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:
- 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.
- 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.