Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Canadian Actuaries Publish Study on Pros/Cons of Delaying CCP
Old 07-29-2020, 03:04 PM   #1
Dryer sheet aficionado
 
Join Date: Oct 2016
Location: Toronto
Posts: 29
Canadian Actuaries Publish Study on Pros/Cons of Delaying CCP

The Canadian Institute of Actuaries just published a paper on the pros and cons of delaying take-up of Canada Pension Plan (CPP) payments. Although the paper is focused on the Canadian system, it might have some relevance to similar decisions made under other countries' regimes.

https://www.cia-ica.ca/docs/default-.../rp220114e.pdf

The key finding (supported by a lot of math - these are actuaries after all) is this:

"For retired Canadians with sufficient bridging funds in their RRSP/RRIF savings that they intend to use towards increasing their lifelong annual retirement consumption, the financial trade-offs underlying the decision to delay CPP payments depend on mortality and financial market returns. In other words, from a cashflow and savings perspective, the CPP timing decision is unaffected by those considerations that are normally key to retirement financial planning such as Guaranteed Income Supplement (GIS) benefits, taxes, pension income, other savings, or even the level of the CPP benefit itself. Mortality expectations and financial market returns are the only direct factors affecting the financial trade-offs in terms of cashflow and savings."
__________________

Andromeda is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-29-2020, 03:33 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 9,647
If a person is eligible for CPP and SS, which most likely means subject to WEP, then they might consider collecting CPP at age 60 , since any increase in CPP will be cut in 1/2 by WEP. Especially if they are delaying SS to age 70.

Within Canada considerations only, the article does say low-income seniors should claim at 60 to decrease the clawback in GIS and OAS (these are 2 extra programs to boost low income), as well as because low-income folks die earlier. (2.5 years less is an interesting point).

"Another implication of these results relates to low-income seniors. The results of this analysis were originally not
intended for Canadians who are likely to be recipients of GIS benefits. That is because literature suggests that the
advantages of delaying CPP are likely much less relevant for lower-income Canadians given their lower likelihood of
holding sufficient private savings to fund a delay in receiving a CPP pension, their relatively lower life expectancies,
and the income test in the GIS benefit calculation. For example, the OCA finds that 65-year-olds who receive the GIS
are living approximately 2.5 years less than those not receiving it (Table 1, OCA, 2016a), and this mortality gap has
been relatively stable for the last three decades. In addition, the CPP pension is taxable and counts towards the
income-tested clawbacks in the GIS benefit calculation. Earlier research by C.D. Howe finds this severe financial
penalty can make it preferable for GIS recipients to take CPP payments as soon as they turn 60"
__________________

__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is online now   Reply With Quote
Old 07-29-2020, 03:44 PM   #3
Recycles dryer sheets
samm's Avatar
 
Join Date: Mar 2008
Location: Las Vegas
Posts: 160
Quote:
Originally Posted by Sunset View Post
If a person is eligible for CPP and SS, which most likely means subject to WEP, then they might consider collecting CPP at age 60 since any increase in CPP will be cut in 1/2 by WEP. Especially if they are delaying SS to age 70.
+1
Exactly.
samm is offline   Reply With Quote
Old 07-29-2020, 03:52 PM   #4
Recycles dryer sheets
samm's Avatar
 
Join Date: Mar 2008
Location: Las Vegas
Posts: 160
Quote:
Originally Posted by Andromeda View Post
"...Mortality expectations and financial market returns are the only direct factors affecting the financial trade-offs in terms of cashflow and savings."
It took more than 10 actuaries to say..."it depends... and we don't have the answer."

samm is offline   Reply With Quote
Old 07-30-2020, 11:41 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,143
Send a message via Skype™ to kcowan
The other aspect for me was the dropout provisions. You are allowed 8 low income years to be excluded from the calculation. I retired from employment at 50 and arranged my consulting income to have 3 out of 10 years with minumum taxable income. Add in the 5 years from age 60 to 65, and it was to my advantage to retire at 60.

This aspect is seldom discussed because it is unusual. A friend who retired at 57 was alerted to this by me and he claimed it at 60 as well.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 07-30-2020, 12:15 PM   #6
Dryer sheet aficionado
 
Join Date: Oct 2016
Location: Toronto
Posts: 29
Quote:
Originally Posted by samm View Post
It took more than 10 actuaries to say..."it depends... and we don't have the answer."

Of course, simple and definitive answer would be ideal. But props to the actuaries for ruling out a lot of variables. Learning that there are only two factors/probability assessments to consider, instead of many factors, is quite helpful.
Andromeda is offline   Reply With Quote
Old 07-30-2020, 12:56 PM   #7
Thinks s/he gets paid by the post
Koogie's Avatar
 
Join Date: Nov 2007
Location: GTA
Posts: 1,457
Quote:
Originally Posted by kcowan View Post
The other aspect for me was the dropout provisions. You are allowed 8 low income years to be excluded from the calculation. I retired from employment at 50 and arranged my consulting income to have 3 out of 10 years with minumum taxable income. Add in the 5 years from age 60 to 65, and it was to my advantage to retire at 60.
This aspect is seldom discussed because it is unusual. A friend who retired at 57 was alerted to this by me and he claimed it at 60 as well.
As you know I am in a similar situation to yours and I will have to help DW make that decision in 5 years also.

What did you use to do the calculations ? Something online or was it using steves (RIP) software ?
__________________
Family Motto: "Every penny's a prisoner"
Koogie is offline   Reply With Quote
Old 07-30-2020, 02:17 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Apr 2010
Posts: 3,257
It was to my advantage to take CPP at 60. I had no CPP contributions past age 59. Averaging at age 65 would have hurt me because of the number of max. contribution years that I had. I was able to get in under the old rules and took much less of hit than might have otherwise been the case. OAS clawback rules also made taking CPP at 60 advantageous.

It was very advantageous for my spouse to take CPP at 60 because she did not have many contribution years but she also got credit for her child rearing years.
She had far more out of it in two years than she ever contributed because of the low premiums in prior years. We were quite surprised at her monthly amount.

The third issue was what would be the combined benefit if one of us were to die. There is serious penalty to be incurred if both spouses are at the max. CPP benefit and one passes away. THis was not the driver for us but a friend has experienced this.
brett is offline   Reply With Quote
Old 08-01-2020, 10:33 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,143
Send a message via Skype™ to kcowan
I used a spreadsheet that had been provided by my employer 10 years earlier. And the CPP website. Reran the simulation with the dropout years and showed that the number would be lower by waiting until 65. This was under the old rules 17 years ago.

And spouse also had a similar situation. So we also avoid being reduced as much by the maximum when one of us predeceases the other.

The decision is not trivial unless you just have a salary all your life.
__________________

__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Motorhome purchase? Pros/Cons! greenhm Life after FIRE 223 07-27-2008 03:49 PM
Pros and Cons of New Forum Software TromboneAl Forum Admin 42 06-06-2007 06:06 AM
TIPS: Buy Bond or Bond FUND? Pros & Cons please! Jane_Doe FIRE and Money 67 11-20-2006 09:29 PM
after-tax contributions to 401K - pros/cons? simple girl FIRE and Money 14 10-12-2006 01:27 PM
Index Funds Pros and Cons Pale Rider FIRE and Money 91 09-29-2006 10:38 AM

» Quick Links

 
All times are GMT -6. The time now is 11:38 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×