Did you know you can significantly increase your annual Canada Pension Plan (CPP) benefits by delaying your pension until age 70? Each year you postpone taking CPP beyond age 60 boosts your annual CPP benefits.
By waiting until 70, you could receive 42% more benefits compared to taking them at 65. This increase is not just about higher payouts; it’s also about maximizing lifetime benefits, tax efficiency, and financial security.
In this article, we’ll explore three compelling reasons why delaying your CPP benefits until age 70 is a strategic financial decision.
Reason 1: Increased Annual CPP Benefits
Delaying your CPP benefits results in higher monthly payouts. Here’s how the numbers stack up:
- If you start receiving CPP at age 65, you get 100% of your entitlement.
- For every month you delay beyond age 65, your CPP increases by 0.7%, up to a maximum of 42% at age 70.
- Conversely, if you take CPP early at age 60, your benefits are reduced by 36%.
To illustrate, here’s a breakdown of average monthly CPP benefits based on the starting age:
| Starting Age | Monthly CPP Benefits | Annual CPP Benefits | % Increase/Decrease Compared to Age 65 |
|---|---|---|---|
| 60 | $760 | $9,120 | -36% |
| 65 | $1,200 | $14,400 | Base (100%) |
| 70 | $1,704 | $20,448 | +42% |
This increase is substantial and can provide long-term financial stability, especially as the cost of living rises.
Reason 2: Greater Lifetime Benefits
The average Canadian life expectancy is about 82 years, but if you reach age 60, your chances of living beyond that average increase significantly. Here’s why:
- Life expectancy improves with age: Many early-life risks such as accidents and infant mortality no longer apply by age 60.
- If you live past age 82, taking CPP at 70 rather than 65 leads to higher lifetime benefits.
- Even if your lifespan is closer to the average, the enhanced benefits between ages 70 and 82 often outweigh the smaller payouts received earlier.
Lifetime Benefit Example
Let’s assume a retiree lives to age 85. Here’s how their total lifetime CPP benefits compare based on when they start taking them:
| Starting Age | Total Lifetime Benefits by Age 85 |
|---|---|
| 60 | $228,000 |
| 65 | $288,000 |
| 70 | $306,720 |
Clearly, waiting until 70 results in the highest overall payout, making it a prudent choice for many retirees.
Reason 3: Flexibility to Keep Working
The modern workplace has evolved, and many Canadians over 60 continue working. Here’s how this impacts the decision to delay CPP:
- Extended employment income: Continuing to work allows you to save more, potentially contributing further to your RRSP or TFSA.
- Reduced reliance on CPP: By earning an income, you can defer your CPP benefits until you truly need them.
- Healthier lifestyle: Staying active in a work environment can benefit mental and physical health, contributing to a longer life expectancy and higher lifetime CPP benefits.
If you enjoy your work and your health allows, delaying CPP while maintaining an income is a financially savvy move.
Bonus Reason: Tax Efficiency with RRSPs
Delaying CPP enables you to maximize other income streams like RRSP withdrawals. Here’s why:
- Lower tax rates: RRSP income is typically taxed at a lower rate during retirement, as your total income is likely to be lower than during your working years.
- Dividend stocks in RRSPs: By holding dividend-paying stocks in an RRSP, you can generate tax-efficient income.
- Bridge income until CPP kicks in: Use RRSP withdrawals to bridge the gap between retirement and age 70, allowing your CPP benefits to grow.
This strategy ensures a balanced and tax-optimized retirement income, reducing financial stress in later years.
Key Takeaways
Delaying your CPP benefits until age 70 offers numerous advantages, including:
- Higher monthly payouts: Up to 42% more compared to starting at age 65.
- Greater lifetime benefits: Especially for those with a life expectancy beyond 82.
- Tax-efficient retirement income: By optimizing RRSP withdrawals alongside delayed CPP benefits.
By carefully planning your retirement strategy, you can enjoy a more secure and financially stable future.
Delaying CPP benefits until age 70 is a powerful financial strategy for retirees seeking higher annual payouts, greater lifetime benefits, and tax-efficient retirement income.
While this decision depends on factors such as health, employment, and other income sources, the potential advantages are significant.
By taking a holistic approach to retirement planning, you can maximize your financial security and enjoy a stress-free retirement.
How much does CPP increase if I delay it?
For every month you delay beyond age 65, your CPP increases by 0.7%, or 8.4% annually, up to a maximum of 42% at age 70.
What happens if I take CPP at 60?
Taking CPP at age 60 reduces your benefits by 36% compared to waiting until 65.
Is it worth delaying CPP if I have health issues?
If your health condition may limit your life expectancy, taking CPP earlier might make sense. However, consult a financial advisor for a tailored approach.
