Author Topic: CPP - best age to start  (Read 1324 times)

bluebelle

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CPP - best age to start
« on: September 26, 2017, 08:34:42 AM »
Other than needing the money now or a shorter than average life expectancy, is there ever a good reason to start CPP before age 65?  My brother's tax accountant is encouraging him to start drawing CPP at at 60 rather than waiting until 65 or beyond.  My brother has a pretty good government pension and has a better than average life expectancy, based on family history and his own current health. 

I think he should wait until at least age 65, unless he needs the money for cash flow (I don't think he does), his accountant is taking the 'bird in the hand' stance and thinks he should get it while he can.  I'm actually considering waiting to age 70 myself and treating it like a guaranteed annuity for my later years when I don't want to have to manage funds.

I'd love to hear others opinions of 'when to start CPP'?   I have a few retired friends that took it at 60, and I just don't see the benefit.  What am I missing?

Retire-Canada

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Re: CPP - best age to start
« Reply #1 on: September 26, 2017, 08:58:24 AM »
Other than needing the money now or a shorter than average life expectancy, is there ever a good reason to start CPP before age 65?  My brother's tax accountant is encouraging him to start drawing CPP at at 60 rather than waiting until 65 or beyond.  My brother has a pretty good government pension and has a better than average life expectancy, based on family history and his own current health. 

I think he should wait until at least age 65, unless he needs the money for cash flow (I don't think he does), his accountant is taking the 'bird in the hand' stance and thinks he should get it while he can.  I'm actually considering waiting to age 70 myself and treating it like a guaranteed annuity for my later years when I don't want to have to manage funds.

I'd love to hear others opinions of 'when to start CPP'?   I have a few retired friends that took it at 60, and I just don't see the benefit.  What am I missing?

If you retire at say 50 and take CPP at 60 you have 10 years of zero contributions that are calculated into the mix to determine your monthly payment, but the payment is reduced due ~36%. If the same person took CPP at 65 they have 15 years of zero contributions in the calculation of the monthly payment, but there is no reduction in the monthly benefit.

Assuming you don't need the money you'd have to decide if you preferred to have the reduced payment at 60, which you could save and invest [perhaps in your TFSA] or if you'd prefer to wait and get it later.

There are a lot of factors at play [expected rate of return, expected longevity, financial situation, changes to CPP regulations, income tax changes, claw back of OAS, etc...] so I don't think there is a cut and dried generic answer.

I'm leaning towards taking it early because:

1. I'll have fewer non-contributing years in the calculation of my benefit
2. I like managing my own money
3. getting 5yrs of CPP payments I can save and invest is a considerable sum

For some rough calcs:

- assume max CPP at 65 is $1000/month [it's a bit higher]
- at 60 you'd get $640/month [$1K less 36%]
- if you saved and invested that reduced CPP payment from 60-65 and got 6% after inflation you end up with ~$44.6K
- by 80 you'd end up with $296K
- if you took the full $1K at 65 by 80 you'd end up with $291K
- now your actual investment returns with taking CPP early could be much higher or much lower
- this doesn't account for a reduced benefit amount at 65yrs due to 5 less contributing years
- this doesn't factor in income tax

Given your brother's accountant has all his financial details and must be looking at CPP issues daily I'd go with what he suggests unless you have a compelling argument otherwise.
« Last Edit: September 26, 2017, 09:36:34 AM by Retire-Canada »

bluebelle

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Re: CPP - best age to start
« Reply #2 on: September 26, 2017, 10:19:43 AM »
thanks for the detailed reply.

It's doubtful he'd invest the early CPP payments (remember it's me, not him on this forum).

The risk/reward of an extra 5K at age 80 isn't worth it to me, especially since I don't believe a 6% return after inflation is realistic, but that's just me, I see getting more risk adverse as I age.

And we can drop out 7 of the lowest years, CPP looks at the best 40 years out of the possible 47.

Retire-Canada

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Re: CPP - best age to start
« Reply #3 on: September 26, 2017, 10:47:26 AM »
It's doubtful he'd invest the early CPP payments (remember it's me, not him on this forum).

