A new report outlines the most-cost effective approach to ensuring ample retirement income
Brokers looking to provide advice to their elderly clients have something interesting to discuss during their next Zoom call. According to a joint report by the National Institute on Ageing and the FP Canada Research Foundation, postponing pension benefits up to age 70 is the most cost-effective approach Canadians can take to secure retirement income.
“Delaying Canada and Quebec Pension Plans (CPP/QPP) benefits for as long as possible is the safest and most inexpensive approach to get more secure, worry-free pension income that lasts for life and keeps up with inflation,” said Dr. Bonnie-Jeanne MacDonald, report author and director of financial security research at the NIA. “But less than 1% of Canadians choose to delay benefits to age 70, with most taking their benefits as soon as they are eligible at age 60.”
MacDonald explained that if CPP/QPP benefits start before age 65, payments decrease by 0.6% monthly (or 7.2% annually), up to a maximum reduction of 36% at age 60.
Conversely, if benefits start after age 65, payments grow by 0.7% monthly (or 8.4% annually), up to a maximum increase of 42% at age 70.
“Even delaying benefits by a single year from age 60 to 61 can make a significant difference in retirement,” MacDonald said. “A $1,000 monthly benefit at age 60 increases to $1,112.50 if the individual waits until age 61, and goes up to $2,218.75 at age 70 – for life and with inflation protection.”
In the report, MacDonald said that there has never been a better time to try claiming these benefits, largely thanks to record-low interest rates, longer average lifespans, “and adjustments to CPP/QPP delay rules in 2012.”
“In addition, the CPP/QPP enhancements being phased in between 2019 and 2023 will ultimately make the CPP/QPP an even larger source of retirement income, therefore making the CPP/QPP claiming decision even more important,” MacDonald said.
