The Relative Benefit of Delaying CPP and/or OAS
Take CPP at 60; Take OAS at 65
Deciding when to begin Canada Pension Plan (CPP) or Old Age Security (OAS) may not be a problem for many Canadians. The default choice is to take it as early as possible.
Low-Income Earners
Indeed, for some taking CPP at 60 and OAS at 65 may be the best choice. If your income is insufficient, then there is no point in delaying. Furthermore, by taking CPP at 60, you will receive a lesser amount, which will preserve eligibility for a higher amount of the Guaranteed Income Supplement (GIS). Remember, however, that to get GIS you need to take OAS. Again, in this case, it likely works best to take OAS at 65.
If You are in Poor Health
In the tables below, you will see various breakeven points. However, delaying only makes sense if you have a reasonable expectation of living long enough to make up the difference. If you are unlikely to live beyond age 70, there’s not much point in delaying.
Delay, Delay, Delay
CPP
It has become more common for financial planners to recommend delaying the beginning of CPP to as far out as age 70. The yearly increase of 8.4% (0.7% per month) when you delay taking CPP past age 65 is generally regarded as a good thing. It does mean, however, that you will need to spend from other sources of income, typically RRSP/RRIF accounts to cover the period that you are not taking CPP. But, delaying CPP to get a secure, inflation-adjusted source of income later while spending down risky assets that may or may not keep up with inflation in your earlier retirement years often makes sense.
OAS
If you are unlikely to qualify for GIS, you have investments that are adequate to cover you between ages 65 and 70, and you are likely to live a long life, then delaying OAS may also be an option for you. The crossover point doesn’t happen quite as quickly as it does for CPP, however.
Calculating Your CPP
There are a few sources to get an idea of how much CPP you will receive. The first is My Service Canada Account, where you will get estimates of what you will receive at age 60 (or next month if you are already over 60), 65, and 70.
The next one I would recommend is the CPP Calculator, developed by David Field, CFP® of Papyrus Planning, in collaboration with Doug Runchey. You will need to get some information from your My Service Canada Account to make proper use of the calculator, but it addresses some of the shortfalls of the government website.
Finally, if you have a complicated CPP contribution history, and this applies most often (but not always) to women who took years off work to care for their children while they were young, as well as to anyone who received the CPP Disability Pension, you may wish to reach out to Doug Runchey of DR Pensions Consulting for a more accurate picture of the CPP you can expect to receive.
What Happens if I Take CPP at This Age?
It was on Doug Runchey’s website that I first saw a table similar to the one below. For the monthly amount at age 65, I took the average monthly figure, $811.21 in January 2023, as provided by the government. Starting earlier than 65 means you will receive 7.2% less per year, for a total of only 64% at age 60 of what you would receive at 65. The highlighted figures show the age when it makes sense to delay your start. Note that these are all in today’s dollar figures. Note as well that there is no year when age 65 is superior.
What Happens if I Take OAS at This Age?
Below you will see another table, this time for Old Age Security (OAS). You cannot begin OAS before age 65. If you choose to delay beginning OAS past 65, the increase is only 0.6% per month or 7.2% per year. The $691 monthly figure at age 65 is based on the amounts payable for the April to June 2023 quarter. OAS is adjusted for inflation quarterly, while CPP is only adjusted annually. I have also added 10% to each of the figures at age 75. You can see these figures and the quarterly updates here. If you have spent several years living outside of Canada, note that these figures assume at least 40 years of residency in Canada between the ages of 18 and 65. If you have lived in Canada for less than the required four decades, you may nevertheless be eligible for a partial OAS.
What Happens if I Take CPP and OAS at This Age?
Few Canadians choose to delay CPP and OAS past 65, and those that do, tend to delay CPP rather than OAS. However, for this exercise, I combined the figures from the CPP and OAS tables above for the ages 65 to 70, to see what the combined impact of delaying the start date might be. The pattern is similar to the CPP and OAS alone, as one might expect. What is striking to me, though, is the substantial amounts of money that have been received over the years and the significant difference that delaying CPP and OAS can make.
Yes, But How Long Am I Going to Live?
Of course, I don’t know that answer for myself, let alone for a general Canadian audience. FP Canada, the credentialing body that issues the QAFP™ and CFP® designations, provides a Probability of Survival Table to financial planners. Drawn from actuarial calculations, in the case of a 60-year-old male-female couple, there is a 50% chance that at least one will live to age 94, a 25% chance that one will live to age 98, and a 10% chance that one will live to age 101. If you look at the left column, which shows the age for each of the cumulative incomes received, you will see that they all fall within the “delay to age 70” column. For individual males, the ages are 89, 94, and 98, respectively, and for individual females, the ages are 91, 96, and 100, respectively. Even choosing age 89, the 50% probability of survival age for a male who is currently 60 years old, delaying to age 70 may still be the preferred choice.
What I hope to convey from this blog post is that it might encourage readers to consider the potential value of delaying the start of CPP and/or OAS if there are no solid reasons to start it sooner. The impact could be meaningful.
This is the 201st blog post for Russ Writes, first published on 2023-06-12
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.