Last week, I wrote about reasons why you might consider taking CPP early. This week I’m going in the opposite direction, and covering off some reasons you might be better off delaying CPP until age 70!
Reason #1: You get 42% more each month.
Every month you delay receiving CPP past your 65th birthday adds 0.7% (that’s 8.4% per year) to your monthly payments. If you were eligible to receive the maximum CPP payment, that would be the difference between $1203.75 (the 2021 maximum monthly CPP benefit) if you take it at 65, or $1709.33 per month if you wait until age 70.
Don’t forget, too, that your pension payments are indexed to inflation. If you don’t need the money prior to that point, then waiting could be a great way to maximize your money later in life.
Reason #2: You might pay less tax.
CPP payments get added to your taxable income. While getting paid more each month might seem counter-intuitive to this point, the fact is that you have to consider your RRSP withdrawals as well. If you’re making withdrawals from your RRSP while also collecting CPP, your tax bill might be higher than if you tried to reduce your RRSP before starting to take CPP.
Reason #3: You expect to live longer than average.
Up to a quarter of Canadians worry about outliving their retirement savings. If that sounds like you, then deferring your CPP payments until age 70 can help protect you against that risk.
The combination of higher monthly payments, combined with spending down your riskier assets first, helps minimize your investment risk later on in life, which gives you a better chance of making it to the end of the line with cash left in the bank.
Reason #4: You’re still working after 65.
Similar to reason #2, if you’re still working after 65, you’re likely better off deferring payments until you retire. After all, you’re still paying the bills with your job or business, and you’ll be taxed on your CPP payments on top of that. The goal is to minimize your income as much as possible while collecting higher pension payments.
Wrapping it Up
Whether it makes sense to take CPP early, late, or on-time is entirely dependent on your personal circumstances. If you find yourself nodding your head to more of these reasons than the ones I wrote about in last week’s post, though, there’s a good chance you might be better off hanging tight and taking CPP benefits later on in life!
