Globe and Mail CPP article

[Darren]

https://www.theglobeandmail.com/investing/personal-finance/retirement/article-less-than-1-of-canadians-choose-to-delay-cpp-heres-why-the-rest-are/

Thoughts? I found this article in the Global and Mail surprising. Many of the comments below the article point out reasons why people have taken it at or before 65. Some sound reasonable enough. Some sound alarmist and ill thought out.

I don't really ever think about CPP/OAS/etc. with regard to my FIRE plan. I sort of just focus on what I can control.

[Mighty Eyebrows]

There are a number of very good articles about why delaying CPP to 70 is an excellent choice. Fred Vettese has a couple of good books, too. It really depends on your planning, though.

For FIRE planning, the total expected CPP may be less (less earning years) and the calculation takes some work. Personally, I wish that I could contribute more to CPP to "boost" my yearly amounts separate from my earnings. Many people think they can get better "returns" by investing the money themselves, which may be true. But, if you look at the price of any comparable inflation-adjusted annuity, the cost of CPP is very good. Regardless of CPP, annuitizing some of your retirement funds is an excellent strategy, but FIRE people tend to be too young for a large stretch of their "retirement" to get a decent price on an annuity. If the funds are there later, annuitizing part of savings after age 65 can still be an excellent hedge.

Here is one perspective:
https://www.advisorperspectives.com/articles/2015/08/04/why-bond-funds-don-t-belong-in-retirement-portfolios

Interest rates are low right now, but there seems to be a floor on annuity returns due to "mortality credits":
https://www.cannex.com/index.php/services/canada/annuity-products/income-annuities/

Annuity at age 65 - get guaranteed 5% return (non-inflation adjusted) until you die, even if you live to be 120.

Edit:

Here is a good recent podcast interview with Fred Vettese:
https://rationalreminder.ca/podcast/104

[Freedomin5]

There is a CPP calculator link in the globe and mail article. Delaying CPP only makes sense if you work a normal-length career in Canada. If you’re like most FIRE-ees and leave the workforce after ten years or so, you haven’t contributed enough into CPP to give you a significant boost in income by delaying withdrawals. In our case, we’ve spent most of our careers overseas. The calculator shows that we are estimated to receive less money from CPP if we delay until age 70.

[Goldielocks]

The CPP delay / early calculations are designed so that the average person, with the statistical average length of life would receive identical amounts regardless of the choice.

The government can rely on averages  / stats because of the millions of people involved, the stats will generally be correct.

You or I have other considerations -- like the ability to draw down the RRSP early, over many years of early retirement (or until age 72) to reduce future taxes, and then take the increased CPP / OAS after that.  Maybe we can even tell that we are in excellent health at age 65.

Of course, there are a lot of arguments about leaving your RRSP in tax free growth mode while you have 20+ years left before you take out most of it.... however less than 20 years and the tax free benefit starts to decline, and the tax impacts that you pay over your remaining life increases.

The biggest risk (if you intend to leave money/estate behind) is having a large amount in your RRSP/RRIF and no spouse when you die.   It will be taxed up to 54%.  Yikes. A hidden estate tax.   Compare that to draining it over a 10 year period when you are not pulling CPP/ OAS and have low income otherwise.

[Mighty Eyebrows]

There is a CPP calculator link in the globe and mail article. Delaying CPP only makes sense if you work a normal-length career in Canada. If you’re like most FIRE-ees and leave the workforce after ten years or so, you haven’t contributed enough into CPP to give you a significant boost in income by delaying withdrawals. In our case, we’ve spent most of our careers overseas. The calculator shows that we are estimated to receive less money from CPP if we delay until age 70.

I know this was posted in July, but I only just noticed your comment. I can't test the Globe calculator (paywall) but it sounds like it is not accurate. The way CPP is set up, you should never get less by deferring. Your yearly CPP may be small if you have only 10 earning years, but it should always get somewhat larger if you wait to 70.

[utaca]

The CPP delay / early calculations are designed so that the average person, with the statistical average length of life would receive identical amounts regardless of the choice.

