Canada Pension Plan: If Not Now, When? (It’s Up to You)

by Ray Hoger

This article is for informational purposes only and should not be used to replace a consultation with a trained legal, tax, or financial professional. Please contact a professional for financial, tax, or legal advice related to your specific circumstances.

At a Christmas party in 2022, I was called a fool — told I was crazy and generally ridiculed by a retired stockbroker. What began as a friendly, get-acquainted conversation became one of those “my opinion is better than your opinion” dialogues. The topic of the night: when to take your Canada Pension Plan (CPP).

Many people and some financial advisors advocate taking CPP as early as possible, at age 60. Others suggest age 65, while still others suggest waiting beyond 65 — age 70 is the latest you can wait. Let’s toss a few facts into this opinion-heavy discussion.

• Starting CPP early will lower payments by 0.6% each month (7.2% per year), up to a maximum reduction of 36% if you start at age 60.
  Starting after age 65, payments will increase by 0.7% each month (8.4% per year), up to a maximum increase of 42% if you start at age 70. You can choose any time between the ages of 60 and 70.
• In 2022, the maximum monthly amount you could receive at age 65 was $1,253.59. The average monthly amount at age 65 was $737.88.
• To receive that maximum monthly amount, you must have contributed to the plan for at least 39 years, and in each of those years paid the maximum CPP amount payable (the amount changes each year, based on inflation). Starting CPP early, or not having the 39-year maximum contribution level, leads to lower average payments. Keep in mind that many life experiences can affect this calculation, such as child rearing, disability, and divorce. Allowances are made for these challenges, so be sure to check the Government of Canada services website for your circumstance.
• According to the National Institute on Ageing, fewer than one per cent of Canadians delay CPP benefits to age 70. In the last decade, many have chosen to start as early as possible, ignoring the long-term financial effects.

Now, back to the opinion fun. If I had started CPP when I retired at 61 (in 2017), I would have received

$ 1,114.17
− $ 320.88 (7.2% × 4 years early × $1,114.17)
$ 793.29 monthly

That’s a nice chunk of change, but of course it is considered taxable income so I would net about $555 (30% tax). Since I didn’t really need the money (that’s the first “crazy fool” part — everyone needs as much money as they can get, according to my Christmas party companion), I chose not to start my CPP. In fact, I am one of the one per cent who intend to wait until age 70 to begin my CPP (even at the risk of being run over by a school bus next week!). Keep in mind that our CPP program is indexed to inflation. Monthly payments will increase every January in line with the cost of living. In the five years since I retired, the monthly maximum payment has increased by about $130 per month.

I worry about outliving my savings. (I’m using them up to fund my urge to see the world.) My plan to wait for age 70 (allowing for modest inflation of 2% annually) would provide me around

$ 1,345.00
+ $ 565.00 (8.4% × 5 years later × $1,345)
$ 2,001.00

Deducting the 30% tax will net me about $1,400 per month! Now of course if I do get hit by that big yellow school bus or some other horrible calamity before I begin to collect my CPP, the plan wins. My spouse (assuming she was not with me when I met the calamity) could receive up to 60% of my CPP payment as a survivor’s pension benefit.

So, what is the best choice? Like so many opinion questions, there is no right or wrong answer. Everyone needs to consider their own personal circumstances. What is your current standard of living? Do you have significant financial obligations like a mortgage or personal loans? Do you have a personal or family history of heart disease, cancer, or other life-shortening illnesses? Are you worried about outliving your savings?

A quick conversation with a friend or someone you just met at a party should not form the basis for this kind of decision making. When you make this decision, you need to speak to a professional financial advisor. They know the right questions to ask and options to consider. There is no one size fits all. Choose the option that fits your life circumstances and don’t let an uninformed individual influence your choices. Many of you have probably already made the choice, but if you know that someone is on the fence, advise them to speak to a professional before they choose to do it now!

Ray Hoger taught to age 61 and has spent the past five years dodging yellow school buses. He hopes to continue to evade the yellow monsters for another four years and start his CPP at age 70.