3 Reasons To Take CPP At Age 70

By Robb Engen | January 21, 2025 |

3 Reasons To Take CPP At Age 70

It might seem counterintuitive to spend down your own retirement savings while deferring government benefits such as CPP and OAS past age 65. But that’s exactly the type of strategy that can increase your income, save on taxes, and protect against outliving your money. Indeed, the key to more lifetime income for many retirees is to defer CPP until age 70.

Why Take CPP at age 70?

Here are three reasons to take CPP at age 70:

1. Enhanced Benefit – Take CPP at 70 and get 42% more!

The typical age to take your CPP benefits is at 65, but you can take your retirement pension as early as 60 or as late as age 70. It might sound like a good idea to take CPP as soon as you’re eligible but you should know that by doing so you’ll forfeit 7.2% each year you receive it before age 65.

That’s right, you’ll get up to 36% less CPP if you take it immediately at age 60 rather than waiting until age 65. That alone should give you pause before deciding to take CPP early. What about taking it later?

There’s a strong incentive for deferring your CPP benefits past age 65. You’ll receive 8.4% more each year that you delay taking CPP (up to a maximum of 42% more if you take CPP at age 70). Note there is no incentive to delay taking CPP after age 70.

Let’s show a quick example. The maximum monthly CPP payment one could receive at age 65 (in 2025) is $17,196. Most people don’t receive the CPP maximum, however, so we’ll use the average amount for new beneficiaries, which is $808.14 per month. Now let’s convert that to an annual amount for this example = ~$9,700.

Suppose our retiree decides to take her CPP benefits at the earliest possible time (age 60). That annual amount will get reduced by 36%, from $9,700 to $6,208 – a loss of $3,492 per year.

Now suppose she waits until age 70 to take her CPP benefits. Her annual benefits will increase by 42%, giving her a total of $13,774. That’s an increase of $4,074 per year for her lifetime (indexed to inflation).

2. Save on taxes from mandatory RRSP withdrawals and OAS clawbacks

Mandatory minimum withdrawal schedules are a big bone of contention for retirees when they convert their RRSP to an RRIF. For larger RRIFs, the mandatory withdrawals can trigger OAS clawbacks and give the retiree more income than he or she needs in a given year.

The gradual increase in the percentage withdrawn also does not jive with our belief in the 4 percent rule that will help our money last a lifetime.

You can withdraw from an RRSP at anytime, however, and doing so may come in handy for those who retire early (say between age 55-64). That’s because you can begin modest drawdowns of your retirement savings to augment a workplace pension or other savings to tide you over until age 65 or older.

Related: When Should Early Retirees Take CPP?

Tax problems and OAS clawbacks occur when all of your retirement income streams collide simultaneously. But with a delayed CPP approach your RRSP will be much smaller by the time you’re forced to convert it to a RRIF and make minimum mandatory withdrawals.

With careful planning (and appropriate savings) your retirement income streams by age 70 could consist of CPP and OAS benefits, small RRIF withdrawals, plus – the holy grail – TFSA withdrawals, which do not count as income and won’t affect means-tested benefits like OAS.

3. Take CPP at age 70 to protect against longevity risk

Here’s where the counter-intuitiveness comes into play. Most default retirement projections will have you taking CPP at age 65 (or earlier) while delaying withdrawals from your RRSP and/or LIRA until age 71.

As I suggested above, the idea is to spend down some of your RRSP before age 70 to fill the gap left by deferring your CPP benefits. Good luck getting your commission-paid advisor to buy into this approach. I doubt many advisors would like the idea of spending down your savings early in order to maximize retirement benefits from CPP.

“Spend your risky dollars first because they may not be there for you in your 80s, depending on how your investments do. A bigger CPP cheque, however, will definitely be there for you.” – Fred Vettese

Spending down your RRSP in your 60s while deferring CPP until age 70 is like converting your risky assets (personal savings in the stock market) into a guaranteed income stream for life.

Related: 5 ways to save your retirement

Think about it. Will you still have the required mental faculties at age 80 or 90 to continue managing your own retirement assets? Or would you prefer to enjoy spending those assets in your 60s and 70s, knowing you still have an enhanced (and guaranteed) income stream to last a lifetime?

If your biggest fear in retirement is outliving your money then why not design your retirement income streams to protect against that very fear? Instead, most retirees take their CPP benefits the first chance they get – leaving additional money on the table and giving up a portion of that longevity risk protection.

Let’s hear it: Retirees, when did you take CPP? Soon-to-be retirees, have I given you a compelling argument to take CPP at age 70?

Why You Shouldn’t Take CPP At Age 65

By Robb Engen | January 20, 2025 |

Why You Shouldn't Take CPP At Age 65

In previous articles I’ve looked at reasons to delay taking CPP until age 70, along with explanations why you might want to take CPP earlier at age 60. But in this article I’m going to explain why you shouldn’t take CPP at age 65.

The most compelling reason to defer CPP is the increase or enhancement of your benefit – 0.7% for every month you delay past 65. Wait until age 70 and you’ll receive 42% more CPP than if you took it at age 65. Taking CPP early can also be an attractive option for those with a reduced life expectancy or for those who simply need the money right away.

Once you’re close to age 60, Service Canada will mail you an application form, along with an estimate of your CPP benefits. Curious, since this behavioural “nudge” may influence you to take CPP early at a reduced rate, rather than waiting until the standard retirement age of 65.

Finding out the optimal age to take CPP requires a break-even analysis and depends on a number of factors, including how much you’ve contributed and for how many years, plus a guess on how long you’ll live. Also playing a role is your current and future tax bracket, your income needs now versus in the future, plus the impact that taking CPP early has on means-tested benefits such as GIS and OAS.

What’s interesting about the break-even analysis for CPP is that the standard retirement age of 65 is never the optimal age. Let me explain:

Why Not Take CPP At Age 65?

In I post I wrote years ago about taking CPP early or late, Canada Pension Plan expert Doug Runchey shared with me the interesting fact that taking CPP at 65 is never the optimal choice from a payout perspective.

Indeed, Aaron Hector, a financial planner at Doherty & Bryant Financial Strategists, expanded on that fact with an interesting analysis on optimal CPP starting ages.

Hector looked at two scenarios; one in which the retiree spends all of his or her CPP benefits, and one in which the retiree invests their CPP and earns a 3% real return after taxes.

What he found was that taking CPP at age 60 was best for those who live only until age 69 (when CPP was spent), or until age 71 (when CPP was invested). Taking CPP at age 70 was optimal for those who live until age 86 and beyond.

CPP optimal starting age when spent

As you can see, age 65 is never the optimal starting age to take CPP. That said, you could argue that 65 is the sweet spot between the two extremes of taking CPP early or late.

It’s helpful to know that the normal life expectancy at 60 for a Canadian is 25 years. So, if you don’t have any reason to believe you’ll have a shorter or longer life expectancy then 85 is a good age to use as a benchmark for your own break-even analysis. In this case, the optimal age to take your CPP payments and receive the most money is age 69.

Taking CPP early and investing

There’s a mindset among some retirees that they should take CPP as soon as possible and invest. The idea being that the longer their investments can compound, the better off they’d be versus delaying CPP beyond age 65.

But Hector’s analysis should put a damper on any expectation that taking CPP early and investing will lead to a better outcome. This could be due to overconfidence in one’s investing ability, over over-optimism about the expected rate of return. In any case, as you’ll see below, taking CPP at 60 and investing the entire amount only improves the optimal outcome by two years.

CPP optimal starting age when invested

It’s hard to beat a guaranteed 7.2% a year increase in CPP benefits just by delaying your application. There’s also a practical argument against this approach. Is the object of the game to amass the largest bank account before you die? Or is it to spend and enjoy what you worked so hard to earn in retirement?

In my mind, it’s not a rational argument that a retiree will invest every single dollar of CPP benefits. At some point we’re going to spend our money.

Final thoughts on taking CPP at 65

The standard retirement age of 65 is embedded in our society and triggers most Canadians to take their CPP benefits at that age – like a rite of passage for retirement. But what I’ve explained here clearly shows that it’s never optimal to take CPP at age 65, from a purely financial perspective.

If anything, this analysis and research should at least give us pause before automatically applying for CPP at age 65. Look at your family history – are they leading long and healthy lives, or is there a trend of illness or disease? Beyond that, what kind of shape are your finances in today? Where will your retirement income streams come from? Do you fear you’ll outlive your money?

