# A twist on taking early CPP. Should we do it?



## arashbro (Apr 23, 2013)

Hello everyone. I'm new to the forum and have searched but don't really see the answer to my question. My husband and I plan to retire in 6 years when he will be 65 and I will be 62. We are trying to calculate whether it would be advantageous for each of us to apply for CPP at age 60 and save the entire CPP amount until we actually do retire. We understand taking the pension early would result in a lower benefit but we've also heard many financial planners who say people with a normal life expectancy end up receiving more, albeit in smaller amounts, than those who wait to collect a larger pension. Our goal in starting our CPP earlier would to use it to boost savings while we are both still working. I'm assuming there would be tax implications? We have some savings but haven't maxed out RSPs since we spent a significant amount to put kids through post-secondary school.

When we do retire, I will have some pension income from my employer (40% pension) but my husband doesn't have an employer pension. I am 'fussing' a little over whether we will have enough. I think we will but it would be great to give our savings a little extra boost.

I don't really know how to calculate this...ok, let's tell the truth: I have NO idea how to figure this out! I'd appreciate any help. Thanks.


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## MoneyGal (Apr 24, 2009)

Statistically, exactly half of the people who have a normal life expectancy will die before that normal life expectancy, and half will outlive it. That's what "life expectancy" expresses - the point at which half of the population born in that year is alive. 

So. If you outlive normal life expectancy, you will get more CPP than if you die earlier. That is really the only statistically valid conclusion that can be drawn from all of these projections. 

One note: life expectancy at birth is not the same as life expectancy at 65. It is higher at 65. 

A better measure would be to calculate your probability of being alive at a given age: 100, 95, 90, 85, etc. Even better is to calculate the probability of one member of a couple being alive at ages 100, 95, etc. (and receiving a survivor's CPP pension in addition to their own pension). This is a much more useful way of illustrating the probability of your being alive at various ages, again, operating from general projections about everyone born in your year of birth. 

Anyone who tells you things like "people who delay taking CPP often receive less than people who do not delay" either: 1. doesn't understand probability and statistics, or 2. is using anecdotes, which are not statistically valid. CPP is adjusted actuarially to adjust for the life expectancy of the recipients taking CPP at various ages.


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## andrewf (Mar 1, 2010)

The only way to game it is the apply adverse selection. If you think your life expectancy is less than that of the rest of the population at the same age, you should take CPP early, and vice versa if you expect to live longer.


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## MoneyGal (Apr 24, 2009)

And even then, your game may not play out. Strictly speaking, this would be an *attempt* to game it, not a method for gaming the system.


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## Daniel A. (Mar 20, 2011)

Use your own family genetics's as a guild to age.


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## kcowan (Jul 1, 2010)

In addition to what MG and Andrew said, you need to consider the specific longevity of your respective families, and also consider if there are any periods of low earnings that you would like to exclude from the calculation. Or if you continue working after starting CPP, will your earnings be higher that are excluded?


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## Beaver101 (Nov 14, 2011)

Isn't "current" statistics saying we may be outliving our retirement savings due to "longevity" trends? So how is that


> Statistically, exactly half of the people who have a normal life expectancy will die before that normal life expectancy, and half will outlive it. That's what "life expectancy" expresses - the point at which half of the population born in that year is alive.


?


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## Dogger1953 (Dec 14, 2012)

Aside from the life expectancy aspect to your question, it's not possible to give you a simple answer to what your benefit will be at age 60 versus 65 etc, without seeing your entire contributory record. One other aspect to consider if you do apply at age 60 while you're still working, those extra contributions won't affect your regular CPP benefit calculation, but they will buy you what's known as PRBs (post-retirement benfits). If you want detailed calculations to help you in making your decision, I do that as a business.


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## MoneyGal (Apr 24, 2009)

Beaver101 said:


> Isn't "current" statistics saying we may be outliving our retirement savings due to "longevity" trends? So how is that ?


People are living longer and longer; it's pretty amazing how much we've gained in life expectancy over the past 50 years (measured starting at age 65; gains from birth are even more amazing). If you base your retirement income planning on "average life expectancy" you have a 50% chance of outliving that life expectancy.


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## steve41 (Apr 18, 2009)

You know I couldn't pass this up.... a 59 year old, retired, with $500K in his RRSP elects to take his CPP at 60 rather than deferring it to age 70. (taxed in BC, ror 4%, cpi 2%)

Should I take CPP at 60 or 70?

Wild eh?


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## arashbro (Apr 23, 2013)

steve41 said:


> You know I couldn't pass this up.... a 59 year old, retired, with $500K in his RRSP elects to take his CPP at 60 rather than deferring it to age 70. (taxed in BC, ror 4%, cpi 2%)
> 
> Should I take CPP at 60 or 70?
> 
> Wild eh?



