Are you 60 or about to turn 60 and wondering whether now is the time to take Canada Pension Plan (CPP) benefits?
Barring a few exceptional circumstances, the answer to that question is almost certainly no.
Although terminally ill or disabled people should obviously take CPP whenever they need to, the decision criteria are quite different for most other Canadians. If you live an average Canadian lifespan, you ultimately collect more benefits if you take CPP at age 65 or 70 rather than 60. In this article, I will explore why that is the case and what you can do to stay above water while you are waiting to take CPP.
Paltry benefits for those who start at 60
If you take CPP benefits at age 60, you will get much less than you’d get by taking CPP at 70 or even 65. If you take CPP at 60, you get 36% less than you’d get taking it at 65. If you take CPP at 70, you get 42% more than you’d get by taking it at 65. Therefore, the gain you make when you delay all the way to 70 is 78% in annual benefits! So, delaying taking CPP is very much worth it.
But the benefits don’t stop there. Not only does delaying taking CPP to age 65 or 70 give you more annual benefits compared to taking it at 60, but it also gives you more lifetime benefits if you live to the average life expectancy for a Canadian.
In Canada last year, the average life expectancy at birth was 82. If you live to 82, you get more benefits by taking CPP at 65 or 70 than by taking them at 60. Additionally, if you are 60 years old now, then your life expectancy is higher than your life expectancy at birth because you have already avoided many early-in-life mortality causes. So, you’ll likely get more benefits over a lifetime by taking CPP at 65 or 70 than by taking them at 60.
The changing nature of work
Another reason why you should consider delaying taking CPP until 65 or 70 is because the nature of work is changing. Gone are the days when work meant back-breaking labour in fields or even stocking store shelves. Today, many jobs can accommodate seniors and those who aren’t as energetic as they once were. In a StatCan survey of retired Canadians, 47% of respondents said that they planned to continue working part-time. Indeed, many of them work part-time as drivers, call centre workers, custodians, etc.
How to invest to supplement your CPP benefits
If you can see the benefit of delaying taking CPP but aren’t sure whether you can quite make ends meet, you can consider investing in a Tax-Free Savings Account (TFSA). TFSA investments are not taxed, which means that they can pile up considerable amounts of dividends and interest long term.
Consider Toronto-Dominion Bank (TSX:TD). It’s a banking stock that yields 5.43% at today’s prices. That high yield can result in considerable dividend payments. If you hold TD stock in a taxable account, you’ll pay significant amounts of tax on the dividends (though reduced by a credit). If you hold TD in a TFSA, all your dividends are tax-free. This example helps to illustrate how holding dividend stocks in a TFSA can help you power through your retirement.
