CPP Early or Late?

 

The ongoing should I take my public pension money now or wait debate rages, on all sorts of financial blogs. Take it early or defer? The opinions vary across the spectrum. This is just my opinion piece on the subject that I promise is light on math.

The pandemic is changing everything in a matter of months. There was a time when all people did was buy government bonds and GICs to comfortably fund their retirement. Low interest rates paying close to zero have pretty much nixed that strategy. 4-5% safe yields no longer exist.

They used to recommend that you take your age and that's how much you should have invested in bonds. 60% for a 60 year old and 70% for a 70 year old. You used to get a livable return on your money doing that.

Well, those days are long over.

Bonds are low yield plays of 0.5%-1% and GICs are your go to going broke safely choice. We are now being recommended lower bond exposure with more growth dividend paying equities. Yup, hold the same stuff in retirement as when we were working. Some even recommend preferred shares for their favourable tax treatment and higher yields. Usually made by insurance salesman and paid financial planners. Not for a DIY investor like me.

After all you don't want to run out of money in retirement. That's what would happen with a 60-70% bond/GIC exposure portfolio. It's a risk you really need to consider. 

So, I'm sure you've asked yourself and maybe some friends too; should I take my CPP early or wait for later?

Most surveys and the financial experts combined with the government want you to defer your public pension as long as possible. That way you get more money when you mature and prune up. It's a safe decision and it pretty much guarantees it keeps up with the ravages of inflation. 

Guess what? most to almost nobody does it in spite of the free advice spewed for free online or by youtubers.

Over 40% of us elect to collect at 60. Another 30% wait until 65 and only 1% defer all the way to 70.

Lots of amateur mathematicians with a blog out there bragging about how taking your CPP at 70 is what they will do and the best thing to do. 

They actually try and make you feel small and bad for even thinking about taking it early so you can buy some of the comforts of life with your pension money.

They prey on your financial illiteracy and lack of social smarts.

Pros and amateur blog dogs sell the story that you will have more cash for life because delaying your pension means payments will get bigger and more inflation indexing will come your way. The wise ones preach that we are all living longer and we need more income as we age in these extra years. Our so called safe investment assets are paying next to nothing so the money is best to come from a deferred pension.

Most planners (people still use these?) say that there are 3 big reasons to cash in early;

1. You need the money to pay bills and supplement income or you'll end up broke
2. You will die young based on illness or hereditary family history
3. Retired early and no longer pay into the plan

The same experts point out that making another 7% in annual increased payments (deferred) is more than you can make if you invested the money yourself. So, it makes financial sense to wait until later. Let the guvmint keep investing and holding your money for you. 

They also want to scare you into using your RRSP money because in the end it saves them money. They want to suck off their share of taxes as you burn through your hard saved up retirement money. Remember this money becomes fully taxable as soon as you tap into it.

To me, the longer you wait the closer to death you are. When that happens they're off the hook. They owe you and your estate nothing. Spouse will receive a survivor's benefit but c'est tout!

So what to do? Collect zero at 60, OAS at 65 and CPP at 70? Is that the plan for your contributions? Experts surmise this would net about $100K over decades of retirement. 

As talked about earlier this is not what the masses do. Are they right?

You're damn straight they are! Early CPP wins!

Grab the cash as soon as you're eligible. No looking back, stop the second guessing. Turnoff the online calculators, no need for more dumb spreadsheets. 

C'mon man you're 60, enough of the listening to cellar dwelling internet experts wiping the chip dust from their chest hair.

You have no idea how long you will live and neither does anyone. Have a look at the virus numbers. Shit happens, take the f'n money NOW!

Live for the now, NOT your future self. 

How do you know what you and your body at 70 feels like? What about all the delayed surgeries and treatments people in their sixties are living through right now. Try to get into the hospital right now. It's a hostile trip. 

Some will make it to that island holiday, others just won't. Feel lucky?

You might be severely disappointed at your 70 year old self. My back still hurts when I hear that word - Tillsonburg!

I've invested in dividend paying growth stocks so my portfolio will grow, throb and expand in retirement. If I'm doing it right and think that I am, I can live off the juice without tapping into the whole coconut. I'll use my early CPP to add to my prepper stuff and booze collection.

Waiting until 70 also risks a higher tax bracket and triggering capital gains selling stuff when you don't really want to. Think of all the money you don't have to pull out of investments if you tapped out early. Take your pension money NOW!

No need to try and be a 1% 'er when it comes to CPP.

My Final Take

I took my CPP 4 years ago. I completely stopped working so money is taxed at the lowest rate possible. My wife continues to work a couple days a week and is not yet 60. We will decide what she wants to do then, but deferring to age 70 will not be an option in our decision.

It's your money, all of it. You funded it along with all the employers you ever worked for. It's personal and different for everybody. 2020 has been a shit show and changed all that. 

A good plan and you should have one changes over time. 

Hopefully we've learned that every day is so unpredictable and to just breathe is a gift. Leave nothing extra for the government.

Tomorrow is promised to no one.

When do you plan on taking CPP? I would be interested in your choice and reasons for doing so.

If you need help on how to generate additional income in retirement, then this book below can help you.