The government can rely on averages  / stats because of the millions of people involved, the stats will generally be correct.

You or I have other considerations -- like the ability to draw down the RRSP early, over many years of early retirement (or until age 72) to reduce future taxes, and then take the increased CPP / OAS after that.  Maybe we can even tell that we are in excellent health at age 65.

Of course, there are a lot of arguments about leaving your RRSP in tax free growth mode while you have 20+ years left before you take out most of it.... however less than 20 years and the tax free benefit starts to decline, and the tax impacts that you pay over your remaining life increases.

The biggest risk (if you intend to leave money/estate behind) is having a large amount in your RRSP/RRIF and no spouse when you die.   It will be taxed up to 54%.  Yikes. A hidden estate tax.   Compare that to draining it over a 10 year period when you are not pulling CPP/ OAS and have low income otherwise.

I'm 10+ years away from FIRE but have been maxing out my TFSA and RRSP (and RESP) for years so perhaps this is why I never really turned my mind to delaying CPP in favour of drawing down the RRSP. You provide a very good explanation of the factors affecting CPP for a person looking to FIRE - thanks for that!

[Missy B]

There is a CPP calculator link in the globe and mail article. Delaying CPP only makes sense if you work a normal-length career in Canada. If you’re like most FIRE-ees and leave the workforce after ten years or so, you haven’t contributed enough into CPP to give you a significant boost in income by delaying withdrawals. In our case, we’ve spent most of our careers overseas. The calculator shows that we are estimated to receive less money from CPP if we delay until age 70.

I know this was posted in July, but I only just noticed your comment. I can't test the Globe calculator (paywall) but it sounds like it is not accurate. The way CPP is set up, you should never get less by deferring. Your yearly CPP may be small if you have only 10 earning years, but it should always get somewhat larger if you wait to 70.

Because CPP lets you throw out your worst 8 years of income, it can actually mean more money for early retired to take CPP early. If you wait, you have too many extra income-free years in the average and it drops your payment down.
At least one of the G&M articles had a link to a guy who used to work for CPP and does calculations for people at a reasonable price.

[Mighty Eyebrows]

At least one of the G&M articles had a link to a guy who used to work for CPP and does calculations for people at a reasonable price.

That would be Doug Runchey. He is certainly the most knowledgeable person writing articles about CPP at the moment:
http://www.drpensions.ca/about-dr-pensions.html

Regarding delaying CPP with more zero years, Doug says that the increase from delaying is usually bigger than the drop from adding the zero contribution year: "A bigger slice of a smaller pie."

There are good CPP calculators available if you want to play with numbers.

This one is accurate for base CPP, but does not have childrearing dropouts or the new enhancements. Consider it a low estimate.
https://www.finiki.org/wiki/CPP_and_QPP_calculator
Discussion here:
https://www.financialwisdomforum.org/forum/viewtopic.php?t=121323

This one handles more, but at the expense of precision. Consider it a mid to high estimate.
http://www.holypotato.net/?p=1694
Discussion here:
http://www.holypotato.net/?p=2397

[Stasher]

I am barely putting anything into CPP the last few years since leaving work for FIRE and do manage a little hustle work to generate some CPP deductions. Not sure how much these low income years change things to help compared to like 20 years at maxing out CPP every year. I'm now 47 so that is 13 more years of tiny freelance hustle income (if I choose to keep making that tiny bit) which won't help keep my CPP that high but I guess is better than nothing.

I planned on taking at 60 but now might delay to 70 after reading this article from wealth planner Ed Rempel.
https://edrempel.com/make-your-retirement-comfortable-with-the-8-year-gis-strategy/


"$101,00 tax-free cash from the government.
No income tax for 8 years.
Allow your CPP to grow by 42% by deferring it to age 70.
Allow your RRSPs and pensions to grow 8 more years. Invested effectively, they could be 50-100% higher, so the rest of your retirement should be much more comfortable.
Typically, 25% to 50% higher income through your retirement."