Wow! consider me gobsmacked. Time to request updated CPP statements (haven't received any since 2004!) and run some actual numbers to see what we come up with.


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## OhGreatGuru (May 24, 2009)

1. Are you aware that, under the recent changes: 
a) the penalty for early CPP has increased; and
b) You will both have to continue contributing to CPP as long as you are working and under 65? (It used to be if you started collecting you could no longer be a contributor)

2. "my husband doesn't have an employer pension" All the more reason why he should want to continue building his CPP.

3. "Our goal in starting our CPP earlier would be to use it to boost savings while we are both still working". For what purpose? If for retirement, do you think you can invest it better than CPP? If for current expenses, are you living beyond your means?


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## arashbro (Apr 23, 2013)

OhGreatGuru said:


> 1. Are you aware that, under the recent changes:
> a) the penalty for early CPP has increased; and
> b) You will both have to continue contributing to CPP as long as you are working and under 65? (It used to be if you started collecting you could no longer be a contributor)
> 
> ...


a) yes, I realize that makes the monthly benefit a few $ smaller but it also makes the 'break-even' age earlier
b) yes, but since CPP contributions continue, it will result in receiving PRBs for those years of contribution beyond age 60.

2. I see what you're saying and that's the reason I was trying to understand if there would be an advantage to taking CPP early and investing those payments so that we could benefit from dividend reinvestment and compounding on an increasingly larger capital base for those 5 years.
3. To increase the lump sum we currently already have in our RRSPs to be used in our retirement. I'm confident I can invest it at least as well as CPP but the benefit would would be that it would be added to increase our capital sooner. We are not living beyond our means, so it would definitely not be to cover expenses or add to current 'general revenues'. That would defeat the purpose of what we're hoping to achieve and would only make our future financial situation even worse with no additional lump sum invested and a reduced pension to boot.


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## Daniel A. (Mar 20, 2011)

It really would not be possible to offer you an intelligent answer without knowing a great deal more about your situation.

Don't get caught with generalizations that financial planners throw around, they may or may not work for you.

At this stage you need a plan that only considers your own personal situation and a five year time line should be easy to work with.


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## Russ (Mar 15, 2010)

I would have thought the tax impact would shift the advantage towards delaying CPP. Let's say the OP's husband is now 59, starts collecting at 60, retires at 65 and dies exactly when he reaches his normal life expectancy. During the five years when he is working and collecting, his marginal tax rate would be relatively high and his net benefit correspondingly low. I would think the interest earned from investing the net benefit would only partially offset the higher tax hit.

Wouldn't that make his total net benefit at his death lower than if he had delayed collecting until age 65?

Steve41, does your first graph suggest that the benefit is the same until age 93? I certainly don't doubt the accuracy of your numbers. I'm just not sure if I am interpreting that graph correctly? (Just noticed that Steve's example is for a 59 year old who is retired, not continuing to work. Makes more sense to me now...)


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## Daniel A. (Mar 20, 2011)

The advantage of starting it early is that if one has room in the RRSP they can park the money there and offset the tax hit.


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## arashbro (Apr 23, 2013)

Daniel A. said:


> The advantage of starting it early is that if one has room in the RRSP they can park the money there and offset the tax hit.


We do have room in the RRSP to offset the increase in income. I even thought we would add back the ensuing tax refund to further boost savings. Thanks for all the comments folks...I've appreciated the input.


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## steve41 (Apr 18, 2009)

When you run the 'early vs late cpp' coupled with 'early vs late oas' the graph becomes even more pronounced. Any guess as to why you won't see this basic 'delay your entiltlements' message in the financial media? My take is that when you delay your CPP&OAS, you have to attack your investment capital early so as to maintain the same level of net income until the entitlements kick in. The industry isn't too happy seeing those fee-earning funds depleted.


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## HaroldCrump (Jun 10, 2009)

There is also an estate consideration.
If you take CPP/OAS early, you might be able to preserve more estate than otherwise.
If you deplete your capital first, and then start CPP/OAS, there may not be any/much inheritance left.


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## steve41 (Apr 18, 2009)

That is exactly what 'Net Worth' in early vs late CPP? shows. If you die prior to 79, then your estate will be advantaged if you took early CPP. If you make it past 79, your estate will lose.


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## kcowan (Jul 1, 2010)

steve41 said:


> If you make it past 79, your estate will lose.


So it is a 50-50 bet?


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## MoneyGal (Apr 24, 2009)

Not really. a 60-year-old man in Canada has a 63% chance of being alive at age 79 -- and a 65-year-old Canadian man has a 66% chance of being alive at age 79. 

A 60-year-old Canadian woman has a 75% chance of being alive at age 79, and a 78% chance of being alive at age 79. 

So in the "worst" (least-likely) scenario, it is a 37%/63% bet.


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