The risk/reward of an extra 5K at age 80 isn't worth it to me, especially since I don't believe a 6% return after inflation is realistic, but that's just me, I see getting more risk adverse as I age.

And we can drop out 7 of the lowest years, CPP looks at the best 40 years out of the possible 47.

I don't know your brother, but I assume his accountant has a pretty good handle on what his finances and plans are.

Assuming you spend every penny of CPP as soon as you get it:

- Lets' pretend $1K/month is the payment at 65 and $640/month is what you get at 60
- 60-65 = $38.4K you spent and by 80 you will have spent $~154K
- waiting until 65 to start by 80 you will have spent $180K
- ignores income taxes you'd owe on CPP payments
- ignores impact of 5 extra non-contributing years for calculating CPP at 65

Assuming his accountant is any good I would assume he's wargamed the various CPP options and decided early is better for some reason. I can see an unsophisticated retiree jumping to the "bird in hand" conclusion because it's emotionally appealing, but it's hard to imagine a professional accounted thinking in such simplistic terms about a topic they must deal with many many times a year.

Ultimately without access to the information the accountant has it's hard to say he's wrong in his recommendation.

Prairie Stash

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Re: CPP - best age to start
« Reply #4 on: October 02, 2017, 09:07:52 AM »
Is he married and what about the spouses income? You're saying he has a good pension, what about the spouse and what happens if he passes? will the spouse get the double whammy of reduced CPP and pension? On the other hand if he gets it early, puts it aside, it can act as a life insurance policy for the spouse.

There's a good reason right there, looking after your spouse.

bluebelle

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Re: CPP - best age to start
« Reply #5 on: October 02, 2017, 10:05:20 AM »
thanks for the reply....
I find it doubtful that he'd save the CPP between age 60 and 65, which is why I advocate waiting and getting a larger amount.  The idea of getting it and saving it is an interesting point and one I hadn't considered for myself (I'm only 53 now, so I have a few years to decide).  I was actually planning on waiting to age 70 to draw and thinking of it as a life annuity.  I don't want to need to manage investments after age 80. 

He does have a spouse, who is 10 years his junior.  She has always worked, and will be entitled to her own CPP (don't know if it will be the max amount or not, I'm guessing not, but close).  I know she has RRSPs (but I doubt a huge balance).  He's been very open with me about his money, but not hers (I'm hoping he knows)

This brings me to some CPP and survivor benefit questions:
1) if both spouses are receiving max CPP payments, when one spouse dies, am I correct that the surviving spouse does not receive additional monies?
2) if spouse 1 passes (and was receiving the max CPP less the reduction for taking it early), and spouse 2 is receiving CPP less than the maximum - what would spouse 1 now receive?  My understanding is that the reduction impacts what spouse 2 would receive.

This has me thinking about what I should do....both my spouse and I have contributed the maximum to CPP every year, but will be dropping out 10 years early.  By my calculations, that will get us approximately 84% of max CPP.  Based on my family longevity, my plan goes to age 100, but based on hubby's health issues and less than optimal lifestyle choices, I think I'll be lucky to have him to age 80.   CPP discriminates against higher income earners, by capping the survivor benefit they way they do.  Imagine the uproar if my husband's defined benefit pension decided I didn't get the 60% survivor benefit because I had my own pension income!  That is what CPP does.  Remember, CPP is funded by employee/employer contributions, but the government has decided that they get to keep my CPP survivor benefit because I "don't need it".  (steps off soapbox).  I know the government isn't really keeping the money, and it's kept inside the CPP coffers, I'm just annoyed that I won't get something that I think I "deserve".   (and I put "deserve" in quotes because I worry that our society has become a bunch of special little snowflakes, if I hear one more commercial about how someone "deserves" a new car, I may loose it.)

BNgarden

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Re: CPP - best age to start
« Reply #6 on: October 02, 2017, 12:07:07 PM »
I think Doug Runchey has the most complete information for the public about CPP and survivor's benefits. 

http://www.drpensions.ca/

Here is one article:
https://retirehappy.ca/cpp-survivor-benefits/

Prairie Stash

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Re: CPP - best age to start
« Reply #7 on: October 02, 2017, 12:19:01 PM »
Bluebelle, from your scenario, what happens to his 10 years younger wife if he passes at 80 and she's 70? Will she have enough to keep the house and maintain their combined standard of living? As you point out the household income will drop, not all the bills will though. I'm guessing the accountant is thinking in terms of this as well. What would you do in her shoes?

