 years more than necessary to get it back. Not me 🙂

          2. Why not collect the CPP at 60 and then when you turn 65 collect the OAS & GIS. If your CPP (income) is too high – you might not qualify for the GIS. Everyone’s worried about SAFE & RISK – then still collect early and apply for the SAFE & RISK FREE GIS! Did you know that with the CPP & OAS the average couple collects almost 30K a year in SAFE, RISK FREE, FIXED INCOME from the Gov? AND – if you know how to plan properly, you could collect the GIS as well. To collect the GIS it goes by ones yearly income (excluding OAS Pension and GIS. But counts the CPP you get). So you want the lower CPP payment at age 60! Check it out and plan for when your 60 – not 65!
            I have now given many reasons to take your CPP early. Its now up to you! Stay healthy – Be smart – Plan for success.

        1. Thanks Mike for the suggestion. I am afraid I will never be able to collect GIS. It’s not a bad thing I assume.

          As Mark said, there is no right or wrong. For different people the most beneficial option is different. I am not against getting cpp early in general, with my own situation though, I am leaning taking it latter after number crunching.

          Reply
  11. I have to admit I’ve never seen anyone suggest that qualifying for GIS is a laudable financial goal and part of a “plan for success”. You should do an article on that Mark.

    I would however, point out that if this is what one aspires to, then they probably don’t want to be trying to earn dividend income.

    Reply
    1. From Gov: “If you are single, the maximum combined OAS pension and GIS that you qualify for was $1,429.76 per month — $573.37 for OAS pension and $856.39 for the GIS — as June 2016.”

      My Comment: The $856.39 GIS would be more than what most people receive from the CPP at age 65 (average $653.27.). As for your Divs – there are many ways to still collect them without having them show up on your personal tax return. Could be inside a limited company, spouse, your kids account. * if you really want to increase and beat what you would make at 65 with CPP – Go On “CPP Disability” and collect a lot more. Heck you might even qualify for the ODSP and really rake it in.

      Reply
    2. Me neither.

      I have no desire to get GIS. 😉 Really reaching for the stars aren’t we eh? *laughing as I type* To each their own. I respect all comments even though I might strongly disagree with some from time to time!! (Not yours).

      Reply
  12. Well, we all age and may obtain a disability. AND – if that is the case and – If it falls within the program. Then “YES” Your entitled to it.
    As for the link you provided: Its nice to see you finally take the time to learn more. I will not go into details on how to have a spouse be able to do this as – by your above comment – you will not like my answer. Open a LTD Lloyd – it will make you feel better 🙂

    Reply
  13. Hey Lloyd… People come on here to make comments, express their views or try to help others in their journey to financial freedom. I enjoy reading comments from SST, Grant, Mark and others. I don’t expect everyone to like the way I write or agree with my comments or views – and that’s OK with me. But to send that link – to such an old movie – it really shows your age and lack of maturity. Don’t worry – we all make mistakes – and one’s real character shows in how we deal with them. I’ll cut you some slack – this time 🙂

    Reply
    1. “I’ll cut you some slack”

      No need to, I’m a big boy now and I *always* consider the source. The thing with credibility, once you’ve thrown it away, you ain’t never getting it back.

      I will apologize to Mark, he goes out of his way to allow us some leeway to post but I think I’ve pushed it a bit far now. Sorry Mark.

      Reply
  14. “The thing with credibility, once you’ve thrown it away, you ain’t never getting it back.”
    Don’t be so hard on yourself! I still think you have credibility and I enjoy chatting with you! Enjoy the rest of your night 🙂

    Reply
  15. For those that have a pile of money stuck in a RRSP or have a work pension plan – you will have too much income when you retire to qualify for the GIS. {just pass over this comment – It’s not for you}. (I drained my RRSP – years ago and have no work pension). For those who perhaps are self employed or do not have a work pension plan – collecting the CPP early at 60 is the way to go. (don’t worry – the GIS will kick in at age 65 with OAS and top things up for you.). No need for a self employed person to have an RRSP. Have your LTD Company (issue shares to your kid) hold the retained earnings and have the Divs flow back to you (wink, wink). Plus, have the company use the many wright offs to purchase things. (thanks company for the use of the new computer! and paying the lease payments on my new SUV).
    Hey! I don’t write the rules – I just play within them. I suppose people with RRSPs and Work Pensions will not like this post – but the reality is a person could have millions sheltered in a LTD and collect CPP (early), OAS & GIS. This is why I plan to collect CPP early and give it to charity 🙂 (don’t need it – but heck its my money and I plan to give it to the charities that mean something to me). Do I think it’s right that I should qualify for the GIS? NO!! But, if I am entitled to it – I will collect it! and I will help homeless people!

