About a quarter of the Town of the Blue Mountains’ population is between 60 and 70 and is eligible for the Canada Pension Plan (CPP), but is there a right age to start receiving it?

Deciding when to start is a complex decision with significant financial implications. The timing affects not only your CPP benefits but also other aspects of your financial plan, such as Old Age Security (OAS), taxes, and investments. Once you start receiving CPP, the decision is irreversible, so careful planning is essential.

Starting CPP early, at age 60, reduces the CPP benefit by 0.6% per month before age 65, totaling a 36% decrease. Conversely, starting CPP later, after 65 years of age, increases the monthly CPP payment by 0.7%, or 8.4% annually. If CPP benefits are started at age 70, the CPP benefit is increased by 42%. But, starting CPP later could also mean potentially missing out on payments.

The "break-even" age where you receive the same amount of CPP benefits compared to starting five years later is around 74, if you start at 60; and at age 82 if you delay until 70, compared to starting at 65. The life expectancy of someone aged 65 in Canada is 84.

Historically, the typical advice was to take CPP early, often at age 60, due to immediate financial needs or concerns about not living long enough to benefit from delayed payments. However, if you pass away early, financial concerns are less pressing. The real risk lies in living longer than expected without sufficient resources. Delaying CPP helps mitigate this risk by ensuring a larger income stream that lasts for life.

 

Despite the advantages of delaying, 90% of Canadians claim their benefits by age 65, and less than 1% take their CPP at age 70. This is often due to a lack of awareness and traditional financial planning norms.

 

The CPP decision should consider personal circumstances, such as health, life expectancy, and  your overall financial plan. If you have sufficient savings, using them as a bridge to delay CPP can be advantageous. Additionally, factors like potential OAS clawbacks, investment returns, and tax implications should be weighed.

 

It’s important to establish a strategy that reflects your unique needs. Talk to your wealth planning team to help ensure you are taking advantage of all the relevant options.

 

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. Fraser is an Investment Advisor with CIBC Wood Gundy in Collingwood. The views of Fraser do not necessarily reflect those of CIBC World Markets Inc. Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.