Delaying CPP is one option that could be valuable but is often overlooked
One of the most important financial decisions Canadians make about retirement is when to claim their Canada Pension Plan (CPP) benefits. While the majority of Canadians start taking CPP before the age of 65, new research highlights the benefits of delaying until age 70.
“By waiting until age 70 to claim benefits, Canadians can receive more than double (2.2 times) the monthly pension than if they had claimed them at age 60,” according to 7 Steps Toward Better CPP/QPP Claiming Decisions: Shifting the Paradigm on how we help Canadians, a report from the National Institute on Ageing (NIA). “These higher payments last for life and are indexed to inflation.”
So, is it a good idea to delay? Let’s take a closer look.
First, what is CPP?
CPP is a Canadian social security program for workers and the self-employed, which delivers predictable lifetime income in retirement.
During your working years, participation in the program is mandatory and contributions are automatically deducted. When you are ready to retire, you can choose to start your monthly CPP payments anytime between ages 60 and 70. The monthly benefit is adjusted based on the age your payments start – it is lower if started before age 65 and higher if started after.
Most retired Canadians consider their CPP pension an essential part of their retirement income.* And yet, when it’s time to retire many people choose when to start their payments without a lot of support or guidance about options and the implications of their decision.
Today, most people take their CPP benefits as soon as they are eligible (at age 60) and fewer than one in 10 Canadians start later than 65. But research shows the value of delaying CPP as an effective way to increase lifetime income and build financial security.
The benefits of delaying
Delay or take it right away? There is no one-size-fits-all answer. However, delaying CPP benefits is one option that many Canadians overlook. Here are three key findings from the NIA report that show why Canadians should take a closer look at the option to delay:
- Affordable for most Canadians. The report found that most Canadians “can afford to bridge the income gap by working longer and/or drawing on personal savings” without affecting their living standards. However, it also acknowledges that delaying CPP payments is not feasible for everyone. For example, HOOPP’s 2024 Canadian Retirement Survey found that more than half of Canadians feel unprepared for retirement and nearly half haven’t saved any money for retirement in the last year. Ultimately, the decision is personal.
- Ease financial worries. The top financial concerns among Canadians aged 50+ are inflation (37%) and running out of money in retirement (22%).* Delaying CPP addresses both risks by increasing the lifetime payments you’ll receive later in life, which is particularly important if you don’t have predictable and secure lifetime income from other sources, such as a defined benefit pension plan like HOOPP. In addition, CPP benefits are indexed to inflation, which helps to maintain their purchasing power throughout your retirement.
- Higher lifetime income. For those with additional sources of income (e.g., RRSP, RRIF), using their personal savings in early retirement can be an effective financial strategy. Studies have shown that most people would get more lifetime income if they use a portion of personal savings first, as a bridge to later CPP payments, instead of spacing out their RRSP/RRIF withdrawals across their retirement. This approach can deliver more money in the long term, as well as protection against inflation and longevity risk.
Make the best decision for your situation
As the NIA report highlights, timing the start of your CPP payments means looking into an unknown future full of unpredictable factors (e.g., changing financial markets, inflation, employment, personal health, potential age of death) and then using that information to measure your financial resources against future living costs. This is not a straightforward task.
However, when asked who they consulted or where they looked for advice before making a CPP claiming decision, 39% of survey participants said no one or nothing, and only one in seven reported putting “significant effort” into the decision.* According to the report, personal biases, emotions, expectations and attitudes about retirement lead to “a major disconnect between what people want and what they actually choose to do.” In other words, many people default to the earliest payment option even when it’s not aligned with their long-term best interests.
Next steps
There are important takeaways from the NIA report, including proposals for government, industry stakeholders and average working Canadians. But perhaps the most important theme is this: The decision about when to start your CPP payments is significant and should be made with care and thoughtful consideration.
Delaying CPP may not be the right choice for everyone, but it’s important to understand the options you have and look at them closely to determine what is best for you. If you can afford to delay by using personal savings or working longer, it can significantly enhance your retirement income. It’s worth repeating. By waiting until age 70, you can receive more than double the lifetime monthly pension than if you claim at age 60.
When it comes time to make your CPP decision, it’s important to do your research, look at the complete picture and seek professional guidance as needed so you can make the best choice for your long-term financial future.
Read more:
* Source: 2023 NIA Ageing in Canada Survey.