Delaying access to your Canada Pension Plan and Old Age Security benefits could work in your favour
This article will help you:
Before you turn 60 years old, you may want to decide when to start accessing your government benefits including your Canada Pension Plan and Old Age Security benefits. Your monthly CPP retirement benefit can start as early as age 60 and as late as age 70. Your monthly OAS benefit can be delayed from as early as age 65 and as late as age 70.
It’s important to understand the implications of taking either or both CPP and OAS as soon as you can (age 60 and 65 respectively), compared to taking either or both at a later age, and as late as 70.
For every year before age 65, your CPP benefit is reduced by 7.2 per cent. For every year after age 65, your CPP benefit is increased by 8.4 per cent. In other words, deciding to access your CPP benefits at age 60, compared to at age 65, means that you’re choosing to get 36 per cent less on each CPP benefit cheque. And, deciding to access your CPP benefits at age 70, compared to at age 65, means that you’re choosing to get 42 per cent more on each CPP benefit cheque.
For each additional year you wait past age 65 to take OAS (you can wait as late as age 70), your annual benefits increase by 7.2 per cent. If you choose to access OAS at age 70, you’re choosing to get 36 per cent more on each OAS benefit cheque.
What would get you more in total CPP and OAS benefits over your lifetime – getting a fewer number of larger-sized benefit cheques by accessing CPP and OAS benefits at age 70, or getting a greater number of smaller-sized benefit cheques by accessing CPP and OAS benefits before age 70?
Depending on your individual circumstance, it might be better to take smaller cheques earlier or to wait and take larger cheques later. Some experts have estimated that generally if you live until at least age 82, delaying access to CPP until age 70 is better[1]. Yet fewer than one percent of Canadians employ this strategy[2]. Of course, if you know that you have a shorter life expectancy than 82, then accessing CPP before age 70 may be better.
To plan conservatively for retirement, you may want to plan for a longer lifespan than your average life expectancy by delaying “turning on” either or both CPP and OAS benefits until you are closer to age 70 and save more through your Advantages Retirement Plan™ and/or through other retirement savings plans so you don’t have to rely on CPP and OAS benefits until you’re 70 years old.
Delaying your access to CPP and OAS benefits until later can also help increase protection against the risk of outliving your other retirement savings because CPP and OAS benefits last as long as you live and protect against risk because CPP and OAS benefits are indexed to inflation.
You may know that average life expectancy at birth for a Canadian born between 2015 and 2017 is about 79.9 years for a male, and 84 years for a female. This means that of babies born between 2015 and 2017, 50 per cent of the boys are expected to live to be about 79.9 years old and 50 per cent of the girls are expected to live to 84 years old. Your life expectancy also increases as you age, because each year that you have additionally lived means that you successfully overcame risks of death over a longer period of time.
Canadian physicians on average have higher life expectancies compared to Canadians overall, especially as the number of female physicians continues to rise. Life expectancy among Canadian women is nearly five years higher than it is for men. Women now represent over 40 per cent of Ontario doctors as of 2017, up from 25 per cent in 1995.
[1]John Heinz, “Your Canada Pension Plan questions answered,” The Globe and Mail (Sept. 27, 2019).
[2]Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect CPP Benefits,” Financial Post (Aug. 16, 2016).