As an Investment Specialist, I am often asked “When is the right age to begin receiving Canada Pension Plan benefits?” So that this question can be properly answered, there are three factors that one needs to consider:
 

1. Whether or not this individual needs the Canada Pension Plan retirement pension prior to age 70;
2. The assumed real (after inflation) interest rate applied over the period of time during which the pension would be received;
3. The individual’s life expectancy.

 
An individual electing to begin receiving benefits at age 60 will have their monthly benefit reduced by 1/2% for each month before the month that they turn 65. This individual would then receive 70% (100% - (1/2% x 60 months)) of the regular pension amount.
 
There are also advantages for the contributor to wait to apply for benefits until after age 65. A contributor who waits until age 70 would then receive 130% (100% + (1/2% per month up to 60 months to age 70)) of the regular pension amount. Whether someone decides to begin taking their CPP at age 60, 70 or somewhere in between will be determined on that individual’s financial situation. If their other sources of income allow them enough funds to live on, then that person should wait until as close to age 70 as possible to apply for the benefits. This is not always the case and CPP benefits are often applied for earlier.
 
How Do Existing Interest Rates Factor Into My Decision?
 
For a contributor who will not spend all of their CPP benefit, there would be an opportunity to invest any excess funds. If the current interest rates are low and expected to rise, the contributor would be better off to apply for their CPP at a later date. This can also be viewed in the reverse situation where interest rates are higher and expected to fall. In this situation, it may benefit the contributor to begin receiving benefits sooner.
 
How Does Life Expectancy Affect My Benefit?
 
According to the CIA Factbook, life expectancy for a Canadian female in 2007 was estimated at 83.86 years and for a Canadian male, 76.98 years. Individual life expectancy also plays a major role in determining when CPP benefits should be applied for. For someone who has been determined to have a shortened life expectancy, CPP benefits should be applied for as soon as possible. An individual that is healthy and is expected to live a long life should delay their application to maximize their monthly benefit.
 
All three of these factors should be reviewed together when making decisions regarding CPP benefits.
 
A careful examination of your full financial situation by completing a retirement plan can help determine when to take advantage of the Canada Pension Plan.
 
Tim Parchewsky
Investment Specialist
May 7, 2008