Postponing CPP to age 70 has its advantages

par Andrew Rickard | November 09 2016 09:45AM

Fred Vettese, the Chief Actuary at Morneau Shepell, says it may be worth waiting until age 70 to collect the Canada Pension Plan (CPP).

In a paper published last week, Vettese notes that only about 1% of all workers choose to postpone the start of their CPP income until age 70. Even then, he says the late start may have been more accidental than intentional. He argues, however, that more people may wish to consider the idea.

Uncertain about whether they have saved enough

Most of the baby boomers who are retiring today will not collect a pre-determined income from a defined benefit (DB) pension plan. Instead, they will probably have to rely on savings in a defined contribution (DC) pension plan or RRSP. Vettese says people in the latter situation may be uncertain about whether they have saved enough to enjoy a reasonable standard of living in retirement and cover unexpected expenses, in particular ones caused by illness.

While low-income workers who retire with little in the way of savings may have have no choice but to start drawing their government pension early, Vettese believes those who have more financial resources could improve their retirement security if they were to wait a while for the CPP.

Reduce both their investment and longevity risk

Rather than trigger CPP payments at 60 or 65, Vettese outlines a scenario in which middle-class retirees draw down their workplace and private savings first and then leave the resultingly higher, inflation-indexed government income stream for later. By doing so, he argues they can reduce both their investment and longevity risk.

The paper, which includes sample scenarios, is available on the Morneau Shepell web site.