Should You Take CPP Sooner or Later?


By Miles Clyne

The simple answer is the longer you delay taking any pension, the higher your gross income should be. This is because of several age/time related factors. CPP and Defined Benefit Pension plans pay you more the longer you delay starting them. Your RRSP and Defined Contribution plans should be worth more the longer you delay withdrawals (max age 71), and the minimum withdrawal percent rises as you age.

Making an informed decision:

The better decision comes from knowing the highest net income you can generate at the earliest possible age and the combined net incomes if you have a spouse. Financial planning software can help optimize this and take the guesswork out. You will need:

  • All sources of income, and if each source of income is indexed to inflation for both spouses.

  • Retirement dates for both spouses to determine if they can split income. 

  • Insurance details including type, death benefits and beneficiaries.  

Other Considerations:

  • Is income needed or not? The planning software can give you the rules to follow to ensure either highest tax efficiency or highest tax efficiency for a stated income. The rules will include the age to start CPP and when to start all sources of pension income.

  • The use of Trusts before and in retirement can help ensure tax efficiency through income splitting and other tools.

  • Should estate planning be considered? If you don’t know, find out.

  • Insurance can be an effective tool for both tax efficient retirement income and to help protect and preserve assets for the next generation (i.e.: cottage, art or other type of property to keep in a family that has tax issues).

Some Oversimplified Thoughts:

  • Take additional income from your RRIF/RRSP rather than starting CPP. This could help minimize taxes if you pass away sooner than expected and if there is a concern about OAS clawback. The money in your RRIF gets taxed all at once unless you can roll it over to a spouse. Withdrawing assets from a RRIF more aggressively is referred to as a RRIF meltdown strategy.

  • If you haven’t maximized your TFSA, take income sooner from CPP or your RRIF even if you don’t need it and move the income into your TFSA. This way you build tax free income for down the road, plus TFSA assets are not taxed so they pass tax free to whoever you like. You could take just enough income that it does not move you into a higher tax bracket.

  • The longer you delay taking any pension, the greater your income will be in retirement for two reasons: income benefits should be he higher as mentioned, and you won’t live as long, so you could withdraw a greater percentage from your savings.

Final Thought:

You really should work with a professional Financial Planner to optimize your tax and income strategy. If your only sources of income in retirement are CPP, OAS (check these links for CPP & OAS benefits) and you have minimal other sources of income, then when you start taking CPP is more determined by when you need the additional income and has little to do with optimizing tax. The more complex your financial situation, the greater the benefit sophisticated planning software along with someone competent to facilitate the process will be for you. I’ve not found free financial planning software that is adequate to factor in all the necessary variables for even marginally complex situations making a do-it-yourself solution very challenging.