All About Estates

CPP: TO DEFER OR NOT DEFER

For several years now, clients and contacts (with more frequency of late, and that’s no accident) have been asking me: “Hey Steve, I am turning 65 shortly, do I apply for CPP now or do I wait – what makes more sense financially”

Based on analysis provided by experts in the financial planning sector (and more recently, published articles on the subject) my answer usually takes the form of “it depends”.

Why delay CPP payments? Currently a CPP pension can be taken as early as age 60 which carries 0.60% reduction for each month prior to age 65 (or 36% for the full 60 months earlier). Delaying the CPP pension beyond age 65, up to age 70 increases payment by 0.70% for each month after age 65 (or 42% for the full month 60 deferral). By the way, delays beyond age 70 do not increase annual or lifetime benefit levels.

Recently, the Canadian Institute of Actuaries and the Society of Actuaries embarked on a research study to depend whether to delay or not and issued a report in July of 2020 (https://www.cia-ica.ca/docs/default-source/research/2020/rp220114e.pdf). Bless our actuaries: It is a most definitive study complete with rigorous set of assumptions, results of several simulations, detailed analyses and a lot of algebra.

The study’s main finding confirms what many have said and written to date: The decision to delay or not delay depends largely on expected returns and expected mortality – both of which are independent of the individual’s other financial income flows (including the CPP pension benefit level itself).

Some key findings include:
1. Increasing the level of CPP payments by delaying or postponing payments provides additional secure and lifetime income that is protected against inflation, investment risk and reduces the risk of outliving your retirement savings.
2. In the current low interest environment, delaying CPP payments is a clearly financially advantageous strategy.
3. Higher income Canadians have longer life expectancies and females generally live longer than males, therefore it would be in their best interests to delay CPP payments.

The report is worth the read and you skip the math to get at the findings.

Incidentally, if you do decide to defer, you have the option to continue to contribute to CPP  if you are earning income from employment or operating a business for instance. This will add to the benefit of the deferral.

Happy Reading and stay safe.

About Steven Frye
Baker Tilly WM LLP is a leading, independent audit, tax, and business advisory firm based in Vancouver and Toronto, serving clients across Canada. Drawing on well-trained teams across a variety of disciplines, we ensure the alignment of our professional’s skills and experience with client requirements, resulting in exceptional service and business outcomes.

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