August 07, 2020
To Delay or Not to Delay CPP, That Is the Question
'Should I Delay Claiming My Canada Pension Plan (CPP) Payments?'
I get asked this question a lot and my answer varies depending on your financial situation, but I will provide you with some insight to help answer that question.
The first thing to consider is that you are not required to take your CPP benefits as soon as you retire. There is a sizable financial advantage to delaying CPP, however, fewer than 1% of Canadians choose this option. Over the past decade, Canadians have most often taken their CPP benefits as soon as they’re eligible (at age 60) and the main reason is that they are not aware of their of the financial strategy of delaying.
A new report commissioned by the Canadian Institute of Actuaries (CIA) and the Society of Actuaries investigated the financial consequences of delaying CPP payments for five years by looking at workers retiring at age 65 who had sufficient savings to begin drawing CPP pension income at age 70 instead.
If a person starts CPP after age 65, payments increase by 0.7% each month (that’s an 8.4% increase per year!), up to a maximum increase of 42% at age 70. Those higher benefits last for life and keep up with inflation. With Canada’s aging population and widespread concerns of inadequate retirement income, having worry-free income like CPP matters to your finances.
‘But how will I secure my retirement net income without claiming CPP?’
For my clients that have retired early, we have implemented a strategy that secures their net retirement income by bridging the gap with RRSP/RRIF withdrawals. This does three things:
Maximizes your CPP return
Takes advantage with withdrawing during low income earning years
Gives clients peace of mind as 5 years of their income needs are locked in and guaranteed using a laddered GIC strategy that I continue to implement to this day
‘Won’t This Effect My Taxes and Eligibility in Receiving Other Government Benefits?’
In my experience, and according to experts, when we target a single net annual lifetime retirement income and attempt to get there by either using RRSP/RRIF wealth to augment income or delaying CPP payments, the effects on such factors as personal income taxes and GIS eligibility remain the same in both scenarios.
As your Investment Advisor, my job expands to more than just managing your investment portfolio. In order to do my best for my clients, I aim to understand your entire financial situation and implement an integrated wealth plan that suits your objectives in the most tax efficient manner. My advice to clients that have reasonable health and can afford to wait – whether working longer or withdrawing from their RRSP/RRIFs – delaying the start of CPP benefits for as long as possible (up to age 70) helps maximize the benefits you will receive.
If you have any questions or just want to discuss your overall financial health, please don’t hesitate to reach out as I am always available for a phone call.
Take care and stay safe,