When you start receiving Canada Pension Plan (CPP) benefits is a crucial decision you must make as part of your retirement planning. While you may be tempted to start your CPP as early as possible, there are compelling reasons to consider delaying these benefits until age 70.
This article explores 11 key reasons why postponing your CPP until age 70 might be a wise strategy.
Larger Monthly Payments
By waiting until 70, your CPP payments increase by 42% compared to starting at 65. This means a significantly larger monthly income for the rest of your life. If you’re eligible for the maximum CPP benefit, waiting until 70 could mean receiving over $2,000 per month instead of around $1,400 if you started at 65.
Longevity Insurance
Delaying CPP acts as a form of longevity insurance. If you live well into your 80s or 90s, you’ll have a higher guaranteed income for a longer period. This can help protect you from outliving your savings, especially if you have a family history of longevity.
Inflation Protection
CPP benefits are indexed to inflation, meaning they increase each year to keep up with rising costs. By delaying and receiving a larger benefit, you’re increasing the base amount that gets adjusted for inflation. This can provide better protection against rising living costs over time.
Tax Management
Delaying CPP can help with tax planning. If you’re still working in your 60s, waiting to collect CPP can prevent your income from being pushed into a higher tax bracket. When you do start collecting at 70, you might be in a lower tax bracket, potentially paying less tax on your CPP income.
Maximizing Survivor Benefits
If you’re married, delaying CPP can increase your spouse’s potential survivor benefit. The survivor benefit is based on a percentage of the deceased spouse’s CPP, so a higher CPP benefit means a larger potential survivor benefit.
Coordination with OAS
By delaying CPP, you can better coordinate it with Old Age Security (OAS). Starting both at 70 provides a significant boost to your guaranteed retirement income. This strategy can be particularly beneficial if you’re concerned about the OAS clawback, as you’ll have more flexibility in managing your income sources.
Reduced Reliance on Investments
A larger CPP benefit means you can rely less on your personal savings and investments for income. This can be especially beneficial during market downturns, as you’ll have a larger guaranteed income base and may not need to sell investments when markets are down.
Work Longer, Contribute More
If you continue working past 65, you can keep contributing to CPP up to age 70. These additional contributions can further increase your CPP benefit. Even if you’re already receiving the maximum CPP, these extra contributions result in post-retirement benefits added to your monthly payments.
Health Considerations
If you’re in good health and expect to live a long life, delaying CPP can pay off in the long run. The break-even point (where total benefits received equal those from starting earlier) is typically in your early 80s. If you live beyond this, delaying CPP results in more total benefits over your lifetime.
Bridge with Other Income Sources
If you have other income sources like RRSPs, TFSAs, or work pensions, you can use these to bridge the gap until age 70. This strategy allows your CPP benefit to grow while you draw down other assets that might be subject to higher taxes or mandatory withdrawals.
Peace of Mind in Later Years
Starting CPP at 70 provides a higher guaranteed income for your later years when health care costs might increase. This can offer peace of mind, knowing you have a larger, inflation-protected income stream when you might need it most. It can also reduce stress about managing investments or outliving your savings in your later years.
