Thinking about your CPP?
Mainstream media outlets have run many stories in recent years telling of the large number of Canadians that will reach retirement age in the near future. Many of our clients fit into this category and we are often asked when they should start taking CPP.
A quick recap of the issue is that you can start receiving CPP benefits at age 60. However, the amount of monthly benefits you are entitled to receive increases each year until age 70. From a purely mathematical point of view, the best time to apply for CPP depends on how long you will live. The break-even point for those turning 60 in the next few years is age 74 or 75. This means that you are better off waiting until age 65 if you think you will live to at least 74 or 75. According to Statistics Canada, if you were 65 years old between 2007 and 2009 then you should expect to live approximately 20 more years to age 85.
All of this seems to suggest that it is a no-brainer to delay taking CPP. However, there are other factors to consider when making this decision, such as:
- Your personal health circumstances and family history might make you feel uncomfortable with trying to predict how long you will live.
- Taking CPP early might help you achieve personal goals such as early retirement or financial goals like paying off debt.
- You might get more joy from the extra income if you receive it while you are younger.
- If you started working relatively late in life and plan to continue working past age 60 then it probably makes sense to wait.
- CPP is subject to the whims of our political masters and the rules could change at any time.
A lot of personal finance writers favour taking CPP at age 60 for many of the factors noted above.
Our recommended process for making this decision is:
- Contact Service Canada and request a Statement of CPP contributions. This statement will provide estimates of the monthly benefit you will receive if you apply for benefits at age 60, 65, or 70.
- Assess your current financial situation. In particular, estimate your cash flow requirements in retirement and figure out how you will fund those requirements. Does the timing of CPP make a difference?
- Think about your personal goals and determine if taking CPP early will help you achieve those goals soon.
Once you have assembled this information make a decision that makes you feel the most comfortable and forget about trying to figure out how long you will live.
Ask us for help when you are faced with this decision. We can summarize the financial and non-financial aspects for you in a way that lets you make the decision that’s best for you.
Written by Jeff Ross, CA