Recently I previewed Fred Vettese’s completely updated and revised edition of Retirement Income For Life. I’m giving away an extra copy of the book and asked readers to enter to win by sharing when they took (or plan to take) CPP. The results were interesting.
The vast majority of responses were in favour of deferring CPP to age 70 (41%). One quarter of responses favoured taking CPP at age 60. And, nearly one-quarter of responses favoured taking CPP at age 65.
| CPP Start Age | # of Ppl | % of Ppl |
|---|---|---|
| 60 | 62 | 24.9% |
| 61 | 4 | 1.61% |
| 62 | 4 | 1.61% |
| 63 | 4 | 1.61% |
| 64 | 1 | 0.40% |
| 65 | 57 | 22.89% |
| 66 | 4 | 1.61% |
| 67 | 5 | 2.01% |
| 68 | 3 | 1.2% |
| 69 | 3 | 1.2% |
| 70 | 102 | 40.96% |
Deciding when to take CPP is a key consideration of your retirement income plan. What I found interesting about the responses was the rationale or the stories behind these decisions. For instance, there is a lot of misinformation about the Canada Pension Plan: that it is government run (it’s not), that it will become insolvent before you collect benefits (it won’t), and that you could do better investing the money on your own (not likely).
These misconceptions can lead to poor decisions. It’s estimated that just 1% of CPP recipients elect to take their CPP benefits at age 70. Clearly more education is required.
Several of the responses in favour of taking CPP early showed this lack of knowledge or a perceived bias around the CPP program.
Some retired early and took CPP early to “avoid too many zero contribution years.”
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While it’s true that your calculated retirement pension may decrease with each year of zero contributions, the amount of the decrease is typically less than the amount of the increase you’d get by deferring CPP (0.6% per month to age 65 and 0.7% per month to age 70).
CPP expert Doug Runchey uses the example that by waiting you will receive a larger slice of a smaller pie, but you will almost always receive more pie.
One response called CPP a “legal pyramid scheme.”
- All pensions are claims on the earnings of future generations. Indeed, CPP is a contributory pension plan and so the retirement benefits paid today rely on contributions made by workers plus any investment growth in the plan. There is no doubt that pension plans face increasing pressure with longer life expectancy, a shrinking workforce, and lower expected stock and bond returns in the future. But the health of our CPP is reviewed every three years and the latest actuarial report shows the program is sustainable for the next 75 years.
Several responses from retired readers said they took CPP at 60 and “invested the money in their TFSA.”
- I’m a big fan of retirees continuing to use their TFSA to invest. But it’s unlikely your investments will outperform the guaranteed age-adjustment increase that you’d get by deferring CPP (7.2% per year to age 65 and 8.4% per year to age 70). A better reason to take CPP early is if you need the money to meet your spending needs. Voluntarily taking a pay cut and then trying to invest your way to outperformance is a losing proposition.
Finally, one of the most common reasons for taking CPP early is “when someone close to you happens to die early.”
- This experience has an ‘anchoring’ effect, where you don’t want to end up like your friend or relative (who got nothing after years of contributing) and so you decide to take your CPP benefit as soon as possible. Anchoring to an experience like this can be useful if it prompts us to buy life insurance or update our will. But should it be a factor in your decision to take CPP early? I think not. Your own personal health should play a role, yes. But, assuming you are in relatively good health, the chances are far greater that you live a long life. Indeed, a 60-year-old male has a 50% chance of living to age 89, while a 60-year-old female has a 50% chance of living to age 91.
Overall, I was happy to see the number of people who are at least considering delaying their CPP benefits to age 70. One of the best comments was from reader B. Pratt:
“I plan to take my CPP at age 70. That’s the “plan.” As with all plans, there is a need to monitor and adjust as required. So if I need to start earlier than age 70, I will. One cannot be asleep at the wheel during retirement and it is always good to reevaluate plans at least once a year!”
Retirement Income For Life book giveaway
As promised, I’m going to give away a copy of Mr. Vettese’s newly updated Retirement Income For Life. Many thanks to everyone who took the time to leave such thoughtful comments and share your strategy around when to take CPP.
There were a total of 220 entries into the contest. I used a random number generator to select the winner.
Congratulations to Gin, who commented on October 31 at 2:35 p.m. I will reach out to Gin by email and arrange to send out the book.
In addition to running the Boomer & Echo website, Robb Engen is a fee-only financial planner. This article originally ran on his site on Nov. 7, 2020 and is republished here with his permission.