In your case, making rough assumptions, it might be good for you to wait till 70 and your husband to get it at 60. Its the blend, you get a lifetime annuity and if your husband passes early you get the savings. Although it seems couples tend to take it at the same time, there's no rules against timing it to optimize the household.

CPP, pensions, RRSP's always need to consider the household, not just the individual.

Goldielocks

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Re: CPP - best age to start
« Reply #8 on: October 02, 2017, 02:50:01 PM »
I am skeptical that there are more net dollars to taking CPP early, even if retiring early.   There was a year or two during the rules switchover where someone could choose OAS and maybe early CPP that provided a loop hole, that is now closed.  I calculated this very thing several times for myself, and it was always the same money or better to take it at age 65.  (or a minor difference)

The advantages to early CPP:

1)  If you expect to die earlier than age 80 for some reason.   The cash is calculated to be identical for people living to age 80.
2)  If you expect to receive  more income at age 65 or 67 (OAS, pension, spousal pension, etc).  and you need the extra money to cash flow your expenses NOW not later. 
3)  A variation on the above -- if you receive another source of income after age 65 (e.g., RRIF income?) that would generate a OAS clawback, and you are close to the cut off, so a lower CPP taken earlier, is to your benefit.

4)  I have seen some advisors show that the earlier CPP is invested 100% and grows for 20 years before funding future retirement, because a spouse is still working, (money not needed) and self investing the money for a couple of decades is better returns than the increased CPP...  I thought that was being overly optimistic of human nature to keep it invested, but those are the planners trying to get people to buy more funds from them..

Stasher

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Re: CPP - best age to start
« Reply #9 on: October 02, 2017, 05:40:33 PM »
I simply see it as this....
I could die tomorrow !
I like money now
I could possible preserve my investment capital marginally and enjoy the government piggy bank sooner.
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meghan88

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Re: CPP - best age to start
« Reply #10 on: October 03, 2017, 10:59:29 AM »
I was thinking of waiting until age 70 to collect CPP and OAS because between ages 61-70, when I plan to be retired, I want to be drawing down from, and mostly living off of, my RRSP.  So, say I have no other meaningful sources of income from 61-70, and I draw down 50K or so per year from my RRSP.  That leaves a lot less that I would have to roll over into a RRIF.

I would really welcome your views on this in case there's a better way.  Some facts:

- SigO and I have about 2.1M net worth right now; we are 58 years old.
- Retirement is hopefully in mid-2020; SigO might keep working for another year or so because he has a sweet gig and can work from anywhere.  We might be at 2.3M in two years.  SigO won't draw down his RRSP while he's still working.
- 600K of that is in our home and I'm not sure if we'll buy or rent when we move to our home city when we retire (moving from ON to QC).
- my RRSP will probably be at 600K in two years; SigO's will not be too far behind, maybe 500K.
- our TFSAs will be the last thing we touch, and we will keep on contributing each year.
- I am budgeting us at 80K/year - more than we spend now but we want to travel a lot.
- we have no kids and we do not plan on being the richest people in the cemetery. OTOH, I am deathly afraid of eating cat food if the $ runs out.

Does it make sense to defer CPP/OAS and draw down RRSPs in our case?

pachnik

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Re: CPP - best age to start
« Reply #11 on: October 03, 2017, 11:14:37 AM »
I simply see it as this....
I could die tomorrow !
I like money now
I could possible preserve my investment capital marginally and enjoy the government piggy bank sooner.

I smiled when I read this one.  I agree with it completely.  My husband turned 60 earlier this year and started collecting his CPP.  He's still working and expects to put the pension money into his retirement savings.   I won't turn 60 for a while but I will collect it right away too.

