With most Canadians choosing to start their Canada Pension Plan (CPP) benefits early, there’s been growing attention to the potential advantages of waiting. Recall that starting CPP benefits before age 65 (as early as 60) decreases payments by 0.6 percent per month, whereas delaying beyond 65 increases payments by 0.7 percent per month, up to 42 percent (age 70). Actuarial studies continue to show that many people are better off delaying benefits as the break-even age* is often below the average life expectancy. Those who live past the break-even age will receive a higher overall benefit by waiting.

Of course, this decision is influenced by various factors beyond just life expectancy, such as immediate income needs. As more Canadians work past age 65, the impact of retiring early, or late, should also be a consideration. Working past age 65 and delaying benefits can lead to a potentially greater benefit. This is because CPP benefits are generally calculated using the best 40 years of income, usually between ages 18 and 65. Since lower-earning years tend to be at younger ages when first starting a career, extending the working years past age 65 may add higher-earning years to the calculation, thus increasing the benefit.

The good news? It doesn’t work the other way: Any low-earnings years after age 65 will have no effect on the benefit calculation. Yet, if you retire before 65 and wait to take benefits, the zero-earnings years can negatively impact the benefit. Retiring at 60 and waiting to collect CPP at 65 could potentially add five zero-earning years to the calculation.

Regrets, We’ve Had a Few...

Indeed, the old words of Frank Sinatra may be a reminder to carefully consider the timing decision. A recent article in the Globe & Mail highlighted Canadians who had “regrets” after starting benefits early:¹

Impact on survivor benefits — One widow discovered that starting her own CPP reduced her maximum entitlement from survivor benefits. She was also unaware that survivor benefits would change when she turned 65 and hadn’t considered the impact of deferring her own benefits beyond that age.

Legacy considerations — A man who wasn’t in immediate need of the funds wished he had delayed his CPP after realizing how much more he could have left for beneficiaries. One study suggests that taking CPP at age 60 instead of 70 can forgo $100,000 of lifetime benefits.²

Inflation adjustments — Another retiree noted that had he waited, the multiplier for starting later would have further enhanced the inflation-indexed benefits.

Returning to work — One man who began receiving CPP at 60 and retired at 63 decided to return to work. He regretted starting early due to the taxes paid on CPP income during his subsequent employment.

<sup>*The age at which total benefits received by delaying payments exceed total benefits received by starting payments earlier.
1. https://www.theglobeandmail.com/investing/globe-advisor/advisor-news/article-these-canadians-wish-they-had-waited-to-take-their-cpp-benefits-heres/;
2. https://www.fpcanadaresearchfoundation.ca/media/5fpda5zw/cpp_qpp-reseach-paper.pdf</sup>

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