It's not that many years before I could opt for CPP @ 60, but this illustrates the $benefit of taking it later (especially if there no real immediate need for the income, good health, etc.).Dogger1953 wrote:Norbert - I can see no flaws in your calculations or conclusions.Norbert Schlenker wrote:Let me go back to this almost month old answer, because there's some interesting figuring here. My wife and I are both in BRIAN5000's situation, with a spotty CPP contribution history due to a lengthy expat period, and then shortened by early retirement. As we're both 58 now, we have decisions to make in relatively short order. For a very long time, given what the dropouts and discounts were, I thought taking CPP at 60 had to be the rational decision. Per the calculation above, the extra zero year costs 2.5% but waiting a year gets you 7%. However, that swayed me not at all because, while waiting a year appears to net 4.5%, there's a year of foregone pension there. A 60 year old seems likely to collect CPP for 20-25 years, so waiting the year costs 4-5% of the total pension payments, i.e. it's a wash. (As it should be actuarially.)Replying to BRIAN5000, dogger1953 wrote:If you had some zero or low years when you were younger though, your calculated retirement pension might start decreasing at age 60 or earlier. In any case, the most that the CPP can decrease with an extra year of zero earnings is about 2.5% (1/39) which would never fully offset the increase for waiting a year (12 x 0.58% = 6.96% for 2015).
But here's the wrinkle. I have some entitlement circa age 65. For the sake of illustration, let's say it's $400/month. By the time I turn 60, the monthly discount factor for early payment will be 0.60%. If I take CPP at 60, the total discount is 60 months x 0.6% = 36%, so I get 64% of $400 = $256. If I wait until I'm 61 and have another zero year, the age 65 entitlement falls to $390, but now I collect $71.2% of $390 = $278, which is an 8.5% increase on the figure from a year earlier. The breakeven period declines from something around mean life expectancy to about half that, so waiting one year definitely looks worthwhile. Waiting from 61 to 62 nets another 7%, 62 to 63 another 6.5%. Because the discount for every month you go early is flat arithmetically instead of geometrically, there is a big incentive not to take CPP right at 60.
Looks like I'll be waiting a few extra years ...
Thank-you for the insight