    Reply
    1. Hey 1%er stop being such a meanie, play your fair share in taxes, unless of course you’re a Liberal with 30 million in your offshore account. But seriously have the new rules affected you much?

      Reply
      1. Rob: In life people have choices. Each day we wake up – we have decisions to make. Sometimes people make wrong decisions – while others make the right ones. (such is life). Each day brings new challenges and our true character shows with how we handle them. I am always working on trying to better myself – but in the process never let anyone bring me down. In your case – I would like to thank-you for the compliment. Getting to the top 1% was a real challenge for me and it took a lot of hard work and learning. I think most of us would love to be a 1%er – and so I give my time to help others. I agree – some (like you) may think I am a meanie – but that’s just my writing style. Although – what I pay in taxes is none of your business – my feeling is I may pay much more than you do. Rob – its never to late to change – I made the bulk of my wealth in less than 5 years. Be kind to one-another 🙂

        Reply
  16. Just a thought:
    If you take CPP early at age 60 – you lose 36% of what you could have had at age 65. But – you would start collecting (your money) early and could invest your $$ – to get it to (more or less) the same CPP value at age 65 (when your 65). But – if you die – and you have a spouse – you lose 40% of the CPP value. So is taking the 36% hair cut now – better than the 40% haircut later? Keep in mind – if you invested the $$ from age 60-65 – the 36% haircut is no longer applicable.

    Reply
  17. Something to think about:
    Every 4 years we could get a new Gov party (I actually liked Harper) that may tinker with the CPP & OAC programs. Perhaps – they increase the qualifying age (as we all start to live longer) or – they play around with the OAS or CPP claw backs – hurting people with RRSP & Work Pension incomes that may no-longer qualify for the full OAS. One thing I do know is – we do not control these programs and they will change! I feel much better looking after my own retirement – than banking on the next elected Gov to look after me.

    Reply
  18. I have utilized Doug Runchey’s services a couple of times now and I am very satisfied with his work. I always enjoy finding his interviews on financial blogs as I seem to learn something new each time.
    Due to the uncertainty of OAS in the Future I plan to take my CPP at 70 thus compensating my pension if OAS should disappear. If OAS is still viable when I reach 65 til 70 I will have a lower income during that 5 years but I will be relaxed in my later years knowing that I will have a larger portion of my pension indexed till I die. My DB pension is not indexed and I have been a renter since my divorce to allow my kids to have the family home. So rising expenses is all I see in my future. Moving cities or buddying up for cheaper rent is an option later. Rents are going up 4%/yr here in Victoria.
    But cheaper accommodation is available further up Island. Hey Doug R. do you have a spare room you want to rent out? lol
    Thanks Mark for the great interview. 🙂

    Reply
    1. “Due to the uncertainty of OAS in the duture I plan to take my CPP at 70 thus compensating my pension if OAS should disappear.”

      Interesting LA Ed. You certainly seem concerned OAS rules might change again. You might be right!

      Glad you enjoyed Doug’s interview and I hope to do more posts with Doug, including some cases studies in the future.

      Reply
  19. Dear Mark,

    Thank you so much for posting about this topic and interviewing Doug. I can’t get enough of it!

    When to have my husband take CPP is such a thorn in my side! Here are some random thoughts…

    – If he waits until 65, he wont have 39 years of contributions (he’ll be short a year or two),
    – We are excellent savers and if he takes it early, 100% will be saved,
    – It’s our only inflation adjusted income,
    – We don’t know how long he’ll live,
    – I will receive very little CPP, in fact, my survivor benefits will be higher.

