Should You Wait Till 70 To Claim CPP Benefits?

You can earn the maximum CPP payout if you wait till 70 to claim the benefit. But is the wait worth it? Let’s find out.

| More on:
retirees and finances

Image source: Getty Images

Retirement is close. It is time to think about your Canada Pension Plan (CPP) benefits. The Canada Revenue Agency (CRA) determines 65 as the age to get the average CPP benefit. If you take the benefit earlier than 65, it decreases by 0.6% each month. If you delay the claim, your benefit increases by 0.7% each month. While more is merrier, should this be the basis for you to wait till 70 to claim the CPP benefit? 

Should you wait till 70 to claim the CPP benefit? 

The average Canada Pension Plan (CPP) benefit was $758.23 per month in October 2023, or $9,098.76 a year. If we take this amount as the base, you could either reduce your CPP benefit by $3,275.5 or increase it by $3,821 a year. After 70, there is no point waiting as there is no incentive. But should you even wait till 70 or claim it at age 65? 

You have to consider three things: your health, your financial situation, and your retirement plans. 

  • If you have a shorter life expectancy, there is no point in waiting. You might claim CPP at 65 or earlier and enjoy the payout till your last breath. 
  • If your financial situation is not strong, and you need money for basic necessities, you might as well cash out the benefit. What use is the benefit if it can’t help in times of need? 
  • But if you have a job even at age 65 and it is paying well, consider your retirement plan. How much have you saved up for retirement?  

It brings us to the question: 

How much money do you need to retire? 

One method of calculating the retirement amount is to have 25 times your annual income in the retirement pool. If your annual income is $70,000, you might want $1.75 million in your retirement pool. Of this $70,000, around 15% would be taken care of by CPP and old age pension (OAS). So you need $59,500 x 25 = $1.5 million. 

If you don’t have enough retirement savings and have a longer life expectancy, you might want to delay your retirement and wait till 70 to earn the maximum CPP benefit. 

Can you accumulate $1.5 million by investing $6,000 to $7,000 in a Tax-Free Savings Account (TFSA) every year? Maybe not. Thus, the CRA also allows you to invest through a Registered Retirement Savings Account (RRSP) that has a maximum contribution limit of $30,000-plus if you are a high-income earner. Since the RRSP contribution is 18% of your salary, the CRA is indirectly enticing you to save that much. 

You can still make a $1.5 million retirement pool without investing 18% of your income. 

Building your CPP alternative 

Since you know CPP is not enough, you might want to consider building CPP alternatives. If retirement is not far behind, consider investing in resilient growth stocks like Constellation Software (TSX:CSU). The general rule says that your equity investments should reduce with age as equity has risk. But there are some resilient stocks like Constellation that have the potential to give you a 30% average annual return. 

It is better to give your money a chance to grow faster than inflation. Constellation works on the power of compounding. Constellation acquires smaller companies with stable cash flows and stickiness because of the mission-critical nature of the software. It uses the cash flows from these companies to acquire more companies. Each company operates individually, and Constellation benefits from their 2 to 3% organic growth and a higher percentage from compounding their cash flows through acquisitions. 

A $10,500 investment in Constellation Software in February 2019 would have bought you nine shares. They are now worth $32,893. The stock just tripled its money in five years. While there is no certainty that it can replicate similar returns, this is a good chance to accelerate your retirement pool and come closer to $1.5 million. 

Final thoughts

Remember, your investment will continue to generate returns even after you retire. You will not withdraw the entire retirement pool in one go. Even if you withdraw $50,000 a year, you still have a larger sum invested. And your TFSA will be with you till the last breath. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

More on Tech Stocks

Early retirement handwritten in a note
Tech Stocks

If You Start Investing Today, When Could You Retire?

Have you given a thought to how you plan to retire? Your decision depends significantly on how much your investments…

Read more »

Businessman holding AI cloud
Tech Stocks

5 Artificial Intelligence (AI) Stocks That Could Be Millionaire Makers

AI stocks like Kinaxis (TSX:KXS) are rallying in the markets.

Read more »

Businessman holding AI cloud
Tech Stocks

If You Like Nvidia, Then You Will Love These 2 Hot AI Stocks

Hot AI stocks like Open Text Corp (TSX:OTEX) have been rallying lately.

Read more »

Different industries to invest in
Tech Stocks

Why Shares of Hut Stock Are Climbing This Week

Hut stock (TSX:HUT) surged by 23% after the company reported strong earnings, and even more growth occurred in 2024.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »