Why You Shouldn’t Take CPP At Age 65

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 percent for every month you delay past 65. Wait until age 70 and you’ll receive 42 percent 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 65, Service Canada will mail you an application form, along with an estimate of your CPP benefits. Curious, since you’ll have been eligible since age 60, but I suppose 65 is the standard age on which their formula is based.

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.

Earlier this year, 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 percent 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 percent 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.

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  1. Judy on July 22, 2019 at 7:37 pm

    You will get more than 0.7% increase in payment/month since CPP is indexed to inflation. Need to add the indexing to the payment.

  2. Betty Therriault on July 22, 2019 at 7:53 pm

    My accountant advised me to take my CPP at age 60. I guess I did invest it and have done reasonably well but here I am at 90 with a very minimal CPP because I didn’t start paying until I was 4o years old. Just FYI.

    • DavidB on July 23, 2019 at 7:20 am

      The deferral benefit of 0.7% / month only started in 2012, prior to that it was only 0.5%.Congratulations on making it to 90.

  3. Stan on July 22, 2019 at 8:04 pm

    If a couple both delay until 70, the maximum survivor benefit also increases by 42%. In our case, my wife will have a small CPP payment and will be able to use the entire 60% survivor benefit should I die first.

    • David B on July 23, 2019 at 7:25 am

      The survivor benefit is not enhanced by the 42% as it is based on the age 65 amount. The maximum survivor benefit is 60% of the maximum age 65 amount, not any enhanced amount, or $692.75 monthly. A survivor receives a combination their own CPP + the survivor benefit to a maximum of a single age 65 amount.

      • Stan Davey on July 23, 2019 at 8:10 am

        Taken from a post by Doug Runchey who Robb quoted in his article:


        “Someone who started their CPP retirement pension at age 70 (with a 42% increase) would effectively have a maximum combined benefit as high as $1,639.50 for 2019 (142% of $1,154.58).”

        • David B on July 23, 2019 at 9:23 am

          Interesting, thanks for the link. When calling Service Canada they indicate the maximum does not include the bonus, guess it depends on who one connects with. Appreciate the data, even more reason to delay…

          • Stan Davey on July 23, 2019 at 10:48 am

            You’re welcome. I asked this question of Doug on another forum as it is relevant for me. My wife will have a small CPP benefit, so she can make use of all of the survivor benefit she can get.

            Service Canada is hit or miss on getting correct info.

  4. Ken T on July 22, 2019 at 8:14 pm

    I have been doing some further reflecting on this subject and I think we have all missed an important variable if you are married. While I may die at less than the “breakeven” point, my spouse will end up getting some of my CPP during her lifetime.

    So it would suggest in some cases that the assumed age of death for your spouse is quite relevant. I have not yet seen a spreadsheet that takes this into account in some way. In my case my spouse is 6 years younger than me so if I died at say age 75 she would only be 69 and would continue to get a large portion of my CPP. In her case she will only be getting perhaps $400 per month from CPP while i will receive the maximum. I have assumed our marginal tax rate will be 30%. If we assumed she lives to be 85 she would still get 16 years of benefit from my CPP.
    If I wait until 70 take CPP I will only get 5 years worth but she continues with the reduced payments.

    Would it be better to wait until 65 or later in this case?

    Would like to hear thoughts/comments on anyone who has factored this in.

  5. Scott Kwasnecha on July 23, 2019 at 7:50 am

    Not to mention the risk of one of the individuals in a couple passing away and no real survivor benefit being paid out (if the survivor has own CPP). The longer you delay, the higher the liklihood of this happening.

  6. Mike on July 23, 2019 at 9:28 am

    I built my own detailed spreadsheet, complete with federal/provincial income tax calculations, inflation assumptions, modelling of investment returns, future living expenses, CPP entitlements and various strategies for drawing down my RRIF/LIRA accounts early versus living off the distributions in my unregistered account. The optimum age for starting my CPP (which was based on maximum net worth at death) varied between age 61 and 63, depending on whether my life expectancy was 75, 80 or 85 years. I retired early and worked outside Canada for 4 years so delaying CPP didn’t automatically mean higher payments due to the dropout rules. Bottom line: do your own analysis for your own unique situation because taking or not taking CPP at a certain age has push/pull affects on your other income streams and the amount of income tax you’ll pay throughout your life.

  7. Mark O'Neill on July 23, 2019 at 10:16 am

    What about if someone retires at, say, 62 and receives a fixed benefit pension that is ‘topped up’ until age 65 when CPP is supposed to make up the difference? Would it then make sense to take CPP at 62 and have three years of receiving both the topped up pension and (admittedly lower) CPP?

  8. sara on July 23, 2019 at 10:24 am

    Forgot about the spouse completely!

  9. MSonata on July 23, 2019 at 9:31 pm

    These financial calculations make s lot of sense when you’re doing the work on paper but it’s not easy factoring in the major uncertainty of one’s death. What do you say about the idea of accessing your CPP at age 65 and investing them if you have the budgeting leeway to do so?

  10. Rita Greco on July 24, 2019 at 5:32 pm

    I did not take my C.P.P. early because my LIRA was all converted to a 30 year guaranteed term certain annuity. This started just last month and I get $4,237.18 a month until I am age 92.

    I don’t have any debts and my house is modest and so I really need only $1,500 a month to live decent. After all my taxes, cost of living I still have $2,000 a month left over. I will increase my emergency fund from currently $20,000 to $40,000 and top up my TFSA’s to the max every year.

    My goal as a single women is to have $200,000 in other savings, investments by my 70th birthday.

    • Ken Elder on October 27, 2020 at 6:25 pm

      The auther says age you have to live past 86 (I say 82) to make delaying to age 70 to pay off, sounds risky

  11. Davidb on November 9, 2020 at 7:04 am

    If one turns 70 in June: Is it possible to wait until the next January to apply retroactive for both OAS/CPP and have 6 month paid the following year? Self employed income pushes income over OAS clawback and high(er) tax rate in 70th year. Looking to do some ‘tax Manning’s.

  12. Wendy on January 29, 2021 at 3:57 pm

    If I quit work at 48 years am I better to take the pension at 60 or 65? I don’t need the money tho.
    I am thinking if I take it sooner it will be a smaller cheque which will reduce taxation later when my other pensions kick in? Feedback?

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