    QUESTION. Since I will receive so little CPP (I worked for 8 years), should I pass on my 7 years for child rearing to my husband?

    Besos Sarah.

    Reply
    1. Interesting question Sarah. I will need to leave your question to Doug when he returns (he might be on vacation) but I think if you don’t “need” the money right now I think waiting until age 65 or longer might be of benefit for any retiree – extra fixed income in a rising inflationary world. Thoughts?

      Cheers,
      Mark

      Reply
    2. Hi Sarah
      The child-rearing dropout would only help your husband if he had low earnings while your child was under age 7. And you could only “waive your rights” to the child-rearing dropout if the period of time is prior to 1992 and if you were both willing to claim that your husband was the primary caregiver during those years. In any event, my suspicion is that the child-rearing dropout will likely help you more than it would help your husband.
      As for when you husband should take his CPP, you’re considering all of the right issues.

      Reply
      1. Dear Doug,

        Thank you very much for responding.

        My husband had very low earnings while our kids were young (we had triplets and he took almost 2 years off work) but we don’t meet either of the other two requirements. So that’s that.

        Now if I only knew how long he’d live…

        Regards, Sarah.

        Reply
  20. Hi Mark,
    Any comments on the opportunity cost of not collecting CPP from 60-70? Everywhere I have heard states to take CPP at 60. Why leave birds in the bush when you can have them in hand? Unless the goalposts move again with larger penalites for early CPP and greater rewards for taking it later. This is a great topic to write about, thanks for the article!

    Reply
    1. Fair Kevin – there are opportunity costs in personal finance all the time.

      Here is a summary about CPP and OAS for that matter in a follow-up article:
      n my mind, the main reasons why someone might plan to take their CPP and OAS as early as possible, include:
      https://www.myownadvisor.ca/should-you-defer-your-canada-pension-plan-to-age-65-or-70/

      Why to take CPP and OAS as early as possible:
      you need the money to live on now (probably the biggest reason)!
      you have good reason to believe that you have a shorter-than-average life expectancy;
      you already have a good reliable defined benefit pension with full indexing and the CPP and OAS are “gravy”;
      you want to delay spending any savings for as long as possible, in order to maximize the amount of money in your estate – you plan to leave a legacy.

      Whereas the main reasons for taking your CPP and OAS as late as possible, include:
      you don’t necessarily need the money to live on now;
      you have good reason to believe that you have a longer-than-average life expectancy;
      you don’t have a reliable defined pension with full indexing, and the CPP and OAS are integral to your inflation-protected, fixed-income financial well-being;
      you are concerned about market risk to your savings portfolio;
      you aren’t concerned about leaving a large estate – so you use up some or all personal assets before taking government benefits.

      Cheers,
      Mark

      Reply
  21. Done further investigation on CPP that I thought many would be interested in.
    As many of you know – I have always stated taking CPP at age 60 was better than waiting to age 65. I gave many reasons why here https://www.myownadvisor.ca/should-you-defer-your-canada-pension-plan-to-age-65-or-70/ and here https://www.myownadvisor.ca/when-to-take-your-canada-pension-plan-benefit/
    Now I have learned that when your spouse dies and you get 60% of his/her CPP – IT’S ON WHAT THE DECEASED WOULD HAVE MADE AT AGE 65! (regardless if he/she took it at age 60).
    CPP said:
    “We first calculate the amount that the CPP retirement pension is, or would have been if the deceased had been age 65 at the time of death”. and there is more……….. The max any one person can collect is $1,134.17 monthly. This includes your CPP and the 60% from your spouse (together). So if you were collecting the max CPP $1,134.17 and your spouse was collecting the max CPP $1,134.17 – then when one dies – you lose $1,134.17 monthly and there is no 60% to collect. So why bother trying to collect the max? or better yet – Why wait to age 65 to collect your CPP? Why has our expert DOUG not stated this?

    Reply
    1. There is lots to think about Mike (when to take CPP) but the reality is – you can’t predict exactly when you are going to die. So, you’re going to have to take CPP based on your a) your best guess on that and b) based on what you need first and foremost. So, all things being equal, if you don’t absolutely need the money and want to defer this fixed income for various reasons, then deferring CPP (or OAS) can be a good idea/option. Otherwise, take the money when you see fit to meet your income needs in retirement. This is what most people do by default.

