Disagree with Financial Post writers who recommend taking CPP at Age 70

I agree with the “Retire Happy” website which suggests Canadian retirees should start their CPP pensions sooner rather than later. However, that is not the position in a recent Financial Post column by Lisa Bjornson and Fred Vettese of Morneau Shepell’s Retirement Solutions. Essentially, they recommend deferring a CPP pension benefit to age 70.

As a retiree, I disagree for at least two reasons:

  1. The retiree’s health — The first reason I disagree is that when a person applies for their CPP benefit should be based on their state of health because a retiree’s health is usually better between age 60 and 69 than between 70 and 80.
  2. The retiree’s source of retirement funding —  The second reason I disagree is based on how a retiree is funding his or her own retirement. In their column, Bjornson and Vettese are assuming a self-funded retirement using RRSP savings as opposed to an employee defined pension benefit (such as that received by teachers, nurses, police officers, fire fighters, government workers, auto workers, etc.)

Assuming a self-financed retirement, Bjornson and Vettese suggest that a retiree can receive $72,000 more for a CPP pension started at age 70 rather than age 60 or 65. Sounds good so far. However, if a person waits until age 70, when health problems usually start in earnest, what was the point of waiting for a few dollars more? What puzzles me, however, is that Bjornson and Vettese seem to think that waiting until age 70 means a significantly higher CPP pension.

They estimate, for example, that a person qualifying for a maximum CPP pension (which is $1,092.50 right now) would, allowing for cost of living increases, go up to $2,056.00 a month in ten years. Clearly, that estimated amount is unrealistic. I know of people who have been collecting a maximum CPP pension over ten years and it has only increased between $100.00 and $200.00.

Anyway, at the time I retired I got the opposite advice from what Bjornson and Vettese are giving because of what is known as the age 65 CPP reduction or CPP bridge, for those receiving a defined pension benefit from a former employer.

Specifically, if someone is able to retire at age 60 with a defined pension benefit, he or she can receive their entire employer pension and their entire CPP benefit for 60 months. However, at age 65, the amount (or a similar amount) of their CPP is deducted from their employer’s pension. Using the Bjornson and Vaterre example, $713.00 a month over 60 months amounts to $42,780.00.

It really is a bonus and while it is not $72,000, it is still good deal of money at a time when most retirees are still healthy. For example, if your employee pension is $3,000.00 a month before taxes, and your CPP is $713.00 a month, your retirement income from age 60 to 69 is $3,713.00 a month.

Then, in the month following your 65th birthday, that income is reduced to approximately $2,287.00 (the exact amount of the CPP or a similar amount) plus the ongoing $713.00 a month from CPP for a total retirement income of $3,000.00 a month. Of course, at age 65, retirees also qualify for the Old Age Pension (OAS), currently $578.53 a month (slightly more than the $570.52 stated in the link), can partially make up the difference.

Of course, if someone retires at age 65 with a defined pension and their CPP, they won’t notice anything unusual because the the CPP reduction has already been accounted for and they can have the OAS is they qualify for that benefit.

The crux of the matter is that I disagree strongly with Bjornson and Vettese because I believe retirees should start their CPP pensions at the earliest date possible — when they are the healthiest.

11 thoughts on “Disagree with Financial Post writers who recommend taking CPP at Age 70

  1. There is no right or wrong answer as to when to take CPP, early, at 65 or later.

    If people continue to work into their 60s they may wish to hold off taking their CPP because the taxes will hurt them when they don’t need the income right away, or there are other financial planning issues they need to consider.

    Some people may want to wait until age 70 because they must continue working until then and desire a higher CPP, with OAS coming in at 65 and possible clawbacks resulting from poor planning, and/or government changing the rules as they become more fiscally desperate.

    For me, as self employed with a growing business, with my military pension indexing, I decided it was right for me to take CPP at 60 because I have pretty good control over my taxation.

    Besides I don’t trust government to pull the CPP rug out later, so get it now when the getting’s good.

    In any event I believe the money is handier when we are relatively younger, can work part or full time so take lower CPP, and want it now as a matter of principle, as I do, and have done the personal math.

    Betting how long one lives shouldn’t be a serious consideration as to when to take CPP. One size fits all solutions rarely work well so I avoid them. So in summary, I agree with your POV.

    Liked by 1 person

    • You’re right of course. I was just responding to the notion that the earliest age possible was the best time. If someone prefers to work until 70 that is their choice. I did what you did. Retired at 60 but then went back p/t teaching, etc.and took CPP then as well.

      Liked by 1 person

  2. I agree with your response to the Financial Post writers, and with Phil’s comment. Both my wife and I took our CPP early at age 60 on a recommendation by our tax accountant. I continued grain farming at age 64 when a back problem cut that short and my wife retired at age 64 from helping me and her employment at a developmentally challenged workshop.

    We both enjoyed travel for 10 years and our retirement hobbies. I am now 74 and had a minor heart issue just after turning 74. Travel out of the country is now out until my meds stabilize and do not change for 90 days. My wife has manageable blood pressure issues. So you are absolutely correct when you wrote about health issues beginning in earnest after age 70. Few people travel after age 80 unimpeded by health issues.

    Like

    • Agree Ken. The issue is for out of country and travel insurance, your health has to be stable. My problem is that following a heart stent two years ago, I was diagnosed with mild angina which by its very nature is always unstable — in that you never know when you will have an episode. As such, my cardiologist doesn’t recommend I travel to the U.S. or beyond. I do travel within Canada though.

      Today is my birthday and I can admit that I am a bit older than you. That’s all I’ll say. LOL

      Liked by 1 person

  3. My input to the big question is: ‘when you need it and not before’. The pre-retirement courses all advised “at 60”, for maximum return on investment and they may be right. I needed it at 69 and am quite content, receiving over twice the amount in your example, and recouping my entire ‘investment’ in 25 months – three years ago.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s