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Periodic insights from our Investment and Private Client Teams on a broad range of investment and advice-related topics

Why the CPP matters—and when you should take it

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By Sarah Bull, Partner & Portfolio Manager

As a wealth advisor, I engage with highly accomplished women and men just about every day, and one of my roles is to help them plan for retirement. When I do that, I always discuss with them the Canada Pension Plan (CPP) and how it will factor into their income when they retire.

Many of my clients are successful entrepreneurs. Some have inherited substantial family estates. All have amassed or otherwise come by significant wealth. Compared to that wealth, the sums that will be available to them in retirement through the CPP might not seem to add up to much. Yet the fact is that for anyone planning for retirement, the CPP should not be overlooked. And deciding when to start taking CPP benefits is an important consideration.

For high-net-worth individuals, retirement planning can involve complex legal, estate and tax considerations. Yet, on an individual level, one simple question comes before all the others: “What will I live on when I stop earning?”

Good retirement planning begins with trying to answer that question by identifying all sources of future income. Many high-net-worth individuals will get money in retirement from a variety of places, including their investment portfolios, income-generating properties, dividends from businesses they continue to own, and so on. But CPP payments are part of that mix, too. And even though the maximum monthly benefit of $1,364 (as of 2024) at age 65 might be small compared to income from other sources, the CPP has a number of strengths that they might not.

Chief among those is stability. CPP benefits are indexed to inflation every year, which effectively means that you don’t have to worry about rising prices eating away at this portion of your income. (The annual maximum, by the way, has never gone down.) Also, unlike an investment portfolio, CPP payments are not subject to market volatility—you can count on them every month for the rest of your life, and you will always know how much you are getting. And given that the program has been around for almost 60 years and is backed by the Government of Canada, CPP benefits are about as close to risk-free income as one can find.

When thinking about how CPP benefits will factor into income and contribute to one’s retirement goals, bear in mind that how people spend in later life varies widely not just from person to person, but also through the course of retirement. For instance, retirees tend to spend far more in the early years, when they are usually more healthy and more active. In mid-retirement, their spending habits often become more restrained. In those years, CPP benefits—as modest as they might seem—can still cover a significant portion of living expenses, freeing up an individual’s wealth for longer-term estate planning or end-of-life healthcare expenses, for instance.

One vital consideration is when you will choose to begin receiving benefits. While 65 is the “standard” retirement age in Canada, you can opt to receive CPP as early as age 60 (the benefit will be reduced) or to defer payments until age 70 (the benefit will be higher). Which is the right choice? That depends on your situation and goals.

Here are some points to consider:

  • Your health and life expectancy: If you are in good health and have a long life expectancy, you may be better off deferring your CPP as late as age 70. That way, you will receive higher payments during your 70s, and by your 80s, you will catch up and surpass the cumulative payments compared to starting earlier.
  • Risk tolerance: If your tolerance for investment risk is high, you may consider starting CPP as early as 60. The benefits can be invested or used to avoid drawing down other investments. On the other hand, if your risk tolerance is low, you might be better off waiting until age 70.
  • Other CPP payments: If you are a widow or widower, you may be receiving a CPP survivor pension based on your deceased spouse’s contributions. Especially if you have a high CPP retirement pension of your own, you might consider deferring the CPP retirement pension start date to age 70. That way, you will continue to receive the CPP survivor pension until your retirement pension starts, and your retirement pension will be higher due to the later start as well.

The reality is that retirement is different for everybody, so it’s important to discuss your goals and expectations with your wealth advisor. Especially for high-net-worth individuals, CPP benefits can often be overlooked, but they can still play a central role in the retirement income mix. When planning for retirement, CPP and when to take it should definitely be part of the conversation.

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