Are you approaching 60 years of age and wondering whether you should take CPP as soon as possible?
To cut a long story short, the answer is most likely no. Taking CPP at age 60 results in you receiving far smaller monthly amounts that you’d get if you waited until age 65 or 70. Additionally, the cumulative amounts of CPP received over a typical Canadian retiree’s lifetime are smaller for those receiving benefits at age 60.
To be sure, there are situations where a person ought to take CPP at 60. Terminal illness is one of them. However, most Canadians do not become terminally ill at age 60. Because this and other situations that justify taking CPP at age 60 are uncommon, it pays to delay taking CPP until age 65, maybe even age 70.
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You lose 36% per year by claiming CPP at 60
If you take CPP at age 60, you get 36% less per year, compared to a person who waits until age 65 to take CPP. For 2024, the average monthly amount a new retiree gets is $805. If somebody takes CPP at 60 and is otherwise identical to the recipient taking benefits at 65, he/she gets a mere $515 per month. A pittance!
If you’re already 60, you are likely to live well past 80
It’s clear by now that you get more benefits per year by delaying taking CPP. Nevertheless, you might wonder whether the extra annual CPP gained by delaying translates into extra lifetime CPP.
The answer for most Canadians is yes.
The average life expectancy in Canada is about 82. If you live until 82, you get more by taking CPP at age 65 than by taking it at age 60. The matter is slightly more complex for those taking CPP at 70. At age 70, the average Canadian only has 12 years of life expectancy left, going by life expectancy at birth. However, if you look at average life expectancy at age 70, you’ll find that it’s much higher. This is because infant, young adult, and middle age mortality drags down the average for all ages. So, taking CPP at 70 may be worth it after all.
Investing to supplement CPP
If you’re concerned that you won’t get enough CPP to cover your retirement expenses, you’ll need a plan B. A great plan B is investing. By investing in dividend stocks and interest-bearing bonds, you can supplement the money you receive from the CPP program.
Consider the BMO Canadian Dividend ETF (TSX: ZDV), for example. It’s a Canadian ETF that invests in high dividend stocks. These include banks, utilities, and energy stocks. Today, with tech stocks trading at nosebleed prices, the stocks in ZDV have a chance of outperforming.
Apart from its portfolio composition, ZDV has other recommendable features. For one, its management fee (0.35%) is relatively low. For another, it has a high (4.8%) dividend yield. Finally, it is highly liquid and easy to trade, which is an advantage over mutual funds. Overall, investing in ZDV could be a wise choice for many investors.
