For the past 10 years, one of the country’s top retirement experts has been trying to get more people to delay starting their Canada Pension Plan benefits to as late as age 70.
Success has been incremental in Bonnie-Jeanne MacDonald’s crusade. She says the latest numbers show 90 per cent of people are starting CPP between 60 and 65, compared to 95 per cent several years ago. For her, that’s still too many.
To kickstart a wave of smarter retirement decision-making, Ms. MacDonald and associates at the National Institute on Aging will produce an eight-part series of papers. The first is out Thursday and it delves into why so many people pass up an opportunity to as much as double their CPP benefits. That’s the lift you get if you start at 70 compared to 60.
Ms. MacDonald is an actuary and director of financial security research at the NIA, which is part of Toronto Metropolitan University. Her focus on the CPP has been driven in part by personal experience. A friend of hers once told her about advice he got from an accountant to start his CPP early, even though he had no pension as a doctor and was in great shape at age 60.
“I was like, oh my gosh, that was the wrong advice,” she recalled. “He’s a high-net-worth individual who’s going to have a potentially very long life expectancy. He would have been kind of the ideal candidate to have waited.”
Ms. MacDonald’s CPP work began with a review of academic writing on how people draw down their savings. It was a time when there was a decrease in the number of employers offering defined benefit pensions, which offer a guaranteed stream of money for life. What she noticed was a lack of discussion on how people could maximize the retirement resources that were available to them, including the CPP.
She then worked on a couple of academic papers on the benefits of delaying CPP and decided to continue her work after a sobering realization. “What I understood the more I got into it is that the math itself, the financial advantage, really wasn’t going to motivate people to change their behaviour,” she said.
One reason is that making a decision on when to take CPP is hard. There’s your expected lifespan to consider, as well as your ability to cover your retirement expenses until CPP kicks in at 70. There’s also the very human impulse to take money now rather than delay and run the risk you might not get what you expected in the end.
Your CPP questions answered: Should I take my CPP benefits early and invest them?
“For all these reasons, people may be choosing to take CPP early,” Ms. MacDonald said. “It gives them a sense of short-term security, but what they’re not thinking through is the long-term consequences of that decision.”
The latest paper lays out these consequences. Someone who is 60 today could start CPP benefits immediately, start Old Age Security at age 65 and expect as much as $19,666 per year at age 75. A 70-year-old today could start CPP and OAS immediately and receive as much as $35,547 per year. OAS starts at 65, but you can delay it as well until 70 and receive more money.
Starting CPP as early as 60 can be a righteous decision, notably when people have health concerns that will affect their expected lifespan or they’re short of retirement income and can’t afford to live without CPP in the near term.
If you can delay, expect a more comfortable retirement. The NIA did a survey of people aged 50 and up last year and found the two biggest worries for this group were inflation and running out of money. “Delaying CPP is pretty much one of the only things you can do to protect yourself against those two risks,” Ms. MacDonald said.
The next seven papers published by Ms. MacDonald and her team will explore some steps that can be taken to encourage people to consider delaying CPP. She thinks a team effort will be needed – financial planners combined by with employers and government.
“I’ve done the work for them,” she said. “I’m just hoping that they’ll read the papers.”
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Rob Carrick