With the recent changes to the CPP penalty rates, there has been much discussion at work about the optimal time to start collecting CPP. Some advisors tell you to wait as long as possible (age 70) to get the maximum monthly benefit. Others tell you to take CPP as early as possible, so you can benefit from investing the cash as early as possible.
This calculator can help you decide which strategy is right for you. Note that the answer is actually very complicated, and this calculator makes a lot of assumptions that may or may not be valid, so don't take this as gospel. However, if you are surprised by the result, then maybe it is worth investigating things further.
Note that if you are expecting to be in debt when you retire, enter the average interest rate of your debt.
Globe and Mail article on CPP changes.
There was a problem with the comment form on this page. My apologies if your comment was lost. Someone asked what I meant when I assumed that you never spend any money. Basically, if you spend money (on anything, including food or rent), then the amount of interest you will earn will be reduced. That will affect the calculation, making it potentially more beneficial to take CPP later.-- Michael at 10:27am, Tuesday June 5, 2012 EST
I like the simplicity of your chart, but aren't there some other choices? For instance, if you live to age 80 or 85, wouldn't you have been better to wait take your pension at 65, rather than either age 60 or 70?-- Doug at 12:53pm, Tuesday December 18, 2012 EST
According to my calculations, there is a pretty fast tipping point where it goes from age 60 to 70. It is possible that if you live to be exactly 87 years old, it may be optimal to start collecting at age 65, but it is difficult to predict exactly how long you are going to live down to that degree of accuracy. Also, other factors (like debt and spending habits) come into play, which I haven't really addressed with this calculator.-- Michael at 1:04pm, Tuesday December 18, 2012 EST
I agree that if you live beyond age 85, the best financial decision (ignoring other factors as you mention) is to start receiving your CPP at age 70 (and ) months, not 11 months). I also agree that if you die before age 75, you're generally further ahead to start receiving it at age 60. My concern is that if you die between age 75 and 85 (when probably most of us do), the best time to start receiving your CPP is somewhere between age 60 and age 70. I agree that predicting your age of death isn't the wisest financial planning strategy, but it would be nice if your calculator considered those possibilities, otherwise it might be better to just state those basic principles.-- Doug at 3:20pm, Tuesday December 18, 2012 EST
Where are you getting your numbers from? I am curious to know. As I said, according to my calculations it is almost never a good idea to start collecting at 65. Now it is possible that there is an error in my calculator, but if there is I would like to know where I went wrong. The numbers that this web site generates are not numbers that I just chose myself. I ran a complex set of calculations to determine the optimal strategy.-- Michael at 4:12pm, Tuesday December 18, 2012 EST
I have calculated my own numbers, using a fairly simple Excel sheet. To be honest, I haven't factored in an interest rate, as I feel that is a bit misleading, as I expect that most people are planning on spending their CPP rather than investing it. Considering that, my figures should agree with your chart using a 0% interest rate and they don't, so I'm not sure where you have gone wrong. One thing for sure is that the highest your calculations should go is 70 years and 0 months, as there is no escalation after the month of your 70th birthday. The calculation is complicated a bit while we're still in the transition phase, where the adjustment factor for taking it early is changing every year until 2016. Notwithstanding (how can you tell that I worked for the gov't), for someone turning age 60 in 2013, I calculate that they are better off taking CPP at age 60 if they die before age 75 and 5 months; taking it at age 65 if they die between there and age 79 years and 1 month and better off waitning until age 70 if they live beyond that. Those aren't the only choices that I have calculated, but I don't want to make this reply too long-- Doug at 5:15pm, Tuesday December 18, 2012 EST
Here is another website that I found, that supports my calculations that it isn't quite as simple as starting the CPP at either age 60 or age 70. http://www.taxtips.ca/calculator/cppretirementpension.htm-- Doug at 10:37pm, Wednesday December 19, 2012 EST
Thanks for the detailed info Doug. I have been sick for a few days so I haven't been able to respond as quickly as usual. The government's website is incredibly unclear about exactly when the upper limit is to start collecting CPP. They say "...these increases stop at age 70...". I took that to mean less than 71, not less than or equal to 70. I will change my calculator accordingly. I don't think including an interest rate is unrealistic at all. Everyone I know who is retiring right now is retiring with massive amounts of debt. Sad but true. Therefore they are effectively "investing" their pension benefit by paying off their debt. This must be taken into account. It is strange that the amounts don't add up for a 0% interest rate. I will take a quick look at the numbers and see if I notice where the error is.-- Michael at 7:52pm, Friday December 21, 2012 EST
Aha, I found the error. What a silly mistake. I had swapped a < and a > somewhere. Hopefully these results make more sense. Thanks for pointing out the flaw!-- Michael at 8:09pm, Friday December 21, 2012 EST
Mike - We'll have to agree to disagree on the interest issue, but I like the changes that you've made. Thanks muchly!-- Doug at 9:10pm, Wednesday December 26, 2012 EST