When to Apply?: CPP

While the normal age to begin receiving regular CPP is 65,
individuals can apply to start receiving earlier at a cost, or
later for a greater benefit:
– If the individual starts before age 65, payments will
decrease by 0.6% each month (or by 7.2% per year),
up to a maximum reduction of 36% if started at age 60.
– If the individual starts after age 65, payments will
increase by 0.7% each month (or by 8.4% per year), up
to a maximum increase of 42% if started at age 70.
The decision as to when to commence CPP payments can be very complex, with
extensive variables to consider, primarily related to personal factors and economic
scenarios. While 95% of Canadians have consistently taken CPP payments at
normal retirement age (age 65) or earlier since the CPP introduced flexible retirement in the 1980s, a July 27,
2020 report (The CPP Take-Up
Decision) by the Canadian Institute of
Actuaries and the Society of Actuaries
examined whether that is always the
best option.

The report compared receiving CPP commencing at age
65 against pulling funds from RRSP/RRIF savings to replace
the CPP payments and then commencing CPP at age 70.
The two primary factors which influence the decision are life
expectancy and rate of return. In particular, the report
noted the following:
– A major advantage of increasing CPP payments via
postponement is that the increased CPP provides
additional secure lifetime income that increases each
year alongside the price of consumer goods, thus
protecting against inflation, financial market risk, and
the risk of outliving retirement savings.
– Given today’s low-interest-rate environment and
general population longevity expectations, the report
noted that delaying CPP payments is often a
financially advantageous strategy.
o In the risk-free investment comparison, 75-80%
of Canadians within this framework receive
more income by delaying their CPP payments.
o Even in an extreme case that favours not
deferring CPP payments (low longevity
expectations and very high expected investment
returns), a person faces a 50% probability of
receiving more income by delaying CPP
payments, along with the risk-reduction benefits
of a delay mentioned above.
– Higher-income Canadians have longer life
expectancies than lower-income Canadians, and
females generally live longer than males; therefore, it
would more often be in their best interest to delay CPP
payments.
ACTION ITEM: Consider whether starting CPP before,
after, or at age 65, would be the most advantageous.

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