Why I Won’t be Deferring CPP to Age 70

The latest trend in the financial media is to try to convince retirees to postpone taking their CPP payments until age 70.  It is especially urged on women who, statistically, have a longer lifespan.  The arguments may be sound.  So, why would I give up a 42% payment increase? Because it doesn’t suit everyone.

Look at any financial site and you’ll see big debates about whether to take your CPP benefits early, at 65, or defer to 70.

Related:  A Retirement Income Planning Tool

Why I didn’t take early benefits

As we know, eligible Canadians can opt to start receiving benefits as early as age 60 at a reduction of 0.6% each month.

Statistics tell you that a lot of people take it early.

CPP payments are based on your Pensionable Earnings. 

Typicall for women my age, I had very few years of earning the maximum pensionable earnings (YMPE).  There were several years of unemployment when my children were young and when I was attending school.  I had years of lower income from part-time work and partial years. 

My “normal” benefit at age 65 is not that high. Up to a 36% reduction would be a big hit – for the rest of my life.  I was working part-time, and I could earn the same amount by working just a few more hours a week.

Early payments wouldn’t work for me.

Why I won’t defer benefits

If you postpone taking CPP benefits till after age 65, payments will be increased by 0.7% for each month you delay up to 42% at age 70.

That’s a strong incentive for deferring payments past 65.

There are several compelling reasons given by financial advisors for waiting.

Reason #1 – Longevity

Using longevity statistics retirees – especially women – will maximize their total CPP payments by waiting until age 70. 

I guess statistics don’t lie, but I didn’t take longevity into account when I made my decision, even though my father passed away at age 93 and my mother is still kickin’ at age 90. 

It’s just not persuasive enough to convince me to delay.

Reason #2 – Save tax and OAS clawbacks

Withdrawing from your RRSP/RRIF before age 70 fills the income gap.  Using modest drawdowns incurs less tax and minimizes OAS clawbacks.  When mandatory withdrawals must be made, your RRIF account will be much smaller and maybe almost depleted.

I don’t anticipate just living off the earnings from my retirement savings.  I fully expect to dip into my capital at some point in the future.  But, I’m not really willing to spend most of my nest egg before I turn 70.  Maybe there’s a little fear there, but I’ve always needed to see a “cushion” for just-in-case.

To save on tax I can split my RRIF payments with hubby and the $2000 pension tax credit will be available for both of us.

Reason #3 – Risk of diminished mental faculties

What if your mental or physical health starts to deteriorate at age 80 or older?

This is, of course, a consideration.  But if I get worried about it later on, I can buy an annuity, or an easy to manage all-in-one balanced ETF.

Survivorship concerns

The issue of survivorship is never mentioned in these discussions.  If you are a couple and you draw down your RRSP/RRIF in the early years, the financial hit when one of you dies can be drastic. 

There will be a complete loss of one person’s OAS, and a chance of a small top-up on the survivor’s CPP.  The survivor’s total benefits can’t exceed the maximum payable (at age 65) which for 2019 is $1,154.58.

I have yet to receive a clear answer regarding whether the top up increases if you defer your CPP payments.

Related:  The Retirement Income Puzzle

The bottom line

After a lot of thought I have decided to take my CPP payments next year instead of taking the suggestions (and warnings) being put forth recently in the financial media.  

But it doesn’t matter what I think or do.

Your circumstances will be different and the decision of when to apply for your benefits is something only you can make.

If you’re already receiving CPP payments, at what age did you start?  If you’re not, would you consider delaying them to age 70?

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4 Responses

  1. Vince P. Mayne says:

    The article addresses “Survivorship” for the first time and is a critical aspect of retirement income for couples. Survivorship is even more important considering that most men will die prior to their female partners and trigger an immediate loss of CPP and OAS pension income.

    The exact amount of the income loss is a combination of many bewildering, complex factors but in my situation, income dropped by 20% when my wife died.

    • Marie Engen says:

      Hi Vince. I’m sorry for your loss. In most cases the loss of a partner, whether through death or divorce, will have a major impact – in one way or another – on retired people who depend on pensions and their own savings for cash flow.
      I find it strange that finance articles always seem to refer to couples when it comes to tax strategies and income splitting yet deals with when to take CPP and OAS as though we are all single.
      Couples do need to address this.

  2. Bisa Mitrovski says:

    There is no way of knowing how long a person will live. I guess those who feel especially healthy may want to gamble and wait until 70. There are also those people who are very sick and may not even survive until 65. So, the bottom line is, how healthy are you and will you last until age 70.

    Some people are also choosing to work part time in an effort to stave off boredom and dementia. It comes down as to how you envision your retirement.

    As for myself, I choose 65 as the retirement age. I do not feel that lucky to live into my 90s. My father passed away in his 60s and my mother in her early 70s. My family is not blessed with great genes.

    • Marie Engen says:

      Hi Bisa. It’s definitely a personal decision based on your circumstances and your own feelings. My own decisions always seem to be contrary to what the financial “experts” advise you to do.

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