Should you claim CPP at 60 or wait until 70

By: Adam Mayers Moneyville Editor Published on Wed Jan 30 2013

The longer you wait to start taking the Canada Pension Plan the more you get. But, should you delay?

Taking the pension early has a lot of appeal, but it doesn’t always make sense

The government wants us to keep working longer and to put off retirement so they’re offering incentives if we delay taking the Canada Pension Plan.

You can start taking a CPP pension at a very reduced rate when you turn 60, or you can wait as long as 70. If you need the money now, there’s no debate. Take the money. But if you can afford to wait, should you?

Several readers responding to the recent column about the changing nature of retirement wondered what to do. The article interviewed Fred Vettese, chief actuary at human resources consultant Morneau Shepell. Vettese co-authored The Real Retirement, a book that argues we’ll be better off in retirement than we think.

“Seems to me that it is better to take as much as you can as soon as you can,” said Ralph Roberts, echoing the view of several others. “There are no guarantees in this world.”

Taking the pension earlier has a lot of appeal. You’ve paid into the plan during your working life, so why not cash in? Ottawa usually takes more than it gives, so don’t leave anything on the table.

According to Human Resources and Skills Development Canada, that’s what most of us are doing. In 2012, more than two-thirds of new CPP recipients were under age 65, the agency says. Fewer than 4 per cent were 66 or older.

The attraction of waiting is that you get a bigger payment for as long as you live, indexed with inflation. So if you’re worried about having enough to live on later in life, this offers a sense of security. This year, a 62-year-old eligible for the maximum CPP amount will receive $775 a month, or $9,300 a year. If that person waits eight more years until 70, the pension rises to $1,400 a month or $16,800 a year. That’s 80 per cent more.

What you can’t know is how long you’ll live. The good news is that the math is increasingly on our side. According to the most recent Statistics Canada data, a Canadian who is 65 this year can expect to live, on average, another 20 years. Based on 2009 data, someone born in 2009 can expect to live to 82 — four years better than the average American by the way. The number continues to rise.

Here’s what Vettese has to say:

“The question of whether to wait until 70 or take CPP early depends on several things. If (people) are in fairly good health and their parents lived well into their 80s they should think about delaying until 70.

“Another factor is their dropout period. If they had too many years of low or no earnings, they might in fact be better off taking their CPP early rather than waiting until 65 or 70.

“A third factor is their other RRSP assets; if they have none, it may be a moot point. They might need all the income they can get as soon as possible.

“In the most typical case: someone in reasonably good health without too many years of low earnings for CPP purposes and who has some RRSP assets, they really should get over the temptation to take the bird in the hand.

“They should be less concerned that they left some assets behind if they die young than running out of assets in their late 80s. What happens after you die is simply less important.”

What you do depends on your circumstances. But it may be the case where a bird in the hand is really not worth as much as two in the bush.

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