*Updated Feb 26, 2021 to include link to GofC website re: CPP sharing.
It seems that everyone writing about retirement has become fixated on when individuals and couples should start taking their CPP. So, I might as well jump on the bandwagon! Of all the articles that I have read about this matter recently, and there have been several of them, only one really addressed the factor(s) that led to our decision regarding when I should take mine.
The Articles
If you haven’t been looking at my “Past Week’s Favourite Reads” you won’t have noticed that I posted links to articles I have read recently about the “when to take your CPP” question. They all primarily address either the benefits or disadvantages of taking it early, age 60, or leaving it until the last allowable date, age 70. They are relisted here in order of date published:
• Asking Canadians to delay their CPP benefits? Good luck – Globe and Mail, Friday, February 10, 2017
https://beta.theglobeandmail.com/globe-investor/retirement/retire-planning/asking-canadians-to-delay-cpp-retirement-benefits-good-luck/article33964757/?ref=http://www.theglobeandmail.com&
• Want your money to go further in retirement? Defer CPP until age 70 – Globe and Mail, day, March 5, 2017
http://www.theglobeandmail.com/globe-investor/retirement/retire-planning/how-deferring-cpp-until-age-70-pays-off-for-retirees/article34209897/
• Why people hate the thought of deferring their CPP pension – Globe and Mail, Thursday, March 9, 2017
http://www.theglobeandmail.com/globe-investor/retirement/retire-planning/cpp-pension-and-why-people-hate-to-wait-they-really-hate-it/article34244279/
• This retirement decision could be worth $72,000, but few Canadians take advantage of it – Financial Post, Monday, March 20, 2017
http://business.financialpost.com/personal-finance/this-retirement-decision-could-be-worth-72000-but-few-canadians-take-advantage-of-it
• Counterpoint: Why taking CPP at 60 can make sense, even when the hard math says otherwise – Financial Post, Tuesday, March 21, 2017
http://business.financialpost.com/personal-finance/retirement/counterpoint-why-taking-cpp-at-60-can-make-sense-even-when-the-hard-math-says-otherwise
I won’t bother restating the various pros and cons here that were identified in the articles. You really should read them yourself; and any others you can find to help you decide which is the best approach for you. There is no one simple, definitive answer.
However, the basic premise is, if you take it early you lose a good chunk of money, and if you defer taking it until 70, you increase your CPP income substantially. This of course, is if you are only considering the amount of money you will receive. There are lots of other considerations, many of them also financial.
My Choice
When we considered all the factors involved we decided that I would start taking mine as soon as I turned 60. Which of course meant that I received just over $7,000 per year, rather than the over $12,000 that I would have received if I had waited until age 65, or probably close to $19,000 if I had waited until 70.
The General Reason for Taking My CPP at 60
So, what led us to this decision? I suppose the simplest answer is “we really didn’t need the money”. What? That sounds terribly pretentious doesn’t it? Let me explain.
I retired before I turned 60. My pension kicked in immediately, but I would have to say that if I had been a single man I wouldn’t have been happy trying to live solely on my pension. And, taking my CPP at 60 wouldn’t have improved my situation sufficiently to make me truly happy; strictly financially speaking, of course. If I had been single, I would have been working to the age of 65.
But, I was fortunate enough to be married. Which is probably the best state to be in when you enter retirement. Especially if your partner has worked as well. Two people making and saving money, with access to government pensions, and reduced individual expenses because of the cost sharing involved pays great dividends. I have read repeatedly over the years that divorce is probably the worst financial decision people can make later in life. I am sure it is.
Not only am I married, but I am fortunate enough to be married to a marvelous, intelligent, type A, driven individual who loves to work! When we talked it through she was quite comfortable with me retiring when the opportunity arose, and continuing to work herself until she was at least 65. Additionally, we both fully understood that staggered retirement was probably the best way for working couples to go; for us anyway. And, did I mention, she loves to work … whoo-hoo!
The net result of all of that was that when I retired we still had one steady income coming in. That, supplemented with my pension, was enough for us to maintain the lifestyle we enjoyed at the time. It meant that the saving for retirement part of our lives was beginning to wind down. We were in good shape.