      Doug did refer to some considerations here/factors to consider:
      If I delay taking my CPP and continue working, my future earnings and CPP contributions may increase my CPP. How does that compare to the lower CPP plus post-retirement benefits (PRBs) that I will receive if I do take my CPP and continue working?
      What is the impact of adding to my taxable income if I take my CPP while still working?
      If I’m receiving a CPP survivor’s pension, how do the “combined benefit” rules impact my choices?
      Will I be eligible for any Guaranteed Income Supplement (GIS) once I’m over age 65 and stop working?
      Will I be subject to the “OAS clawback” once I’m over age 65?
      What are my other income streams after I retire, and are any of them indexed to inflation?
      And of course, how long do I expect to live?

      Most Canadians will collect nowhere near the max CPP by the way. Canadians can however expect to earn average CPP income.

      Reply
  22. Hi Mike – I have written about this extensively! But don’t for a second believe that taking your CPP retirement pension at age 60 opens up room for receiving more CPP survivor’s pension, because it doesn’t. When the combined maximum of $1,134.17 (for 2018) is applied, it is also the “calculated” (or unreduced pension) of the survivor that is used, and not the actual amount of retirement pension that he/she is receiving. This means that if you take your CPP at age 60 and receive $725.87 (64% of $725.87), you would still get zero survivor’s pension if your spouses dies after you are 65. You would however receive a “special adjustment” to your retirement pension which could increase your own CPP by as much as $245, but you will never receive as much as $1,134.17.

    This is a very complicated subject, and it’s difficult to factor it into your retirement planning unless you know who’s going to die first, but I have talked about it. Read this article for more details: https://retirehappy.ca/cpp-survivor-benefits/

    Reply
    1. Thanks Doug. Agreed, rather complicated and it’s not straightforward.

      Financial planning and retirement planned is easier if you know your mortality but nobody can guess what the weather will be in another day let alone what happens in our lives years from now.

      Reply
  23. Thanks Doug. However here is a real life example. My father took his CPP at age 60. He recently passed away at age 76. My mom – with her own CPP was around $200 monthly. She now was expecting to collect 60% of what my dad was collecting at death. (what she thought). However, it actually worked out to a higher amount. So she called the Gov and was told – they used the $$ at age 65 (what he would have collected – if he took at age 65). It did not matter that he took it early at age 60. My mother was surprised that she is getting more than what she was expecting – or what she believed to be. So – regarding the survivor benefit – it does not hurt the deceased one to take at age 60 – if the survivor is getting same $$$ as ig he took at age 65.

    Reply
    1. Hi Mike – Now I understand what you’re saying and I agree with you 100%. Taking your retirement pension at age 60 at a reduced rate does not reduce the survivor’s pension if/when you die, and taking it at age 70 at an increased rate does not increase it either.

      Reply
  24. Thank Doug. So do you still stand by your original comment? “But don’t for a second believe that taking your CPP retirement pension at age 60 opens up room for receiving more CPP survivor’s pension, because it doesn’t.”

    Reply
  25. Hi Mike – There are two issues here. The point that you’re trying to make is that the amount of the survivor’s pension does not depend on when the deceased spouse takes their CPP, whether that be age 60, 65 or 70 (or never). I agree with that 99%, because there could be a small difference depending on whether the “calculated retirement changes” between those ages. For example, if someone stops working at age 50, their calculated retirement pension would be higher at age 60 than at age 65 (even though their actual CPP retirement pension would be higher at age 65). In that situation, the survivor’s pension that they leave behind when they die would actually be higher than they took it at age 65.

    The point that I was trying to make is that if the surviving spouse (not the deceased spouse) takes their CPP at age 60 at a reduced rate, it does not leave more room for that surviving spouse to receive a higher survivor’s pension, just because they might be receiving only 64% of a maximum pension. In that situation, if their spouse dies when they are over age 65, they will receive zero survivor’s pension even though they are only actually receiving 64% of the current maximum retirement pension.

    Reply

Post Comment