Turning 65 can come with more paperwork than birthday cards. Yet one of the biggest decisions is when to start collecting the Canada Pension Plan (CPP).
Age 65 is the familiar starting point, but familiar doesn’t automatically mean best. The right choice depends on what other income you have, how long you expect retirement to last, and whether you can afford to wait for a bigger cheque.
Under current CPP rules, delaying after 65 increases your pension by 0.7% for every month you wait. Hold off until 70 and the age adjustment reaches 42%. So if you turn 65 in 2027, you’d need to wait until 2032 to get the full increase. Waiting only one year boosts the payment by 8.4%, not 42%.
There’s another important detail. The increase applies to whatever CPP pension you personally qualify for. It doesn’t mean everyone suddenly gets 42% more than the published maximum, and the monthly increases don’t compound like an investment return. Your work and contribution history still determine the starting amount.
Source: Getty Images
Price the five-year wait
The extra income sounds attractive. The five years without CPP deserve equal billing. Suppose you’re entitled to $1,000 per month at age 65. Waiting until 70 would increase that to $1,420 per month based only on the age adjustment.
That’s another $420 every month, or $5,040 a year. The catch is the $60,000 of CPP you didn’t collect between 65 and 70. Divide that $60,000 by the extra $5,040 a year and the simple break-even comes roughly 11.9 years after turning 70, or around age 82.
Yet think of age 82 as a planning marker, not a finish line. Someone in good health who expects a long retirement may really value the larger dependable payment later. Someone who needs income sooner, has health concerns or simply wants more spending power in their 60s could reasonably choose differently. A bigger cheque later doesn’t make the first five years free.
Build the bridge
If CPP would otherwise cover $1,000 of monthly spending, you need roughly that much coming from somewhere else while you wait. That could be employment income, another pension, cash savings or investments. I’d keep money needed soon in accessible savings.
Longer-term savings can take on a different job. Hydro One (TSX: H), for example, operates regulated electricity transmission and distribution infrastructure in Ontario. It can be one piece of a longer-term portfolio, but I wouldn’t expect a $10,000 position to somehow fund five years without CPP.
Hydro One reported second-quarter earnings per share of $0.62, up from $0.54 a year earlier. Approved rates and higher peak demand helped, while financing and operating costs worked in the other direction. Its regulated business gives earnings some structure, but doesn’t make borrowing costs or project execution disappear.
There’s also longevity to consider. A simple break-even calculation asks when cumulative CPP dollars catch up. It doesn’t fully capture the value of having a larger inflation-indexed pension later in life.
Keep the dividend in proportion
Hydro One currently pays $0.35 per share each quarter, or $1.41 annually. At a recent share price of $50.97, a $10,000 budget buys 196 shares for $9,990.12. That works out to an average of about $23.07 per month.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | ANNUAL DIVIDEND | ANNUAL TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
|---|---|---|---|---|---|---|
| Hydro One | $50.97 | 196 | $1.4124 | $276.83 | Quarterly | $9,990.12 |
Compare that with the example’s $1,000 monthly CPP gap and the scale becomes obvious. A portfolio of Canadian dividend stocks can help support retirement income, but a modest stock position isn’t replacing five years of pension payments.
Hydro One also trades around 21.6 times trailing earnings of $2.36 per share. That’s a fairly full price for stability, particularly while higher interest rates still matter to utilities.
Bottom line
A Tax-Free Savings Account (TFSA) can be particularly useful during the bridge years because withdrawals are generally tax-free. I’d coordinate those withdrawals with CPP, other taxable pensions and household spending before deciding when the government cheque should start.
Figure out how you’ll fund the wait first. Then decide whether buying yourself a larger CPP payment for the rest of retirement is worth it.