Stasher

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Re: CPP - best age to start
« Reply #12 on: October 03, 2017, 12:55:51 PM »
@Pachnik .... of course my answer is horribly simplified but so many around me between the ages of 50-70 died suddenly and unexpectedly around me in the last year including my Father and Uncle only weeks apart from each other. My mind has switched over the last year and I am happy to live with less and go for what is right in front of me both financially and experiential.
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pachnik

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Re: CPP - best age to start
« Reply #13 on: October 03, 2017, 02:44:15 PM »
@Pachnik .... of course my answer is horribly simplified but so many around me between the ages of 50-70 died suddenly and unexpectedly around me in the last year including my Father and Uncle only weeks apart from each other. My mind has switched over the last year and I am happy to live with less and go for what is right in front of me both financially and experiential.

Stasher, I  get it.  My best friend died in her mid-50's and never got to collect a cent of the pension she'd been paying into.  Another friend has lots of pension $$$ coming in but isn't able to enjoy it since she has been struggling with a terrible mental illness for the last several years. 


meghan88

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Re: CPP - best age to start
« Reply #14 on: October 04, 2017, 06:04:17 PM »
But what about those of us who would defer CPP/OAS in order to draw down from the RRSP in the absence of other income so that there is a smaller RRSP to roll into a RRIF?  Is that a dumb idea for those with no dependents?

Stasher

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Re: CPP - best age to start
« Reply #15 on: October 04, 2017, 06:16:31 PM »
But what about those of us who would defer CPP/OAS in order to draw down from the RRSP in the absence of other income so that there is a smaller RRSP to roll into a RRIF?  Is that a dumb idea for those with no dependents?

I don't think there is any dumb idea out there, we each do what is best for us. I won't have anywhere enough total income to worry about so for me I'm taking the cash....

You can withdraw up to $72,000 per individual before there is any OAS clawback and if you are able to take that much out of your RRSP at 60, well I owe you a high five and job well done!

http://www.moneysense.ca/save/retirement/pensions/why-im-taking-old-age-security-right-at-65/
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Goldielocks

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Re: CPP - best age to start
« Reply #16 on: October 04, 2017, 11:38:29 PM »
But what about those of us who would defer CPP/OAS in order to draw down from the RRSP in the absence of other income so that there is a smaller RRSP to roll into a RRIF?  Is that a dumb idea for those with no dependents?

That's a pretty good idea, it's just that not that many (%) people are worried about too much money in retirement, and some who have enough that they should be, are clueless bout taxes.

The rest are on this forum..   ;p


For me, I have calculated that any year that I would have individual income less than $60k, is a year to pull from the RRSP's to draw down, even if it goes right back into the taxable investments.  The tax bracket drop versus when I put it in, is worth it.  This is not just about OAS clawback, but overall balacing out the marginal tax rates between high and low years.
« Last Edit: October 04, 2017, 11:46:22 PM by Goldielocks »

meghan88

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Re: CPP - best age to start
« Reply #17 on: October 05, 2017, 09:04:50 AM »
For me, I have calculated that any year that I would have individual income less than $60k, is a year to pull from the RRSP's to draw down, even if it goes right back into the taxable investments.  The tax bracket drop versus when I put it in, is worth it.  This is not just about OAS clawback, but overall balacing out the marginal tax rates between high and low years.

Yeppers - No matter what I draw down from the RRSP, I'll keep contributing the max each year to my TFSA.

You mention drawing down when your individual income is less than 60K.  Wondering why you've chosen that amount?  And, would you also plow the max back into your TFSA after you draw down from the RRSP?

I don't think there is any dumb idea out there, we each do what is best for us. I won't have anywhere enough total income to worry about so for me I'm taking the cash....

You can withdraw up to $72,000 per individual before there is any OAS clawback and if you are able to take that much out of your RRSP at 60, well I owe you a high five and job well done!

http://www.moneysense.ca/save/retirement/pensions/why-im-taking-old-age-security-right-at-65/

Thanks for the link - that story makes good sense to me, and I may well do the same:  Defer CPP to 70 but take OAS at 65.

Step37

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Re: CPP - best age to start
« Reply #18 on: October 24, 2017, 09:06:27 PM »
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