The Case for Delaying CPP to Age 70
For those who are in good health, have sufficient alternative retirement income, and anticipate a long life, delaying CPP until age 70 can be a highly advantageous strategy. The financial benefits are substantial and offer a guaranteed, inflation-indexed income stream that is difficult to replicate through other investments.
Significant Increase in Monthly Benefits
The primary and most compelling reason to defer CPP is the permanent boost to your monthly payments. For each month you delay collecting benefits after age 65, your payment increases by 0.7%. This compounds annually to 8.4% and culminates in a maximum increase of 42% at age 70. This boost provides a robust, predictable stream of income for the rest of your life that is also protected against inflation, giving peace of mind that your purchasing power won't erode over time.
Longevity Protection and Peace of Mind
One of the biggest financial risks in retirement is outliving your savings. By deferring CPP, you are effectively self-insuring against this risk by securing a larger, lifetime pension. For individuals with a long family history of longevity or who are in excellent health, this is an invaluable benefit. While break-even ages exist (often cited as around 82 when deferring from 65 to 70), actuarial data suggests that for a healthy individual, the long-term benefit of deferring is very strong. This provides a solid financial floor, allowing you to be more flexible with other, more volatile investments.
Tax Planning and Income Management
For many, delaying CPP can be a smart tax strategy. If you plan to continue working past age 65 or have other income sources (like RRSPs or RRIFs), delaying CPP can help you manage your taxable income. Taking CPP payments while still working can push you into a higher tax bracket, while delaying allows you to draw on other assets first. By taking a larger CPP amount later in life, your overall tax strategy can be optimized for lower overall lifetime tax payments.
The Arguments Against Waiting
While deferring has clear advantages, it is not a universally correct decision. Several factors make an earlier CPP claim a more suitable option for some Canadians.
Immediate Financial Needs and Liquidity
Delaying CPP means forgoing up to 60 monthly payments that could be used to cover living expenses, pay down debt, or fund travel and other activities during your more active retirement years. Not everyone has alternative income sources to bridge the five-year gap between 65 and 70. For those with pressing financial needs or who prefer to enjoy their retirement while they are still young and healthy, taking CPP earlier is the only practical option.
Considerations for Health and Life Expectancy
If you have health concerns or a shorter than average life expectancy, delaying CPP may not be the most prudent choice. The higher monthly payments received by waiting until age 70 will not provide a better return if you do not live long enough to reach the break-even point. In such cases, receiving more total benefits by taking a smaller, earlier payment is the more logical financial decision. It's a difficult conversation, but a necessary one for a realistic retirement plan.
Weighing Investment Opportunities
Some financial strategies argue for taking CPP early and investing the proceeds, especially for those with a high-growth investment portfolio. The logic is that the potential investment returns could outweigh the guaranteed 8.4% annual return of deferring CPP between ages 65 and 70. However, this comes with market risk. The guaranteed, inflation-indexed return of delaying CPP is very attractive and hard to beat consistently, particularly for more conservative investors.
Table: Deferring CPP to Age 70 vs. Taking at 65
| Feature | Taking CPP at 65 | Deferring CPP to 70 |
|---|---|---|
| Monthly Benefit | Standard amount | Up to 42% higher |
| Inflation Protection | Yes | Yes (on a higher base amount) |
| Lifetime Guarantee | Yes | Yes (on a higher base amount) |
| Financial Flexibility | Provides immediate cash flow | Requires alternative income to bridge gap |
| Longevity Risk | Potentially runs out of personal savings | Protects against outliving your savings |
| Break-Even Point | N/A (earlier payments start immediately) | Estimated around age 82 |
| Tax Implications | May increase taxable income during working years | Can be used for strategic tax planning |
| Who it's for | Those with immediate financial needs, health concerns, or preference for early retirement | Those who are healthy, can afford to wait, and want maximum lifetime security |
The Critical Decision-Making Factors
Making the right choice involves a holistic review of your personal circumstances. There is no one-size-fits-all answer.
Your Personal Health and Life Expectancy
- Review your family health history for insights into your likely longevity.
- Be honest about your current health status and any potential future health issues.
Your Current Financial Situation
- Assess your savings, investments, and other sources of income (like OAS or a company pension).
- Determine if you can comfortably cover your living expenses for the five years you would be deferring CPP.
Your Retirement Goals
- Do you prioritize financial security later in life or maximizing your income during your early, more active retirement years?
- How important is leaving an estate for your heirs? Unlike other assets, CPP benefits do not form part of your estate.
Your Risk Tolerance
- Are you comfortable with market fluctuations if you take CPP early to invest it?
- Or do you prefer the guaranteed, inflation-indexed security of a higher CPP payment?
Consulting with a Financial Professional
This is a complex decision with significant, lifelong implications. It is highly recommended to speak with a qualified financial advisor who can help you model different scenarios based on your specific situation. They can provide an objective assessment of your retirement income plan, accounting for your unique finances, health, and goals. For more authoritative guidance on CPP benefits, you can visit the official Canada.ca website.
Conclusion: Your Personal Path to Retirement
Deciding whether you should defer CPP to age 70 is a deeply personal financial and life decision. While the mathematical advantage of delaying for higher monthly payments is clear for many, particularly those with good health and alternative income, it's not the right path for everyone. By carefully considering your personal health, financial needs, and retirement aspirations, you can make an informed choice that best suits your future. Prioritize a decision that gives you both financial security and peace of mind throughout your golden years, whether that means a larger monthly cheque later or more immediate financial freedom now.
