I will walk through all the variables and situations that you need to consider but at the end of the day we are making decisions in a world of imperfect information and everyone’s situation is unique. You will have to make a decision using a few assumptions, intuition and help from your financial advisor.

The most important things to consider are:

1. How long will you live so that you can continue receiving CPP?
2. What will you do with the monthly CPP that you receive?
3. What will your tax rate be at different ages throughout retirement?

The first one is difficult to pinpoint, an actuary can look at the mortality tables and calculate the probability that you will survive to a specific age based on your current age, smoking status and sex. But that’s the best estimation you can get. You can also look at your family history to get better view of what might happen. How long you live, will impact how long you can receive CPP and will ultimately impact the amount of CPP you end up receiving over your lifetime.

 

What will you do with the monthly CPP that you receive? What age are you planning to retire? Will you spend it on retirement expenses, travel or invest it in the stock market or rental properties? If you collect CPP, you can continue to work. One possible option is to collect CPP early and invest it in the stock market and real estate. Earning a rate of return on your monthly CPP, can allow you to compound your assets, build wealth and use later in retirement. The saying goes a bird in the hand is worth two in the bush. A case can be made for taking CPP earlier than age 65.

 

If we ignore the time value of money and the rate of return that you could earn by investing your monthly CPP, we can calculate a breakeven point.

 

		Expected Age at death of Non-Smoker
CPP start age	Breakeven age	Male	Female
60	73.90	82	85
61	74.90	82	85
62	75.90	83	85
63	76.90	83	86
64	77.90	83	86
65	-	83	86
66	76.90	84	86
67	77.90	84	86
68	78.90	84	87
69	79.90	85	87
70	80.90	85	87

 

Source: http://www.cia-ica.ca/publications/other-publications/studies-and-tables

 

The table above shows age of survival needed to breakeven on collecting CPP. For example, if you start collecting CPP at age 60, you will need to live to age 73.90 to breakeven. If you start collecting at age 64, you will need to live to age 77.90 to breakeven. In 2017, the life expectancy for the total Canadian population is projected to be age 79 for men and age 83 for women.¹ As you can see in the table above, as you reach age 60 and above, your life expectancy increases. Family history, lifestyle, diet, and health will play an important role in the amount of CPP you end up receiving.

 

What will your tax rate be at different ages throughout retirement? Your monthly CPP will be taxed at normal income rates, so depending on what your tax rate is at age 60, 65, 70 etc will also impact your decision.  Will you downsize your house in retirement? Will there be a transfer of wealth from one generation to the next? Estate planning will be very important in your retirement years to minimize taxes, spending optimally and transferring wealth efficiently.

There’s no silver bullet or one right answer. It will depend on your situation, what you will do with your monthly CPP and how long you live. Each person and family will have unique considerations to think about when making a decision of when to start CPP.

 

I’ve done some actuarial analysis based on the following assumptions:

-Average 2017 CPP Monthly amount $653.27

-Maximum 2017 CPP Monthly amount $1,114.17

-Assumed Interest rate 3%

Taking into account the time value of money and spending your CPP on retirement expenses, if you live to age 70, you would receive the most money by taking CPP at age 60. See below for the rest of the analysis.

 

Age at death	Optimal CPP start age	Estimated CPP received in todays $ (Avg amount)	Estimated CPP received in todays $ (Max amount)
70	60	$42,797	$72,991
75	62	$61,610	$105,078
80	64	$81,190	$138,471
85	67	$102,393	$174,634
90	69	$123,734	$211,032

 

A few guidelines that may help:

- If your family has a history of lower life expectancy, you may want to consider taking CPP earlier than age 65

- If you don't need CPP for living or retirement expenses, but can invest prudently and earn a rate of return, you may want to consider taking CPP earlier

- If your family has a history of longer life expectancy, you may want to consider deferring CPP to a later age

 

If you would like to know more about retirement/estate planning or have any other questions, please do not hesitate to contact me at ryan.sonkee@rbc.com or 416-842-1120

 

¹ https://www.statcan.gc.ca/pub/89-645-x/2010001/life-expectancy-esperance-vie-eng.htm