Making the decision on when to withdraw CPP benefits can be a daunting task for retirees.Andrii Yalanskyi/iStockPhoto / Getty Images
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Deciding when to start taking Canada Pension Plan (CPP) or Quebec Pension Plan benefits is a big decision for retirees and for anyone thinking about retirement. Research shows many Canadians take their CPP benefits at 60, the earliest age possible, even though they’ll receive more monthly income if they wait a few years.
In a recent LinkedIn Live webinar, Globe Advisor reporter Brenda Bouw spoke with Bonnie-Jeanne MacDonald, director of financial security research for the National Institute on Ageing at Toronto Metropolitan University, about her research on this topic.
Talk about your work in this area.
My work is motivated largely by the reality that baby boomers, who make up about a quarter of our population, are moving into retirement. This generation is facing a perfect storm when it comes to its long-term financial security, which includes a shift away from workplace pension plans, the rising cost of living, and longer life expectancies. Canadians have to be prepared to finance a longer time horizon with less money and higher expenses. One solution is to increase their financial security, which the CPP provides.
To be clear, you don’t think everyone should delay their CPP, correct?
CPP benefits are available to people when they need them – for instance, if they’re low-income or have a life-threatening illness that will reduce their lifespan. It’s great that they have that flexibility if they need the money sooner rather than later.
However, my research looks more at those who don’t [need the money immediately]. Most Canadians say their No. 1 fear is inflation, and their No. 2 [fear] is running out of money in retirement. But they take CPP sooner. There’s a disconnect because CPP provides inflation-indexed income for life, protecting Canadians from that risk.
One of the main reasons to delay CPP benefits is the financial incentive – the longer you wait, the more you’ll receive. However, there’s a lack of awareness and support about that. A Government of Canada survey shows that two-thirds of Canadians didn’t understand that delaying their CPP would increase their monthly benefits.
You’ve looked at some behavioural influences that sway people to take their CPP benefits sooner. Tell us a bit more about them.
My research shows that financial incentives largely don’t change behaviour. Humans tend to focus on short-term decisions and need help visualizing what could happen to us in the future. Also, deciding when to take CPP benefits is complex; it includes economic and personal considerations. Often, when people have to make complex decisions, they don’t make choices that are in their best financial interest.
How can advisors help Canadians make the right decision about when to take their CPP benefits?
Advisors have a unique opportunity to help clients with this choice. Research shows that if people work with someone they trust, they’re more likely to understand the consequences of their decisions. Trusted advisors are also more likely to motivate changes in their clients’ behaviour. Advisors can help explain some of the risks of retirement in a personalized way.
In my upcoming research, I will provide some tangible support and tools advisors can use to help in their work. To be clear, it’s not about getting people to choose an earlier age for their CPP; it’s about helping people make more informed decisions that will lead to better outcomes. And the research is clear: People are happier if they feel like they’ve made an informed decision.
– Brenda Bouw, Globe Advisor reporter
This interview has been edited and condensed.
Must-reads from Globe Advisor this week
Coalition calls on Ontario regulator to reverse approval of financial planner designation
A coalition of financial planners and consumer advocates is expressing concern about the recent approval of a financial planning designation under Ontario’s title protection framework, saying it risks creating confusion and undermining consumer protection. In a statement released Thursday, the group asks the Financial Services Regulatory Authority of Ontario to reverse its decision to approve the chartered financial planner designation as a qualifying credential for the “financial planner” title under Ontario’s regime. Deanne Gage reports.
Why this mid-cap money manager seeks out ‘misunderstood’ stocks
Money manager Jerome Hass says Canadians pay much less attention to mid-cap stocks now than when he co-founded his firm 17 years ago – and he believes that’s a problem for investors and the economy at large. “It’s disconcerting to us, and we think it should be disconcerting for Canadians,” says Mr. Hass, a partner and portfolio manager at Lightwater Partners Ltd. in Toronto, which oversees more than $100-million in assets. “If that market segment steadily disappears … so too do the jobs and infrastructure that go with it.” Brenda Bouw asks what he’s been buying and selling.
What professional fees can you claim on your taxes?
Many clients misunderstand carrying charges and interest expenses when filing their taxes, believing that most interest and fees for professional services are tax-deductible, advisors say. Take the fees clients pay their financial advisors. Commissions on products don’t qualify as a carrying charge, says Frank DiPietro, assistant vice-president of tax and estate planning at Mackenzie Investments in Toronto. “Those aren’t tax-deductible expenses. They’re a cost of trading investments, so they’re generally added to the adjusted cost base of the investment,” he says. “They help to reduce capital gain or increase any losses.” Deanne Gage has more.
Your CPP questions answered: I took CPP early but then changed my mind. Can I reverse the decision?
As part of our Planning for the CPP series, Globe Advisor invited readers to ask questions about their Canada Pension Plan (CPP) retirement benefits and found experts to answer them. This week, Daryl Diamond, chief retirement income strategist at Dynamic Funds in Winnipeg, answers questions on whether you can reverse your decision to take CPP and Old Age Security (OAS) benefits early, and what happens to those benefits if you retire in another country. Read more here.
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Why a strong April for the loonie could be a good time to increase exposure to U.S. dollar assets
Decibel podcast: What you need to know about your CPP money
What you and your clients need to know
Ottawa reviewing big banks’ decisions to stop selling third-party investment funds
The federal Finance Department is studying whether large banks should be required to sell products and services from independent companies, a review that escalates the Ontario government’s concerns about competition in the financial services sector. In September, 2021, Royal Bank of Canada, Canadian Imperial Bank of Commerce, and Toronto-Dominion Bank, three of the country’s largest financial institutions, shrank their product shelves and stopped selling other companies’ investment funds to clients of their financial planning divisions. Clare O’Hara reports.
There’s one key topic missing from your child’s financial literacy education
If your child goes to school in Canada, they’ve likely learned some money basics. That’s because school boards across the country have recognized the importance of teaching kids financial literacy and made it part of the curriculum. In Ontario, for example, financial literacy concepts have been incorporated into math classes starting in Grade 1, where kids learn about bills and coins and their values. As they progress to higher grades, they learn about the different ways to pay for things, how to distinguish between a want and need, and how to determine whether something is good value by comparing prices. Anita Bruinsma has more.
Laurentian Bank capital markets head Gunderson to depart
Laurentian Bank of Canada’s head of capital markets, Kelsey Gunderson, is leaving the Montreal-based bank as it prepares its latest turnaround plan after a tumultuous year. Mr. Gunderson joined Laurentian Bank to run its capital markets division in the fall of 2019, serving as chief executive officer of Laurentian Bank Securities. Brian Doyle, the chief financial officer for capital markets, will serve as acting head of capital markets and chief executive officer of the Securities arm on an interim basis. James Bradshaw has the story.
CRA’s backtracking on bare trusts is too little and too late
Mere days before the April 2 trust filing deadline, the Canada Revenue Agency announced that bare trusts will not have to file a T3 return for 2023 after all. This is a sensible decision, but it came far too late, on the last business day before the Easter long weekend preceding the due date. Many Canadians affected by the new trust reporting rules had already filed or substantively completed their returns. These law-abiding taxpayers had struggled to understand whether they were caught by the new rules and incurred substantial fees for accounting and legal professionals to help them prepare their returns. Now they are belatedly told all this was unnecessary. Tax lawyer Geoffrey Turner has more.
– Globe Advisor Staff