10 Reasons to Delay CPP

Delaying your Canada Pension Plan (CPP) retirement pension until age 70 can significantly increase the monthly benefit you receive. For some Canadians, that larger, inflation-indexed income stream can be an important part of a long-term retirement strategy.

However, delaying CPP isn't automatically the right choice for everyone. Your health, life expectancy, other sources of income, investment assets, tax situation, and spending needs all matter. The goal is to understand the trade-offs and determine how CPP fits into your overall retirement plan.

Reason 1: Boost Your Monthly Payments

One of the biggest advantages of delaying CPP is the permanent increase in your monthly benefit. If you start CPP after age 65, your retirement pension increases by 0.7% for each month you delay, up to age 70.

Waiting from age 65 to age 70 can therefore increase your CPP retirement pension by up to 42%. This creates a larger guaranteed monthly income stream for the rest of your life.

Reason 2: Provide More Income in Later Retirement

Retirement spending doesn't necessarily decrease as you get older. While some expenses may decline, healthcare, home maintenance, support services, and other costs can become more important later in life.

Delaying CPP gives you a larger inflation-adjusted benefit in those later years. For someone who lives well into retirement, the additional monthly income can become increasingly valuable.

Reason 3: Protect Against a Long Life

None of us knows exactly how long we will live. If you live into your 80s, 90s, or beyond, a larger lifetime CPP payment can provide valuable protection against the risk of outliving your other retirement assets.

This is one reason CPP is sometimes viewed as a form of longevity insurance. By delaying the start date, you give up payments in the earlier years in exchange for a larger payment later.

Reason 4: Create More Tax-Planning Flexibility

Delaying CPP can provide an opportunity to draw from other retirement assets first. For example, someone might use a portion of their RRSP, RRIF, TFSA, or non-registered investments before starting CPP.

The tax consequences depend on the type of account and the individual's circumstances. Strategic withdrawals from taxable accounts during lower-income years can sometimes help manage future taxable income.

This can be particularly relevant when considering future RRIF minimum withdrawals and other sources of retirement income.

Reason 5: Potentially Increase Survivor Protection

CPP can also be part of a couple's retirement-income strategy. If you're married or in a common-law relationship, the timing of each partner's CPP can affect the household's income over time.

A CPP survivor's pension may be payable to an eligible surviving spouse or common-law partner after the death of a contributor. The exact amount depends on the CPP rules and the circumstances of both individuals.

Because survivor benefits have specific rules and maximums, delaying CPP should not be viewed as a guarantee that a spouse will receive a proportionally larger survivor pension. It is something to model as part of the couple's overall plan.

Reason 6: Manage Potential OAS Clawback

Old Age Security (OAS) is income-tested. Higher income can result in some or all of an OAS pension being recovered through the OAS recovery tax.

Delaying CPP may help reduce taxable income during certain years, particularly if you have significant employment income, investment income, or other taxable retirement income before CPP begins.

However, delaying CPP does not eliminate OAS clawback risk. The larger CPP payment received later will itself be taxable income and can contribute to the income used to determine OAS recovery tax.

You can learn more about this interaction in our OAS Clawback guide.

Reason 7: Create More Financial Flexibility Later in Life

Delaying CPP can provide a larger source of predictable income later in retirement. This can be useful if you expect expenses such as home repairs, healthcare, travel, or other lifestyle costs to continue well into your later years.

A larger CPP benefit may also reduce the amount you need to withdraw from your investment portfolio in later retirement. This can potentially help preserve other assets for future needs or your estate.

Reason 8: Coordinate CPP With Other Retirement Income

Retirement income rarely comes from just one source. You may have a workplace pension, RRSP, RRIF, TFSA, non-registered investments, rental income, or other assets.

If these sources provide enough income during your early retirement years, you may be able to delay CPP and allow the benefit to grow. This can create a different pattern of retirement income, with CPP providing a larger base later in life.

The key is to look at all of your income sources together rather than deciding when to take CPP in isolation.

Reason 9: Coordinate CPP With Your Spouse or Partner

Couples don't necessarily need to start CPP at the same time. One partner might begin CPP earlier while the other delays it, depending on their respective income needs, ages, health, and retirement assets.

Staggering CPP start dates can create a more balanced household income stream and may allow one partner to maximize their CPP benefit while the other uses different retirement assets.

There are many possible combinations, so couples should compare the options using their actual retirement income projections.

Reason 10: Build a Larger Guaranteed Income Floor

One of the biggest reasons people consider delaying CPP is the opportunity to increase the amount of lifetime income that is relatively predictable and indexed to inflation.

Investment portfolios can fluctuate in value. A larger CPP benefit can provide a stable source of retirement income that isn't dependent on stock market performance.

For someone with sufficient assets to fund the early retirement years, delaying CPP can therefore be a way to shift some of the financial burden from an investment portfolio to a larger future government pension.

Financial Planning Considerations

There is no universal answer to the question of when you should start CPP. Delaying to age 70 provides a substantially larger monthly pension, but you give up several years of payments in exchange for that increase.

The decision should consider factors such as:

• Your health and expected longevity.
• Your current retirement income needs.
• Your RRSP and RRIF balances.
• Your TFSA and non-registered investments.
• Workplace pensions and other guaranteed income.
• The timing of your OAS pension.
• Your expected tax brackets throughout retirement.
• Your spouse or partner's CPP and other retirement income.
• Your desired estate and legacy objectives.

It is also important to compare delaying CPP with taking CPP earlier and investing or spending the payments. The result can look very different depending on investment returns, taxes, inflation, and how long you live.

Conclusion

Delaying CPP until age 70 can substantially increase your monthly retirement pension and may provide valuable protection against longevity, inflation, and the possibility of needing more income later in life.

It can also provide opportunities to coordinate CPP with RRSP withdrawals, RRIF income, OAS, workplace pensions, and other retirement assets.

But delaying CPP isn't automatically the best strategy for every retiree. Taking CPP earlier can make sense when you need the income, have different health or longevity expectations, or have other financial circumstances that favour an earlier start.

The most useful approach is to compare the different scenarios using your own retirement income, expenses, taxes, investments, and expected longevity.

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