10 Reasons to Delay CPP

Delaying your CPP benefits until age 70 might seem like a long wait, but the rewards are significant. Here are 10 reasons why taking CPP at 70 could be the smartest financial move for your retirement.

Reason 1: Boost Your Monthly Payments

If you delay CPP until age 70, your payments increase by 0.7% for every month after age 65. That’s a 42% boost by the time you hit 70!

Reason 2: Outlive Inflation

With inflation eating away at purchasing power, delaying CPP means receiving higher monthly payments, which can help offset rising costs. According to recent stats, inflation in Canada rose to 6.8% in 2022, making a strong argument for bigger payments later.

Reason 3: Longer Life Expectancy

If you're healthy and expect to live longer, waiting for a larger CPP benefit makes sense. With many Canadians living into their late 80s and 90s, a higher monthly payout can provide better financial security in your golden years.

Reason 4: Take Advantage of Tax-Efficient Withdrawal Strategies

Delaying CPP allows you to strategically withdraw from other income sources, such as your RRSPs or RRIFs, which can help manage your tax bracket. By drawing from taxable accounts early and delaying CPP, you can minimize overall taxes and keep your income more tax-efficient, especially if your CPP would otherwise push you into a higher bracket.

Reason 5: Increase Survivor Benefits

If you’re married or in a common-law partnership, delaying CPP could result in higher survivor benefits for your spouse. A larger CPP payment means your partner may receive a higher survivor’s pension after you pass away, which could be vital for their long-term financial security.

Reason 6: Delay OAS Clawback

Delaying CPP could help you avoid or reduce the OAS (Old Age Security) clawback. If your income is too high during the years you receive OAS, the government will reduce your OAS payments. By delaying CPP, you can reduce your income during key OAS years, potentially preserving your full OAS benefits.

Reason 7: Maintain Financial Flexibility for Later Life

Delaying CPP offers financial flexibility for unexpected expenses later in life, such as healthcare, long-term care, or home renovations. Having a higher monthly benefit in your later years ensures you have the financial resources to cover these costs without depleting your savings too quickly.

Reason 8: Align With Other Retirement Income Streams

If you have other pension plans, rental income, or investment returns that provide sufficient income in the early years of retirement, delaying CPP allows you to better align your income streams. This helps you smooth out your cash flow, ensuring that once those other income sources diminish, you can rely on a higher CPP payment to maintain your standard of living.

Reason 9: Coordinating with Spousal Benefits

If your spouse is still working or hasn’t started collecting their CPP yet, delaying your CPP might make sense from a spousal benefit coordination perspective. By staggering when each spouse takes CPP, you can create a more balanced and consistent income stream. This can ensure that, as one spouse retires earlier, the other can delay CPP to maximize benefits for both over the long term.

Reason 10: Take Advantage of Lower Tax Brackets in Later Years

If you expect to fall into a lower tax bracket later in life, delaying CPP allows you to take advantage of lower taxation on your higher benefit. By postponing your CPP payments until your income from other sources—like employment, business, or investment returns—has decreased, you can reduce the tax impact on your CPP payments, maximizing your take-home benefit.

Financial Expert Opinions

Financial experts generally suggest delaying the Canada Pension Plan (CPP) benefits for all the reasons above. It will almost always be the case that your financial plan will be stronger by delaying your CPP. Of course, there are many reasons to take your CPP early.

Conclusion

Taking CPP at 60 isn’t for everyone, but it can provide the flexibility and financial freedom you need for an early and active retirement. Use the Retirementize calculator to help make the best decision for your situation.

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