Government benefits: When should I take CPP / OAS?

Delaying access to your Canada Pension Plan and Old Age Security benefits could work in your favour

Learning Objectives

  • Understand how delaying your Canada Pension Plan (CPP) retirement and Old Age Security (OAS) benefits can work in your favour
  • Learn more about how the Advantages Retirement PlanTM can help you be better informed about how government benefits such as CPP and OAS can be a part of your retirement income and take action to maximize your benefits

Key Insights

  • The Canada Pension Plan (CPP) and Old Age Security (OAS) benefits provide a source of stable, lifelong, inflation-adjusted retirement income starting at age 60 and above
  • Canadians can access CPP as early as age 60 and as late as age 70. For every year before age 65, your CPP benefit is reduced by 7.2%. For every year after age 65, your CPP benefit is increased by 8.4%.
  • Canadians can access OAS as early as age 65 and as late as age 70. For each additional year you wait past 65 to take OAS, your annual benefits increase by 7.2%.
  • For many Canadians, there can be significant benefits to deferring OAS and CPP until age 70.[1] Yet fewer than one percent of Canadians employ this strategy. [2]
  • The Advantages Retirement PlanTM helps you see how to maximize your government benefits including CPP and OAS by showing you how your government benefits can fit into your overall retirement planning.

The advantages of accessing your retirement income benefits later: Canada Pension Plan and Old Age Security

Before you turn 60 years old, you may want to decide when to start accessing your government benefits including your Canada Pension Plan and Old Age Security benefits. Your monthly CPP retirement benefit can start as early as age 60 and as late as age 70. Your monthly OAS benefit can be delayed from as early as age 65 and as late as age 70.

It’s important to understand the implications of taking either or both CPP and OAS as soon as you can (age 60 and 65 respectively), compared to taking either or both at a later age, and as late as 70.

For every year before age 65, your CPP benefit is reduced by 7.2%. For every year after age 65, your CPP benefit is increased by 8.4%. In other words, deciding to access your CPP benefits at age 60, compared to at age 65, means that you’re choosing to get 36% less on each CPP benefit cheque. And, deciding to access your CPP benefits at age 70, compared to at age 65, means that you’re choosing to get 42% more on each CPP benefit cheque.

For each additional year you wait past age 65 to take OAS (you can wait as late as age 70), your annual benefits increase by 7.2%. If you choose to access OAS at age 70, you’re choosing to get 36% more on each OAS benefit cheque.

What would get you more in total CPP and OAS benefits over your lifetime – getting a fewer number of larger-sized benefit cheques by accessing CPP and OAS benefits at age 70, or getting a greater number of smaller-sized benefit cheques by accessing CPP and OAS benefits before age 70?

Depending on your individual circumstance, it might be better to take smaller cheques earlier, or to wait and take larger cheques later. Some experts have estimated that generally if you live until at least age 82, delaying access to CPP until age 70 is better.[3] Yet fewer than one percent of Canadians employ this strategy.[4] Of course, if you know that you have a shorter life expectancy than 82, then accessing CPP before age 70 may be better.

Planning conservatively for retirement

In order to plan conservatively for retirement, you may want to plan for a longer lifespan than your average life expectancy by delaying “turning on” either or both CPP and OAS benefits until you are closer to age 70 and save more through your Advantages Retirement PlanTM and/or through other retirement savings plans so you don’t have to rely on CPP and OAS benefits until you’re 70 years old.

Delaying your access to CPP and OAS benefits until later can also help increase protection against the risk of outliving your other retirement savings, because CPP and OAS benefits last as long as you live, as well as protect against inflation risk, because CPP and OAS benefits are indexed to inflation.

Average life expectancy for Canadian physicians is higher than the Canadian average

You may know that average life expectancy at birth for a Canadian born between 2015 and 2017 is ~79.9 years for a male, and 84.0 years for a female. This means that of babies born between 2015 and 2017, 50% of the boys are expected to live to be ~79.9 years old and 50% of the girls are expected to live to 84.0 years old. Your life expectancy also increases as you age, because each year that you have additionally lived means that you successfully overcame risks of death over a longer period of time.

Canadian physicians on average have higher life expectancies compared to Canadians overall, especially as the number of female physicians continues to rise. Life expectancy among Canadian women is nearly five years higher than it is for men. Women now represent over 40% of Ontario doctors as of 2017, up from 25% in 1995.[5]

References

[1] A number of well-known financial commentators have recommended a CPP and OAS deferral strategy. See, for example, Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect CPP Benefits,” Financial Post (Aug 16, 2016); Jonathan Chevreau, “The Secret to Paying Less Tax in Retirement,” Globe and Mail (Aug 31, 2017).
[2] Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect CPP Benefits,” Financial Post (Aug 16, 2016).
[3] John Heinz, “Your Canada Pension Plan questions answered,” The Globe and Mail (Sep 27, 2019).
[4] Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect CPP Benefits,” Financial Post (Aug 16, 2016).
[5] https://www.macleans.ca/news/canada/female-doctors-are-on-the-rise-in-canada/