If you are trying to decide when to start taking your CPP pension, a major factor is figuring out which age makes you better off financially.
When you assess the merits of one starting age versus another, you need to know the break-even age: The age when the total CPP pension received (adjusted for interest) by starting CPP at the later age first exceeds the total CPP pension if you start it earlier.
Consider for instance a man at the age of 60. Based on an interest rate of 4.5 per cent, he is better off starting his CPP pension at 60 rather than at 70 only if he dies before 80 years and six months. If he lives longer than that, he would have been better off starting CPP at 70.
Based on this definition of “winners” and “losers,” what are the odds of winning? Imagine there are 1,000 men, all 60, who decide to start their CPP pensions immediately. The chart shows how many of them “win” each year by starting their CPP early.
Why men (probably) shouldn’t take their CPP early
Number of men out of 1,000 who end up being better off taking
CPP early by age
Winners (by starting CPP early)
Losers
60
40
20
65
70
75
80
85
90
95
100
THE GLOBE AND MAIL, SOURCE: AUTHOR'S CALCULATIONS USING
CPM-2014 MORTALITY WITH IMPROVEMENTS TO 2023
Why men (probably) shouldn’t take their CPP early
Number of men out of 1,000 who end up being better off taking
CPP early by age
Winners (by starting CPP early)
Losers
60
40
20
65
70
75
80
85
90
95
100
THE GLOBE AND MAIL, SOURCE: AUTHOR'S CALCULATIONS USING
CPM-2014 MORTALITY WITH IMPROVEMENTS TO 2023
Why men (probably) shouldn’t take their CPP early
Number of men out of 1,000 who end up being better off taking CPP early by age
Winners (by starting CPP early)
Losers
60
40
20
65
70
75
80
85
90
95
100
THE GLOBE AND MAIL, SOURCE: AUTHOR'S CALCULATIONS USING
CPM-2014 MORTALITY WITH IMPROVEMENTS TO 2023
By adding up all the years, the total number of winners is 196. By contrast, the ultimate number of losers (those who started CPP early but die after age 80 and six months) is 804. In other words, there is only a 19.6-per-cent chance they will be better off starting CPP at 60 versus 70.
In spite of this math, most Canadians start their CPP earlier rather than later. What makes this so unusual is that they are betting against themselves every time they start CPP early. After all, they only “win” if they die young. Of course, there may be other reasons for starting CPP early. We will look at the odds for women separately.
Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca)
