How the pandemic makes it even more sensible to delay the start of CPP retirement benefits

While actuaries seem to agree that delaying the CPP retirement benefit past 65 makes great sense, many people feel in their gut that starting early is better.

The financial shock of the pandemic may encourage this thinking. Better to receive a lesser amount today rather than wait for more in an uncertain future. This line of thinking explains a recent query from a 61-year-old reader who planned to wait until 65 to start the CPP. “Now I am wondering – has my life expectancy been reduced?” he asked. “Should I reconsider?”

The standard age for starting CPP is 65, but you can begin as early as 60 with a reduced payment or wait as long as 70 and receive an enhanced payment. Life expectancy is certainly a factor that individuals must consider when looking at whether to start CPP benefits early, on time or late. With a limited lifespan, it makes sense to start early.

But if you’re healthy, then consider two reasons for delaying from Fred Vettese, an actuary and author of the book called Retirement Income For Life: Getting More Without Saving More.

His first reason why it makes more sense than ever to delay CPP retirement benefits has to do with the fact that these payments are indexed to inflation for life. “Since current government bailouts may cause higher long-term inflation, the inflation protection on a larger CPP benefit could look awfully attractive someday,” Mr. Vettese said by e-mail.

The second reason relates to the extra money you get by delaying CPP. Starting your retirement benefits before 65 means a sacrifice in monthly benefits of up to 36 per cent if you begin at 60. This is based on reductions of 0.6 per cent monthly equalling yearly amounts of 7.2 per cent.

If you delay past 65, you gain 0.7 per cent per month (8.4 per cent a year) to a maximum of 42 per cent by age 70. To Mr. Vettese, the extra returns from delaying are “worth even more now, given that long-term interest rates are being forced down.” He’s referring here to measures the Bank of Canada has taken to push down interest rates to support the economy during the pandemic.

The yield on the 10-year Government of Canada bond was around 0.6 per cent in mid-April, compared with 1.8 per cent a year earlier. Low bond yields make it harder for investors with balanced portfolios to earn a decent return after fees.

Pre-pandemic, there was already a good argument for delaying CPP past 65 if you expected a long life. It may turn out that the economic disruptions caused by the pandemic make the case even stronger.