Canadians face the perennial question of when they should start their Canada Pension Plan benefits. In general, I recommend waiting until age 70, since it reduces inflation risk, investment risk and longevity risk. Nevertheless, there are years when it is better to start CPP at age 69 instead of 70.
This was true last year, but will it be true in 2023 as well? While the following analysis focuses on 69-year-olds, it applies to anyone who is planning to start their CPP in January, 2024, and is wondering if it makes sense to start a little sooner.
To analyze this question, it is important to note that CPP benefits rise with wage inflation before the benefits start but with price inflation after they start. If wages are rising faster than consumer prices, then it is usually best to wait until the following calendar year. If it is the other way around, as happened in 2022, it may be better to start CPP a little early.
We already know that wage inflation for CPP purposes will rise by 3 per cent in 2024 over 2023. (We know that because it is based on a 12-month averaging period that ended in June.) As for price inflation, we won’t know the precise figure for CPP purposes until November, but it is likely to be in the 4.4-per-cent to 4.6-per-cent range.
If price inflation is indeed 4.5 per cent, it will make virtually no difference if 69-year-olds start their CPP in 2023 or 2024. While the chart suggests one receives slightly more pension by starting CPP in January, 2024, this is offset by the extra CPP monthly payment this person would receive if she starts payments in December, 2023.
The chart is based on the retiree being entitled to approximately 75 per cent of the maximum CPP benefits. The same conclusions would hold true if the percentage were either higher or lower.
Frederick Vettese is former Chief Actuary of Morneau Shepell and creator of the PERC retirement calculator (perc-pro.ca).
Frederick Vettese