Posthaste: This missed CPP opportunity is costing Canadians thousands, says report (2024)

Waiting until age 70 to claim Canada Pension Plan would more than double pension payments

Author of the article:

Pamela Heaven

Published Apr 29, 2024Last updated 18hours ago5 minute read

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Most Canadians — in fact nine out of 10 — say the Canada Pension Plan is an important source of their retirement income and six out of 10 say it’s essential and they can’t do without it.

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Yet according to a new report from the National Institute on Aging, the vast majority are not making the most of the government retirement plan.

Canadians can start claiming at age 60, but the earlier you start, the lower your payments. You can defer your pension until age 70 and the longer you wait the higher payments climb.

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Posthaste: This missed CPP opportunity is costing Canadians thousands, says report (3)

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According to the report, waiting until 70 would more than double your monthly pension than if you start collecting CPP at age 60.

A Canadian with median CPP income and average life expectancy is losing out on more than $100,000 worth of income, in current dollars, by taking CPP at age 60 rather than 70, said Bonnie-Jeanne MacDonald, the NIA’s director of financial security research and head author of the report.

Yet nine out of 10 Canadians opt to take these benefits by age 65 or earlier.

Claiming CPP is easy, but deciding when to claim is not, said MacDonald. Despite being one of the most important financial decisions Canadians will make, two out of five CPP recipients say they didn’t consult anyone or any resources before making it.

“This is a once-in-a-lifetime, high-stakes financial decision, and its complexity leads people to make choices that are not in their best interest,” said MacDonald. “By claiming too early, recipients are reducing the lifetime income security that they report to want and will most likely need.”

The stakes have never been higher. More than a thousand Canadian baby boomers are making the claiming decision every day, and while retirement costs are increasing, sources of secure long-term retirement financing are shrinking, the study says.

Posthaste: This missed CPP opportunity is costing Canadians thousands, says report (4)

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Since the 1970s, access to defined benefit pensions has decreased in the private sector from three in 10 to one in 10 today.

And while two-thirds of Canadians hold registered retirement savings, such as RRSPs or defined contribution plans, the median balance is only $100,000.

“This level of savings is frighteningly inadequate,” said MacDonald.

“In the new reality of longer lives, less available family support and growing fiscal pressures on health and social programs for older adults, it is critical to use the little retirement savings held by Canada’s substantial retiring population as efficiently as possible.”

Deferring CPP isn’t for everyone and the report stresses it is not meant as personal financial advice. For retirees facing financial hardship or ill health that means shorter life expectancy, claiming CPP at 60 is a rational decision.

Nor is deferring without controversy. Some argue that waiting just means you are getting higher payments for a shorter period of time.

But what the report argues is that it makes more financial sense for retirees to use their less secure RRSP savings first to bridge the gap until age 70, allowing a higher and more secure income to kick in.

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“Drawing on personal savings in early retirement as an income bridge to a higher delayed CPP/QPP benefit is a financially advantageous investment strategy to generate greater secure lifetime income,” said MacDonald.

An earlier NIA study found that four out of five Canadians with RRSPs or RRIFs would get more lifetime income by using a portion of these savings to bridge the gap until 70 than spreading them out over the span of their retirement.

The report also argues that most Canadians can afford it. Using a Statistics Canada simulation model, the NIA calculated that more than half of 60-year-old Canadians could have delayed their CPP and 27 per cent could have waited until 70 by using only a portion of their private savings.

Even $100,000 in RRSPs, though not much over the entirety of a retirement, is enough to bridge the income gap, said MacDonald.

Why Canadians are not waiting spans a range of reasons, from ignorance of the rules to bias among financial advisers to human psychology. A poll in 2018 by the federal government found that two thirds of Canadians didn’t know that waiting to claim CPP would increase their payments. A common fear is that the government pension plan will run out of money.

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The purpose of the paper and a series of reports to come is to shift the paradigm and help Canadians make more evidence-based and unbiased CPP claiming decisions, said MacDonald.

And behaviour is slowly changing. Over the past 10 years there has been a move away from claiming CPP at age 60, but it has been gradual and only one in 10 wait past age 65, she said.

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Posthaste: This missed CPP opportunity is costing Canadians thousands, says report (8)

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Today’s Posthaste was written by Pamela Heavenwith additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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Posthaste: This missed CPP opportunity is costing Canadians thousands, says report (2024)

FAQs

What happens to my CPP if I leave Canada? ›

Because CPP is a "member-contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit. OAS, on the other hand, comes out of the general tax revenues.

