Our advice
Below is a sample of the various CPP timing recommendations that our firm has made recently. Our advice was customized to each unique situation. One size does not fit all.
These are tiny extracts from four financial plans. We’re biased of course, but feel strongly that only a comprehensive, tax-sensitive financial planning exercise can identify the pros and cons of a range of options. Together with the client, we settle on the strategy that feels best overall. (Names have been changed for privacy).
Spouses age 61 and 64 – pre-retired – Primary goal, duration of capital to protect against longevity risk. Avoid need to sell home.
- Our analysis shows that taking CPP benefits earlier than age 70 conflicts with your desire to retain the full value of your home for your children.
- Assuming that you each elect CPP at age 70, you would be required to draw down a higher proportion from savings between the ages of 65-70.
- As a result, your liquid capital would be depleted prematurely, requiring that you access your home equity through debt or the sale of the property.
- Your financial objectives are best accomplished by applying for CPP at age 65 rather than by delaying to age 70.
Married couple age 61 and 65 (retired) – health considerations
- The benefits of delaying CPP payments increase as life expectancy increases. Due to Larry’s pre-existing health conditions, we have modeled a CPP start date of age 65 for him and have not recommended deferred payments.
- To assess the impact of delaying Susan’s CPP start date, we compared her estate net worth using CPP start dates of age 61, 65 and 70.
- We found that delaying Susan’s CPP start date only marginally increased Susan’s net worth at age 90, with a CPP start date of age 70 resulting in the highest net worth. Because the impact on Susan’s estate value was negligible, we recommend electing payments now.
Widow – age 59 – primary goal, financial security for longevity expectation
- In all 3 scenarios we have assumed that you start collecting CPP and OAS at 65.
- We tested election ages ranging from 60 to 70.
- The results showed limited long-term financial advantage to deferring. Factoring in the time-value of money, and the fact that the income will allow you to make an annual, $6,000 TFSA contribution, an early election is recommended.
Single, pre-retiree age 64 – Primary goals – duration of capital and tax management
- Given your plan to work until age 70, our analysis shows that delaying CPP and OAS benefits to age 70 increases your final net worth by 8%. This additional wealth can be a hedge against end-of-life medical costs, used to support additional spending in retirement, or any other lifetime goal over and above your current lifestyle needs.
- Your income tax rate drops dramatically after you retire, making future benefits more valuable than current benefits taxed at the highest marginal tax rate in Ontario.
We could go on and on but you get the idea.
To be optimal, a decision as important – and irreversible – as CPP election is best evaluated as part of a comprehensive financial planning process.
The good news is, there are a growing number of fee-only planning firms to help you.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.
