When Should You Start Collecting CPP and OAS? A More Personal Guide

When Should You Start Collecting CPP and OAS? A More Personal Guide

As you start thinking about retirement, one of the trickiest decisions you’ll need to make is when to begin collecting your Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. According to a 2023 survey on ageing in Canada, 9 out of 10 residents say CPP/OAS pensions are important sources of their retirement income, and 6 out of 10 say it is essential, and they can’t live without it. There’s no doubt that the choice of when to take your government benefits could have a big impact on your future finances, but it’s not just a numbers game. In this blog post, we’ll make a compelling case for you to consider delaying your CPP and OAS benefits, while still considering scenarios where taking it early makes sense.

What Are CPP and OAS Again? A Refresher…

• CPP (Canada Pension Plan): You can start collecting CPP as early as age 60. However, taking it early means your monthly payments will be reduced by 0.6% for each month you begin before 65. On the flip side, if you decide to wait until age 70, your monthly payment increases by 0.7% for each month you hold off.
• OAS (Old Age Security): OAS benefits kick in at age 65, but if you wait until 70, your payment increases by 0.6% for every month you defer.

Why Waiting Could Be the Right Move – A Case from Dr. Bonnie Jeanne- MacDonald

While it’s well known that delaying CPP benefits leads to an increase in benefit, many Canadians are surprised to know that taking CPP at age 70 leads to 2.2x higher retirement payout than taking it at age 60. According to Dr. Bonnie Jeanne-MacDonald, director of financial security research at the National Institute on Aging, the “breakeven age” where you are better off delaying your CPP from age 60 to age 70 is around age 77. If you can wait to take CPP at 65 instead of age 60, the breakeven age is around 74. See figures below:

What’s to Gain by Holding Off?

1. Bigger Monthly Payments: As seen above longer you wait, the more you’ll get. If you wait until age 70, your CPP could be up to 42% higher than if you started at 65. Imagine going from $1,000 to $1,420 per month—quite a bump!
   
2. More Financial Security Later: A larger monthly payment can provide peace of mind, especially when you might be facing higher healthcare costs or unexpected expenses in your later years. Having an indexed pension in later years is one of the most powerful components of any retiree’s income!

What makes sense for you? Let’s Take Jane as an Example…

• Meet Jane, who’s 60 and eligible for CPP.
• If Jane takes her CPP now, she’ll get $640 per month, but if she waits until 65, she’ll receive $1,000.
• If she decides to wait until age 70, she could receive $1,420 each month.
  
  Now, if Jane expects to live until 85, the math would suggest delaying until be the better option since she’d collect more over the years. But if Jane has health concerns and doesn’t expect to live much past 75, taking the benefits early could make more sense for her.

The Case for Taking Benefits Early

Math aside, the one thing that remains true in financial planning is that every situation is unique. The purpose of this blog is to consider both sides of the argument, as in your situation it could make sense to take your benefits now. Here are some of the most common reasons why a retiree would consider taking their government benefits now:

1. You Need Immediate Income: If you’re retiring early or have ongoing financial commitments, starting your CPP as soon as you can means more money in your pocket right away.
2. Ease into Retirement: If you’re gradually reducing your work hours or transitioning into a slower pace, the extra income can smooth out the change and help cover daily expenses.
3. Health and Family History: If you’re dealing with health issues or have a family history of shorter lifespans, the decision to wait might not be as appealing. In these cases, taking benefits earlier could be the smarter financial choice.

It All Comes Down to You…

Deciding when to start your CPP and OAS is a highly personal decision. Factors like your financial situation, health, life expectancy, and even how you feel about the peace of mind a higher monthly payment brings are all crucial pieces of the puzzle. While the math might lean one way, your life circumstances could suggest another. If you’re unsure about what makes the most sense for you or would like some help running the numbers, don’t hesitate to reach out. Together, we can work through the details and create a plan that suits your goals and lifestyle.