All of these questions should play a role in your decision as to whether to take CPP early, late, or somewhere in-between.

3 Reasons To Take CPP At Age 60

By Robb Engen | January 19, 2025 |

3 Reasons To Take CPP At Age 60

It’s generally not wise to voluntarily take up to a 36% reduction in income, especially if that income is paid for life. But that’s exactly what happens when retirees choose to take CPP at age 60.

I’m a big proponent of delaying CPP up to age 70 to help protect against longevity risk and enhance your monthly pension benefit in retirement. Only a small percentage of retirees do so, however, as many prefer to take CPP as soon as they’re eligible.

Why Take CPP at Age 60?

Taking CPP early may not be the most optimal financial decision but there are a few cases where it can make sense. Here are three reasons to take CPP at age 60:

1). You Need to Eat and Pay the Bills

Maybe you were laid off in the latter stages of your career and struggled to return to the workforce, or you had to retire early due to poor physical health. Whatever the case, you’re about to turn 60 and need to build an income stream.

Simply put, without sufficient income or personal savings to carry you through your 60s you may have no choice but to take CPP as early as possible.

The earliest you can take your CPP benefits is one month after your 60th birthday. Doing so means a 36% permanent reduction in your monthly benefit, but that’s still money in your pocket today.

The maximum payment amount for taking CPP at age 65 is $17,196 per year (2025). That amount would be reduced to $11,005.44 per year if you elect to take CPP at 60.

Taking that income of $11,000 at age 60 could mean the difference between meeting your retirement income goals or not, and that needs to be weighed against having to wait five years for an extra $6,200 (or so) a year.

Finally, if you’re sure that you will be eligible for the Guaranteed Income Supplement (GIS) once you reach 65, it’s generally a good idea to take CPP at age 60.

2). You Have a Reduced Life Expectancy

The biggest mystery in retirement planning is that we don’t know how long our money needs to last because we don’t know when we’ll die.

By age 60 you may have some idea. Whether it’s genetics, poor health, or the results from your 23andMe test, if you have any reason to suspect a shortened life expectancy then taking CPP at 60 can make good financial sense.

Understand your breakeven point for taking CPP early. For instance, you’ll be ahead financially if you take CPP at age 60 and don’t live past age 69. If you make it to 85, then the optimal age to take CPP is 69.

For context, a 60-year-old Canadian, on average, can expect to live another 25 years. So if you’re playing the averages then it’s best to delay CPP.

Lastly, if you’re thinking about taking CPP early because of poor health, you should apply for a CPP disability pension instead. If approved, the CPP disability amount will always be higher than a retirement pension and it will convert to a full retirement pension at 65.

3.) You Have No Contributions from age 55 to 60

Did you retire at age 55? Or maybe leave your career as a salaried employee to start a business in your fifties? Business owners can choose to pay themselves dividends rather than a salary, and therefore would not have to make CPP contributions. How do those years of zero contributions affect your CPP retirement benefit?

Related: When Should Early Retirees Take CPP?

When you take CPP at 60, your benefits are based on your best 35 years of earnings, rather than your best 39 years of earnings if you were to take it at 65. Depending on your earnings from age 18 to 54, your CPP payments might still be close to the maximum if you take it at age 60, but it will definitely be reduced if you wait until age 65.

Two reasons not to take CPP at age 60

Forget the notion of taking CPP early and investing. This idea, likely brought to you by your friendly neighbourhood financial sales person advisor, sounds compelling in theory but can be a disaster in practice.

Remember, the CPP is taxable income so you won’t be able to invest the full amount unless it’s in an RRSP. Then take investment fees into account and consider how much will you need to earn to beat the guaranteed 7.2% return that comes with delaying CPP by a year?

No, it’s better to defer and receive a larger pension that’s guaranteed and inflation protected for life.

Finally, if you’re concerned about whether CPP will be around when it’s time to collect, or whether the government of the day will raid the fund to pay its debts, let’s put that idea to rest.

The Canada Pension Plan Investment Board (CPPIB) is independent of the CPP and run at arms length of federal and provincial governments. The fund has been audited by an independent actuary and found to be sustainable for at least the next 75 years (using conservative projections).

CPP will be there for you in retirement. The question is when do you plan to collect your benefits?

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