A report by the Canadian Institute of Actuaries (CIA) suggests most Canadians should hold off on taking their Canada Pension Plan until they are 70, helping them cement their finances in an ageing population.
The report, The CPP Take-Up Decision: Risks and Opportunities, says taking CPP payments later is a cheap and safe approach to receive greater income security during retirement. Despite this, more than 95 per cent of Canadians have consistently taken CPP payments at age 65 or earlier since the CPP introduced flexible retirement in the 1980s.
Holding off promises income increases
The CIA says the biggest advantage to the delay is that it promises additional secure, lifetime income that increases each year alongside the price of consumer goods, helping to protect seniors against the financial risks associated with inflation, financial market returns and longevity.
The analysis looks at workers retiring at age 65 who intend to use some portion of their RRSP/RRIF savings towards securely increasing their lifelong annual retirement consumption, with this portion sufficient to bridge the five-year income gap left by delaying CPP pension income from age 65 to age 70. While the priority of this portion of RRSP/RRIF savings is lifetime income security, any remaining savings could have any number of purposes, such as an emergency fund, a bequest, and financing further retirement spending.
No financial reward in taking CPP early
The CIA analysis finds that most seniors with enough RRSP/RRIF savings would be better off delaying their CPP payments for five years. “For individuals who instead invest the savings that could have otherwise been used to delay CPP payments, we find that there is no financial reward for taking on this risk from the perspective of income security – specifically, even in a high-investment-and-low-longevity scenario, there is more than a 50 per cent probability of having done better by delaying CPP payments.”
The report states that overall, all of the non-delay cases tend to spend down the bulk of their retirement savings before death by trying to keep up with the sustainable pension and income that a delayed CPP would have provided.
