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This article has been updated. Read the latest version here.
One question our Pension Plan Consultants have been receiving more frequently from members is “when should I start CPP?” The increased frequency of this question recently has a lot to do with the demographics of our membership – we have a significant proportion of our membership, the “baby boomers,” quickly approaching retirement age so questions like this one are top of mind for many of our members.
The CPP program is being enhanced and we will begin to see changes in the program starting in January 2019 (click here for more details), primarily in gradually increasing contribution rates for employees and employers. However, the full impact of the enhancement to the CPP program benefits will not be fully realized for many years to come. The information in this article is relevant for members who are approaching retirement age and anticipate needing to make a decision about when to start CPP over the next few years.
If you’ve attended one of CSS’ Retirement Income Options (RIO) workshops, or otherwise engaged in retirement planning, you’ve no doubt become aware of the concept of the overall Canadian retirement system being composed of three pillars or you’ve perhaps seen the various sources of retirement income depicted as a three-legged stool.
1 YMPE is $55,900 in 2018Life expectancy
2 Source: Statistics Canada. Accessed January 12, 2018.Three stages of retirement
If you are not yet 65 and find yourself in a financial situation where you don’t have a lot of other sources of monthly income, you may need to consider starting CPP early out of necessity. Most CSS members will have their CSS pension available to draw on, but for members who started working in the co-op sector late and who don’t have a pension from previous employers and who were not able to otherwise save for retirement through their working years, this situation could apply.Breakeven and maximum payment analysis
For the spreadsheet junkies reading this article, you might find performing a breakeven analysis useful to find the age to which you need to live, all else being equal, where it doesn’t matter if you took the early CPP payment or waited until age 65. For example, you’d find that you need to live to almost 74 if you started CPP at age 60 to “break even.” In the breakeven example below, we’ve used the 2018 maximum CPP payment amount.3
(Click to enlarge image)
If you were interested in determining to what age you need to live in order to receive your maximum possible CPP payout for each of the starting ages between 60 and 70, you could use a table like the one below which shows, curiously, that taking CPP at 65 never appears to be the optimal choice (note that only a partial table is shown - not all ages are displayed - here to allow us to more easily zero in on the example presented below):
3 Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html. Accessed January 13, 2018.