The Specific Reason for Taking My CPP at 60
I was being facetious of course when I said that the fact that we didn’t really need the money was the main reason for taking my CPP early. That really should have been stated as, our financial situation and control over our careers was such that we had the flexibility to choose. We didn’t need to jack up the amount I would receive later to assure a better retirement at an older age; nor were we forced to take it early because we needed the money. A nice position to be in.
Let me begin my explanation of the principal reason for taking the money early by throwing some numbers at you. Everyone else writing about this does, so I had better do a little number crunching myself. Like some of the others I will be a little free and easy, or selective, with the math because it helps set up my explanation.
Here we go. When I retired I received the reduced annual amount of $7,369.68 (not the free and easy part of the math). On this amount, I paid 25% income tax (this is the free and easy part of the math, but it was probably around that amount). This left me with $5,527.26 after taxes. So, around $5,500.00. Does that number strike you as being familiar? Of course it does; it’s the amount individuals can contribute to a TFSA account each year. And that, is the primary factor for us taking my CPP early; we could invest it each year, and make some tax-free money that we could allow to accumulate. I have to say that we have been very happy with the outcome of that decision. Another day I will write about our overall TFSA strategy rather than belabour it here.
A Few More Reasons for Taking It Early … Some a Little Dubious
As I said, most of the articles I have read … many listed above … primarily dealt with the amount you would eventually receive; not surprising as they are frequently written by Actuaries, the ultimate bean-counters. However, the most recent one, also listed above, “Counterpoint: Why taking CPP at 60 can make sense …” by Ted Rechtshaffen, actually did delve into some of the more general factors that should be considered when deciding whether to take it at 60, several of which, including the TFSA factor, factored into our decision.
Another consideration was the fact that the Love-goddess was going to end up working past 65, thus delaying when she would start receiving her CPP and OAS. My CPP might have been lower, but both of her government pensions were going to be higher. A little balance was provided.
Let’s not forget indexing. My CPP amount has grown steadily, so now there is even more after tax dollars to invest. Hah, you say! Even in your first year your after-tax dollars exceeded the $5,500.00 allowed, so you can’t invest anything over that amount in a tax-free way. Of course, we can. Two people, two TFSAs, $11,000.00 of contribution room each year. I can’t tell you how happy it made the Love-goddess to have part of my annual income get slotted into her TFSA.
Another consideration might be taxes. By taking it at 60, and receiving less, you will probably be losing a smaller percentage of it if than if you wait and take the larger amount later. Okay, not a terribly compelling tax argument. But, taking a much bigger amount at the age of 70 might become an issue the following year in which you turn 71. Seventy-one is the age you are required to role your RRSP into a RRIF and you are forced to start drawing down on it as well.
Can you really have too much income starting to roll in at the beginning of your 70s? For some folks, it may actually be an issue. Specifically, it can be an issue for individuals who are close to the annual income level where OAS claw-back begins. Of course, there are ways to manage your registered investment drawdown before you turn 71, but in the odd case, a new, big CPP income stream might prove to be an issue.
Finally, another factor that could be thrown into the mix. Couples are permitted to share their CPP pensions. The partner with the higher pension can choose to have the partner with the lower pension receive part of theirs. This can be advantageous from a tax standpoint. You can read about it at the Government of Canada website.
Your Decision
Hopefully, what I have written, and the articles I have provided links to will give you food for thought if you are in the process of considering when to take your own CPP. Although we made the decision to take mine at 60, that will most assuredly not be the right decision for everyone.
The first, and most basic question you should be asking yourself is, when will I need the money to live on? If you have been forced out of your job later in life, and end up retired much earlier than you had planned, maybe you will need the money at 60. If you are in really good shape financially, you may be able to delay taking it until 70, as some of the pundits have suggested.
My last word on this, at least today’s last word, is to suggest to you that it is important to get as knowledgeable about this issue as you can, so you can make the best, informed decision when the time comes. It is one of the more important financial decisions you will have to make as you head into retirement.
The Graphic Image
And finally, finally; the graphic image I used with this article. I “borrowed” it from the pension section of the Government of Canada website. I hope they are okay with that. My question about it is: does it not make retired Canadians look like doddering old farts? 🙂 And that my friends, is NOT what retirement is like!
Next Up: A return to how we travel in Europe.
