Retired Money: Early or Delayed CPP? Age 65 may be best compromise

My latest MoneySense Retired Money column has just been published, which tackles that perennial personal finance chestnut of whether to take early or delayed CPP benefits. You can find it by clicking on the highlighted headline here: The Best Time to Take CPP: if you don’t know when you’ll die.

That’s a pretty big “if,” of course since with rare exceptions, our futures are unknowable. As readers of the piece will discover, there is a fair bit of personal anecdotes there, which is hard to avoid in a beat known as “Personal Finance.” As the column notes, we’ve written before that in theory it makes sense to delay CPP as long as possible, since monthly benefits are 42% higher than if you took them at 65. And while you can take CPP as early as age 60, you’d pay a 36% penalty to do so compared to taking it at the traditional age 65.

Since experts are all over the place on this one and have valid arguments for either side, it’s interesting that in practice very few Canadians actually wait till age 70 to start their CPP, even if it is an inflation-indexed guaranteed-for-life annuity. Government stats show age 60 is the single most popular option: according to the federal government’s 2016 data, of the 312,251 who began collecting CPP that year, 126,954 did so right at age 60, with the second most popular start date being age 65, when 93,460 started to collect. Only 4,844 waited until 70.

The balanced case for the traditional age 65

As I relate in the MoneySense piece, I still haven’t started to collect CPP myself, even as my 65th birthday looms this coming April. I note that I may do so in a year or two and that I probably won’t wait right until 70, for various reasons: some health-related, some to do with there’s no urgent need just yet to collect it. That may change, however. And as I also relate, I will take Old Age Security at 65 as soon as it’s on offer, albeit with taxes deducted at source.

One interesting tidbit I’ve not seen much before on this topic is financial planner Ed Rempel’s observation that  “In general, equity investors should take it (CPP) early, while balanced and bond investors should not.” The idea here is that if you’re confident both in the equity markets and in your ability to profit from them, then even if you technically don’t “need” the early CPP benefits, you can invest them in equities and hopefully generate higher returns than CPP would itself generate by waiting till benefits improve.

The flip side is that bond investors won’t get sufficiently high returns from reinvesting CPP benefits and so are better off delaying receipt of benefits.

Actually, as I believe in the old maxim of “moderation in all things” and also that most near-retirees and retirees should be in balanced portfolios of roughly equal stocks and bonds (60% stocks for some, 60% fixed income for the ultra conservative), then the optimum age to take CPP for many might be the most obvious one of age 65, ironically the traditional retirement age.

It seems to me that if you find both the cases for early and late CPP compelling, then if you’re also a classic balanced investor, that age 65 would be the perfect compromise.

You can find many Hub blogs on both sides of this topic, including some by Rempel. Three blogs by various sources are highlighted below (automatically by this site’s WordPress program):





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