New report highlights financial considerations of delaying CPP payments

A retiree faces a 50 per cent probability of receiving more income by delaying Canada Pension Plan payments, according to a new report by the Canadian Institute of Actuaries and the Society of Actuaries.

The report, authored by Bonnie-Jeanne MacDonald, director of financial security research at Ryerson University’s National Institute on Ageing, investigated the financial considerations of delaying CPP payments and looked at the risks and opportunities associated with the delay.

For the majority of Canadians with sufficient registered retirement savings plan and registered retirement income fund savings, the decision to delay CPP payments depends on current investment returns and life expectancy, it noted. And even in extreme cases — for example, situations with low longevity expectations and very high expected investment returns – a person faces a 50 per cent probability of receiving more income by delaying the payments.

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“This research shows that, given today’s low interest environment and general population longevity expectations, delaying CPP payments is clearly a financially advantageous strategy,” said Michel St-Germain, president of the CIA, in a press release.

The report looked at workers retiring at age 65 who intend to use some portion of RRSP/RRIF savings toward increasing their lifelong annual retirement consumption. It also included a comprehensive financial risk/return evaluation of the timing decision for take-up using stochastic individual microsimulation modelling.

A 2019 report by the CIA also looked at how delaying the CPP, among other retirement program updates, can be beneficial to Canadians. It developed a framework that compares two identical financial strategy options that differ only in the timing of the take-up decision. Between these two options, the cost of delaying CPP payments can be expressed with simple formulas, it showed, and the financial trade-offs underlying the CPP delay decision depend on the expectations of mortality and investment returns.

“This joint report will help inform the public debate on whether or not workers approaching retirement should delay CPP payments beyond age 65,” said Sandra Caya, director of communications and public affairs at the CIA. “It is an excellent example of the CIA’s mission to advance actuarial science and its application for the well-being of society.”

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