Every financial planner has been there.
You’re sitting across from a perfectly healthy 64-year-old who has more than enough saved, no debt, a paid-off house, a reasonable spending plan, and a good chance of living well into his 80s or 90s. They have no financial need to engage CPP today.
And yet, as predictably as dawn, they say, “I’m not going to start CPP until I’m 65. Why wait?”
Or sometimes it’s the healthy 60-year-old who retired a little early: “I can take CPP now, right? I’ve paid into it all my life and I want to get something in return.”
This is one of the most consistent behavioral puzzles in retirement. More than 90 percent of Canadians claim CPP at age 65 or earlier, and less than 5 percent delay until age 70. All this despite the fact that delaying age 60 to 70 increases lifetime CPP benefits by 122 percent. Indexed, guaranteed, as long as you live.
Bonnie-Jeanne MacDonald of the National Institute on Aging has repeatedly shown that the average Canadian who claims a CPP of 60 instead of 70 is leaving more than $100,000 in safe, inflation-protected income on the table.
She calls delaying the CPP the best pension deal in Canada. And yet most people walk right past it.
Let’s unpack why.
The boring but important math
CPP can start anytime between the ages of 60 and 70.
Start early and you’ll get a discount of 0.6 percent per month before you turn 65. That is a permanent reduction of 36 percent at the age of 60.
Start late and you’ll get a boost of 0.7 percent per month after age 65. That is a permanent increase of 42 percent at age 70.
These two adjustments together account for a difference of 122 percent between a pension taken at the age of 60 and the same pension taken at the age of 70.
All this is indexed to inflation.
Add to that the fact that a healthy 65-year-old in Canada today can live about 20 years longer, and a delay seems less like a gamble and more like sensible insurance. The real financial risk for most Canadians is not premature death. It is a long life without sufficient guaranteed income.
When it makes sense to take CPP early
There are definitely cases where starting CPP early is rational.
- Serious health problems
- Strong family history of dying young
- No savings and the need to cover essential expenses
- High interest debt that needs to be eliminated
- Complex income situations for surviving relatives
This article is not about those cases.
This is about the many Canadians who could absolutely delay the CPP, without any concessions, but simply won’t.
The maddening middle: people who could procrastinate, but didn’t
These are the regular Canadians I see all the time. They are healthy, financially secure, have no debt and have more than enough invested to support their expenses in their 60s. Their retirement plans work beautifully without CPP. They could defer to 70 with confidence.
And yet they don’t.
Here are the five most common objections I hear, and the responses that actually move people.
- “I want my money back.”
This is the ownership instinct. They see CPP as a personal account they have paid into, not a pension.
What I say:
CPP is not a bank account. It is an insurance against the outliving of your savings. Delaying CPP is equivalent to dramatically and permanently increasing the value of that insurance policy. If you are healthy, the value of delay far outweighs the value of collecting small checks early. The math isn’t even close.
- “What if I die prematurely”
This always comes from fear. Maybe an older cub died. Perhaps someone close to him has never seen his pension.
What I say:
If someone has a serious diagnosis or a real reason to expect a shortened life, I would encourage him or her to use CPP early. But for a healthy 60 or 65 year old in Canada today, the statistics strongly favor longevity. The real financial danger is not dying young. It’s like living in the 80s or 90s without enough guaranteed income.
There is no financial tragedy if you die at age 72 with money left over. But turning 92 and falling short is a real risk.
- ‘The government will probably change the rules’
This is one of the most common fears and one of the least justified.
What I say:
CPP is jointly governed by the federal government and the provinces. It cannot be changed on a whim. Every reform over the past 25 years has been gradual and aimed at strengthening the plan, not weakening it.
And if someone is genuinely afraid of future cuts, that actually strengthens the argument for delaying. Governments want people to get a reprieve. Weakening that incentive would undermine the system.
- “I take CPP at 60 and invest it myself”
This usually comes from confident DIY investors.
What I say:
Delaying CPP is equivalent to achieving a guaranteed return of 8.4 percent per year from 65 to 70, plus inflation. There’s no way to match that in a real portfolio without taking on substantial risks (and letting the markets cooperate). And those risks are magnified if markets retire early.
Earning 8 to 10 percent per year for five years in a row, after fees and taxes, without volatility or sequence risk, is extremely difficult even for experienced investors. CPP offers a risk-free version of this.
- “I like to have all my income taps open”
This happens more often than you might think. People like the psychological comfort of multiple streams of income coming in at once.
What I say:
Think of CPP as your salary increase later in life. Your own portfolio can easily cover your early retirement years while you leave CPP in the oven to bake for a while longer.
At age 70, a much larger inflation-protected benefit kicks in right at the stage of life when cognitive skills begin to decline and you crave simplicity and automation. A larger, guaranteed, lifetime CPP payment hitting your checking account every month sounds like a win.
And if psychological comfort is the goal, we can always create a money wedge to support spending at 60 while the CPP continues to grow.
A simple rule of thumb
If you are in good health, have enough savings to support your 60s, and your retirement plan operates at a withdrawal rate of about 4 to 5 percent while you wait, delaying the CPP until age 70 is usually the better option.
This isn’t about winning a break-even spreadsheet comparison. It’s about giving your future self a bigger, more secure, inflation-indexed retirement, right when guaranteed income matters most.
Deferring CPP remains the simplest, most valuable and least risky way to shore up a Canadian’s retirement income.
And it still amazes me how few people abuse it.
#Canadians #CPP #early #shouldnt