What is the impact of delaying CPP? ›

Delaying CPP past age 65

The benefit will increase for each month of deferral. You get 0.7% of the age-65 amount per month (8.4% per year of deferral), for a gain of up to 42% if you defer from 65 to 70.

Why am I receiving CPP? ›

The CPP disability benefit and the CPP post-retirement disability benefit are taxable monthly payments available to people who have made contributions to the CPP, are under age 65 and are not able to work regularly at any job because of a disability.

Why was my CPP reduced? ›

Should you wait to start collecting CPP. Your age affects your pension amount: If you start before age 65, payments will decrease by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36% if you start at age 60.

Can I get my Canadian pension if I live in the US? ›

If you have lived or worked in Canada and in another country, or you are the survivor of someone who has lived or worked in Canada and in another country, you may be eligible for pensions and benefits from Canada and/or from the other country because of a social security agreement.

Do I have to declare my Canada-Canada pension on my US taxes? ›

For US Residents

According to the IRS, special tax treatment applies to payments received from the Canadian pension, the Quebec pension plan, and the Old Age Security plan. If you are a resident of the United States, these retirement benefits are treated as US social security payments for tax purposes.

Is CPP worth deferring? ›

Deferring CPP and OAS can add up

If you are in good health and worried about the risk of living too long, or if you are still working because you cannot yet afford to retire, deferring your CPP can make sense.

Is CPP worth delaying? ›

It Pays to Delay

“If you delay it and start as late as 70, then it goes up, but there's no benefit of delay past 70 because it doesn't go up thereafter.” If you are financially able to put off CPP, the wait is well worth it. In 2023, the maximum monthly CPP payout at age 65 was $1,306 per month.

What is the average CPP payment at 65? ›

For 2024, the maximum CPP payout is $1,364.60 per month for new beneficiaries who start receiving CPP at 65, while the average CPP in October 2023 was a much lower $758.32 per month. You can find out how much you're on track to receive from CPP using the Canadian Retirement Income Calculator.

Can you collect CPP if you don't live in Canada? ›

As a non-resident of Canada, you may be entitled to apply for Canada Pension Plan (CPP) payments and Old Age Security Pension (OAS) payments. Canada also has agreements with a number of other countries that offer comparable pension programs.

Do I get all my CPP back? ›

Each year you contribute to the CPP will result in an additional post-retirement benefit and increase your retirement income. We will automatically pay you this benefit the following year. You'll receive it for the rest of your life. You can choose to stop your post-retirement contributions when you reach age 65.

Can I receive CPP disability outside of Canada? ›

Can I still receive CPP Disability if I Worked Overseas? If you lived and working outside of Canada any contributions you made to a foreign retirement plan may allow you to qualify for CPP disability benefits. You can find Information about which countries these are here.

Does CPP reduce Social Security? ›

The WEP, which you can read about here, allows the Social Security Administration to reduce your retirement benefits if you “earned a retirement or disability pension from an employer who didn't withhold Social Security taxes.” The CPP falls under this provision but not Old Age Security (OAS).

What is the average retirement income in Canada? ›

As of the most recent information from Statistics Canada, the average Canadian senior family made $69,900 in 2021. When looking at a single senior, that dropped down to an average of $31,400. So, if you're a senior couple, that means you would be bringing in $5,825 per month and $2,616 per month as an individual.

How many years do you have to work in Canada to get a pension? ›

The Old Age Security Pension is available to any Canadian who has lived in the country for at least ten years and is over the age of 65, even if they did not work. Many payees can get as much as $625 a month depending on age and income status.

How long can I be out of Canada without losing benefits? ›

Your provincial or territorial health plan will cover only part, if any, of medical expenses outside Canada and will not pay up front. Furthermore, it will become invalid if you live elsewhere beyond a certain length of time—generally six to eight months, depending on your province or territory.

What happens to your CPP when you pass away? ›

The CPP Death benefit is a one-time, lump-sum payment made to the estate of the deceased contributor. If there is a will, the executor named in the will to administer the estate must apply for the Death Benefit within 60 days of the date of death.

Will I lose my pension if I move abroad? ›

If you get NZ Super or Veteran's Pension and plan to live overseas, you can't get these payments once you leave NZ unless you meet certain criteria. You must apply to keep these payments going.

What happens to your pension when you leave a company Canada? ›

If you have a defined-benefit (DB) pension, you will typically have the option to either leave the pension where it is or transfer it to a new employer's plan. If you have a defined-contribution (DC) pension, you will usually be able to take your account balance with you and invest it elsewhere.

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