When Should You Start Receiving Your CPP Retirement Pension?

Since 1987, when the Canada Pension Plan (CPP) first introduced flexible retirement pension start dates, this has been one of the most common questions that I get asked, and it’s probably the most difficult CPP question to answer.

Sometimes I respond with, “When are you going to die?” because if you can answer that question, it makes the original question so much easier to answer. Aside from that witty retort, my other stock answer is, “It depends.”

Today, the “experts” seem to be equally split between those who recom­mend that you should always take your CPP as soon as possible (age 60), and those who say you should always defer taking your CPP until as late as possible (age 70).

I personally don’t believe that there is a single answer to this question. Instead, I believe you should fully understand what your real numbers are (because they’re rarely the same as the estimates provided on the My Service Canada Account website or the CPP Statement of Contributions), and you should then consider the following factors:

Life expectancy

While few (if any) of us know exactly how long we’re going to live, you should be aware of the “break-even age” for your various choices for when to take your CPP, and you shouldn’t ignore life ex­pectancy in your decision.

Impact on other benefits

The two most common other benefits affected by your decision of when to start your CPP are the Guaranteed Income Supplement (GIS) and the CPP survivor’s pension.

• If you’re fairly sure you will be eligible for GIS once you are age 65, it is generally a good idea to start your CPP early, at age 60. By doing so, you decrease the monthly amount of your CPP, which increases the amount of your monthly GIS, and thereby increases the “break-even age” for deferring your CPP.

• If you’re currently receiving a CPP survivor’s pension, the “combined benefit” rules generally make it a good idea to start your CPP late, at age 70. The combined retirement/ survivor’s benefit calculation rules are quite complex and not well understood by most financial planners (or even by most Service Canada staff). For purposes of the article, suffice it to say that it is definitely not as simple as adding the two amounts together, subject to a maximum retirement pension. In my experience, the combined benefit rules generally reduce the “break-even age” for deferring your CPP from the mid-80s to the mid-70s, which normally makes starting your CPP at age 70 a very attractive option in this situation.

Inflation

CPP benefits are all fully indexed to inflation annually, as measured by the Consumer Price Index (CPI).

This may or may not be an impor­tant factor in deciding when to start your CPP. If you have a good defined benefit (DB) pension plan that is also fully indexed, it may not matter when you start your CPP. If, on the other hand, your other retirement income source is mostly a defined contribution (DC) pension plan, or simply RRSPs, you may want to defer your CPP in order to maximize the portion of your retirement income that is protected from inflation.

Taxation

CPP benefits are considered tax­able income, and this could be a reason to either take your CPP early or to defer it until later. On one hand, if you’re expecting your future income to be close to or above the OAS clawback thresh­old (approximately $80,000 annu­ally), this may be a reason to take your CPP early, at a reduced amount. On the other hand, if you’re still working beyond age 60 and earning a good income, this may be a good reason to defer your CPP at least until you’re no longer working and when your CPP would be taxed at a lower marginal rate.

Estate planning

If you have children or if there’s another reason why you might want to leave a large estate, you may want to take your CPP early in order to let your TFSA, RRSP, and/or other savings continue to grow for as long as possible. On the other hand, if you would be quite happy to die broke, you might want to spend down some of your retirement savings from age 60 to age 70, in order to defer and maximize your inflation-protected CPP benefits.

Important expenses

This is a factor that can impact the decision of when to start your CPP in either direction. For some people, taking their CPP early allows them to be able to fund travel expenses while they’re still healthy enough to be able to travel. For other people, deferring their CPP means that they won’t have to worry about increased medical or other costs when they’re older.

Summary

As indicated above, there is no “one-size-fits-all” answer to the question of when to take your CPP. The important thing is to know what your real choices are, and to consider how these various choices fit into your overall retire­ment financial plan. Then you can make an informed decision on which choice is right for you. ■

The views expressed are those of the author and not necessarily those of RGF Integrated Wealth Management, which makes no representations as to their com­pleteness or accuracy.

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