The decision to delay CPP has a few factors and depends entirely on your own personal situation. For some it makes more sense to take CPP early (age 60) or at age 65, but for others it would make sense to delay it.
The main reasons to delay CPP payments include an enhanced (larger) monthly benefit, reduced investment risk, potentially lower taxes, and reduced longevity risk.
It would also make sense to delay CPP to age 70 if the person is in good health and/or plans to be working in their 60s and doesn’t necessarily need the income from CPP.
If you’re on the fence, here are 6 reasons delaying CPP would be beneficial for your future.
6 benefits when you delay CPP to age 70
There are several key benefits to delaying CPP to age 70 including an enhanced benefit, reduced investment risk, potentially lower taxes, and more.
1. Get bigger monthly payments when you delay CPP
This is the part people are usually most excited for – extra money.
Basically, every month you delay your CPP payments after the age of 65, your monthly payment will go up by 0.7%.
If you wait until the max age of 70, this maxes out at a whopping 42% more. That can make a major difference in your monthly budget.
2. Reduced investment and inflation risk
One potential benefit would be a basic risk reduction strategy.
Instead of taking CPP at 60 or 65, you’d draw down funds in riskier assets (i.e. equities) in an RRSP first and then rely on CPP at age 70, which is risk-free income. This strategy means as you age you’d have less risky assets (such as equities) and more stable income from CPP.
The CPP is also indexed to inflation annually, so you wouldn’t have to worry about inflation risk if relying on CPP income.
3. Potentially lower taxes
As you probably know, an RRSP must be converted to a RRIF at age 71 with mandatory minimum withdrawals. If you have a large RRSP balance that hasn’t been drawn down yet, this could potentially lead to higher taxes, since RRSP withdrawals are taxable income.
However, by drawing down your RRSP first and delaying CPP to age 70, you could potentially pay less in taxes since your RRIF balance and withdrawals would be smaller.
4. Reduced longevity risk
If you delay CPP to age 70, you would also reduce the risk of outliving your money (which is called the longevity risk).
This is because CPP income continues for as long as you live, whereas other funds (such as investments) may not be available as you age if their values decrease significantly.
So if you live on your investments first, you can rest assured that you’ll have your inflation-adjusted CPP payments starting from age 70 no matter what.
5. Advantageous for those in good health
If you delay CPP to age 70, you not only get an enhanced annual benefit, but if you live a longer-than-average life you’d also get stable, risk-free, inflation-indexed income annually.
Let’s say you live to 95 – that means you’d be getting 25 years of an enhanced benefit.
6. Advantageous for those still working
If you plan to work into your 60s, CPP contributions become optional at age 65 but the benefits you receive are taxable.
If you’re able to live off your earned (working) income, you can potentially pay lower taxes by delaying CPP and keeping your taxable income lower in your 60s.
How to delay CPP
CPP payments are not automatic, which means you have to apply for them yourself before you can start receiving your pension.
So if you think you’ll want to delay your CPP until later in life, you can simply not apply until you’re ready.
One thing to note, though, is that the enhanced benefit maxes out at age 70. That means your monthly payments won’t get any bigger after that point, so there’s no real reason to delay it any further.
Once you’re ready to apply for CPP, you can find all the information you need on the Government of Canada website.
Will you delay CPP payments?
Delaying CPP payments might make sense for some, especially if you’re already planning to work into your 60s, are in good health, expect to live a long life, and are concerned about outliving your money.
However, each situation is different. You’ll need to weigh the pros and cons of delaying CPP payments to age 70 to determine if it’s the right decision for you.
What do you think you’ll do? Let us know in the comments below.
FAQ
Should I delay CPP to age 70?
Whether you should delay CPP to age 70 depends on your personal situation. If you’re healthy, have a longer life expectancy, and have other sources of income, then delaying CPP to age 70 might be the best decision for you. Here are 6 reasons to consider it.
Are there any benefits to delaying CPP?
The biggest benefit of delaying CPP to age 70 is receiving higher monthly payments. You’ll get 0.7% higher for each month it’s delayed past age 65, up to a maximum increase of 42% once you reach 70.
How do I delay CPP payments?
If you decide delaying CPP to age 70 is right for you, then you would simply apply for CPP later. Learn more about applying here.
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