3 Reasons To Take CPP At Age 70
While it may be hard to pass up the money by delaying your CPP, your payments increase by 8.4% each year up to a maximum of 42% at age 70. Although delaying CPP may not be the right decision for everyone, it certainly is something to think about and a discussion that you should be having with your financial advisor. Deferring government income such as OAS and CPP later than age 65 may seem counter-intuitive, as it forces you to draw down on your retirement savings for income. This retirement planning strategy can however, increase your income long term, as government payments are guaranteed for as long as you live helping to prevent you from outliving your money!!!
1. Larger Guaranteed Benefit - Up to 42% more!
To demonstrate the effects of when you elect to take your CPP we will compare the maximum payments for a retiree at age 60, 65, and 70. There is no benefit to delaying past age 70.
The maximum available monthly payment when taking CPP at age 65 (in 2019) is $1,154.58. While not everyone is eligible for the maximum we will use it for demonstration purposes. That will leave the retiree with an annual CPP income of $13,854.96.
Now if our retiree decided to take their CPP early at age 60, their monthly payment would be reduced by 36% to $848.96 with the annual payment equal to $10,187.47 a decrease of $3,667.49.
In the final scenario our retiree delayed CPP until age 70. Their monthly payment will be $1,639.50 and an annual payment of $19,674.00 (indexed with inflation) a 42% increase ($5,819.04 more annually) over the payments at age 65 and almost double, 93% more ($9,486.53 more annually) than your payments if you elect to receive CPP at age 60.
2. Tax Savings from Required RRSP Withdrawals and OAS Clawbacks
Problems related to OAS clawbacks and increased tax payments can occur when your retirement savings and government benefits both begin providing income at the same time. By using your RRSP to supplement your income until you begin receiving your government income, it allows you to reduce the size of your RRSP, making the required minimum withdrawals smaller once your RRSP converts to a RRIF. By having this lower minimum required withdrawal it helps keep your taxable income lower hopefully reducing if not eliminating OAS clawbacks as well as the ability to manage your taxable income more effectively.
3. Not Having to Worry About Outliving your Money
This is where some retirees may think of delaying government income as counter-intuitive as you are decreasing your retirement savings earlier, but this approach allows you to spend your riskier money first, as your CPP payments will always be there regardless of what the market is doing. Typically retirement planning is based on taking CPP at age 65 and waiting until age 71 when your RRSP converts to a RRIF to begin withdrawing from your retirement savings.
While it is a situational decision there are definitely scenarios under which a case can be made for delaying your CPP income to help reduce the amount of tax you will be paying each year as well as protecting yourself against longevity risk.
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