November 4, 2025

I love Stusclues brief response, but I am more like James:

I doubt very much there is a real net $100K lifetime income difference between taking CPP at 70 vs 60 as claimed in this Globe article. $100K may well be the expected CPP income difference – a gross effect, but to analyze this problem the authors need to look at the offsets. For example, if you aren’t taking CPP for 10 years, what are you liquidating to live on? Will your OAS Clawback at 70 be larger?

Although not a functional expert in this field, I have studied retirement and pension issues as a sideline for 35 years. In addition to my personal situation, I have made and monitored retirement plans for three dozen people, so I am aware of some of the issues the “expert” number crunchers and public opinion researchers might miss.

First of all, people “who don’t need the money” are generally in higher tax brackets and concerned that higher future CPP payouts from delaying benefits may put them in an even higher tax bracket, especially by increasing OAS clawback. Furthermore, future tax rates may be even higher when government deficits prove unsustainable. “Fear “maybe, but fear of higher future taxes rather than fear of early death. If this group don’t need the money, they don’t think of CPP as a large sum to “lose” on death. And besides, there is a CPP survivor benefit, so early death of one spouse doesn’t mean zero return. Are the pollsters telling folks that?

Furthermore, retired people who don’t need the money and delay CPP to 70 will be living off other sources of income until then. For example, they could be spending pref share dividends or other investment income which would otherwise get reinvested if they were collecting CPP from some earlier age. I once estimated that CPP deferral was equivalent to an IRR of about 6% (pre-tax, but taxed later when paid out), so most people who don’t need the money have other investments returning somewhat less though maybe not after tax. That offset to the touted CPP deferral “gains” is likely not considered in these “studies”, but for these people the offset probably mitigates at least 80% of any CPP Deferral effect.

Now, the Vulnerable Massive Middle also has the same kind of offsets. I see people with a home, an OK RRSP but no taxable investments and sometimes, debt. If they retire but postpone CPP they have to dip into their RRSP or mortgage (more) in the meantime. RRSP vs CPP same thing with a slight difference in expected returns. Debt is usually more expensive than gross CPP returns. The offsets are as big as the CPP deferral benefit.

If they have small or no RRSP, they have no income unless they start taking CPP and OAS. Their back up plan is to sell their house, when it becomes necessary – a not unreasonable plan. Who is accounting for that offset? Aside from selling the house, the best answer for the Massive Middle is to work a little longer. If they worked until 70 they would get the larger CPP anyway AND have way more than $100,000 net additional lifetime income and hopefully eliminate non-deductible debt. The Vulnerable Massive Middle is either just fine thank you (home owners) or retiring too early, but the surveyors didn’t ask about that.

If pollsters don’t know the tax situation of the respondents, they have a difficult time interpreting responses to their questions.

In my case, I took my (smallish) company pension at 55 – the earliest possible date because I had fears it was woefully underfunded, not unlike the Nortel Pension Plan, which paid out only 50% of promises. In my case, my former employer didn’t go bankrupt and managed over 10 years to top up the plan enough to restore >100% funding, so with hindsight my decision might have been slightly sub-optimal (but hard to say given the offsets).

When it came to CPP, I took it at the normal age of 65. I didn’t want a deferred larger payment propelling me into a higher tax bracket at 70 when my RRIF drawdowns have to start 2 years later. I wanted to smooth my income and work the offsets.

Whenever I’ve done a detailed simulation of how an investor should draw down retirement income from tax deferred and taxable accounts with the intent of optimizing the terminal expected value at death, a mixed drawdown has usually been the financially optimal choice. CPP, OAS, RRIF payouts are fully taxable and move the investor up through the tax brackets. Taxable investment income (especially pref dividends), is taxed at a lower rate AND, if the retiree is eating into taxable capital, will decrease over time, lowering taxes.

I am constantly disappointed in the majority of financial “experts” involved in investment management, taxation, pensions and powers of attorney. The pros are often sub-optimal at things they set as goals or claim to do, independent of the size of their fees. Even the “average” person’s finances are a complicated interaction among a lot of assets and most practitioners see only a tiny part. My sense is that the academics proposing a delayed CPP guarantee are also missing the boat.

The author of the Globe piece James cites is Bonnie-Jeanne MacDonald of the National Institute of Ageing, one of 3 prestigious advisors to Purpose Longevity Pension – another academic proposal to address longevity risk that has attracted only $16M in assets spread among a dozen sub funds in several years of operation (see 2024 Financials). I have no doubt Ms MacDonald can forecast expected future cash flows of any particular financial instrument with a high degree of accuracy and understanding of distributions of outcomes, but, what about all these offsets nobody seems to be considering?

Prefhound