CPP Deferral debate - Fred Vettese article discussion

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by longinvest » 27 Mar 2017 18:36

Chuck,
Chuck wrote:
27 Mar 2017 17:32
It would also seem that if you are under the 17% dropout limit at age 60, it would be even more beneficial to defer to at least 65 as some of your zero earnings years would not even hurt.

And then, of course, it becomes again more beneficial to add another 5 years to age 70, as those zero earnings years are not even a factor.

Am I understanding this correctly?
Yes.
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Re: Clippings 2017

Post by kcowan » 28 Mar 2017 08:58

ghariton wrote:
07 Mar 2017 12:57
In addition to that I wanted to avoid years with zero CPP contributions. I had stayed in school too long and had run out of years I could drop for CPP purposes.
I had the same discussion with a very astute buddy who had retired at 55. His CPP statements were totally misleading to him (because they assumed he would work until 65 even though he was already retired), and when I convinced him that those statements were bogus, he agree that taking it early was the only option. That is one of the shortcomings of CPP.
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Re: Clippings 2017

Post by Shakespeare » 28 Mar 2017 09:21

kcowan wrote:
28 Mar 2017 08:58
ghariton wrote:
07 Mar 2017 12:57
In addition to that I wanted to avoid years with zero CPP contributions. I had stayed in school too long and had run out of years I could drop for CPP purposes.
I had the same discussion with a very astute buddy who had retired at 55. His CPP statements were totally misleading to him (because they assumed he would work until 65 even though he was already retired), and when I convinced him that those statements were bogus, he agree that taking it early was the only option. That is one of the shortcomings of CPP.
Same here. I retired at 50.

Another problem dealt with health coverage. If I delayed my allowance, I got more money but lost health coverage unless I reapplied. So I took my reduced allowance immediately.
“A wise man should be prepared to abandon his baggage at any time.” -- R.A. Heinlein, The Door Into Summer.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by Arby » 28 Mar 2017 11:19

Same here as well. I retired at 52. When I ran the numbers on CPP, it was financially better for me to take early CPP, due to the years with zero CPP contributions.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by gaspr » 28 Mar 2017 22:16

My wife retired at age 55 and here are her numbers. Her calculated retirement pension (the amount she would receive if she were 65 in the year she starts her pension) decreases from age 60 ($732.67)to 65 ($653.62) due to the extra years of zero earnings. Her estimated monthly CPP pension at age 60 would be $477.35 in today's dollars. If she waits til age 70, it would be $944.14 in today's dollars. Simple breakeven is at age 82. I like her chances. We will wait to age 70.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by gaspr » 28 Mar 2017 22:34

In longinvest's example on the previous page, the fictional retiree quits work at 60, and has a spotty work record so he he gets 5 extra years of zero earnings. And yet his estimated monthly check in today's dollars is $439.08 at age 60 and $961.65 at age 70. If he is in good health, why would he not take the age 70 option?

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by Shakespeare » 28 Mar 2017 22:38

Simple breakeven is at age 82. I like her chances.
I would make the opposite choice, expecting to be either dead, in a low-expense maintenance lifestyle (if healthy) or a high-expense terminal lifestyle (if not) at 82.
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by ghariton » 29 Mar 2017 00:46

longinvest wrote:
26 Mar 2017 13:22
So, effectively, one could increase the bonus of deferring the CPP pension by taking some risk with the money used to cover the 10-year gap.
Interesting. I haven't run the numbers (I'm recovering from eye surgery again), but my intuition on the interaction of delay and risk would be the opposite.

I took CPP at age 60, ten years ago. Since I haven't needed the money to live on (I'm still working part time), I have invested the monthly payments in VTI. That means I've been getting a return of somewhere north of nine per cent (seven per cent real, or thereabouts). If I had been able to delay to 70 (the option wasn't available back then), the CPPIB would have invested the money for me, implicitly, at a real rate of four per cent. So I've been growing the money faster, and should have a larger amount now than if I had deferred to 70. (I'm leaving aside the issue of income taxes and their deferral. That very much depends on what other income streams one has, and how easy it is to change their timing.)

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by adrian2 » 29 Mar 2017 08:51

ghariton wrote:
29 Mar 2017 00:46
I took CPP at age 60, ten years ago. Since I haven't needed the money to live on (I'm still working part time), I have invested the monthly payments in VTI. That means I've been getting a return of somewhere north of nine per cent (seven per cent real, or thereabouts). If I had been able to delay to 70 (the option wasn't available back then), the CPPIB would have invested the money for me, implicitly, at a real rate of four per cent. So I've been growing the money faster, and should have a larger amount now than if I had deferred to 70.
You may be confusing strategy with outcome.
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by ghariton » 29 Mar 2017 12:12

adrian2 wrote:
29 Mar 2017 08:51
You may be confusing strategy with outcome.
I;m not sure I'm interpreting you properly. But if the point is that I accepted higher risk by investing in VTI than by leaving the money in the CPP, that's quite correct.

I was still working, so I could accept a higher risk with those funds. Others may be in a very different position, and for them, the security of the CPP may be paramount.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by longinvest » 29 Mar 2017 15:57

George,
ghariton wrote:
29 Mar 2017 00:46
longinvest wrote:
26 Mar 2017 13:22
So, effectively, one could increase the bonus of deferring the CPP pension by taking some risk with the money used to cover the 10-year gap.
Interesting. I haven't run the numbers (I'm recovering from eye surgery again), but my intuition on the interaction of delay and risk would be the opposite.

I took CPP at age 60, ten years ago. Since I haven't needed the money to live on (I'm still working part time), I have invested the monthly payments in VTI. That means I've been getting a return of somewhere north of nine per cent (seven per cent real, or thereabouts). If I had been able to delay to 70 (the option wasn't available back then), the CPPIB would have invested the money for me, implicitly, at a real rate of four per cent. So I've been growing the money faster, and should have a larger amount now than if I had deferred to 70. (I'm leaving aside the issue of income taxes and their deferral. That very much depends on what other income streams one has, and how easy it is to change their timing.)
ghariton wrote:
29 Mar 2017 12:12
adrian2 wrote:
29 Mar 2017 08:51
You may be confusing strategy with outcome.
I;m not sure I'm interpreting you properly. But if the point is that I accepted higher risk by investing in VTI than by leaving the money in the CPP, that's quite correct.

I was still working, so I could accept a higher risk with those funds. Others may be in a very different position, and for them, the security of the CPP may be paramount.
I think that we are addressing different problems.

I was addressing the problem of safely* maximizing income/spending all retirement-long starting at age 60, while alive, in absence of bequest motives by delaying CPP and bridging the gap with cash investments (such as a CD ladder). As a side effect, the lifelong inflation-indexed base income which is not exposed to any market or longevity risk is more than doubled.

* In other words: without taking any additional market risk.

You seem to be addressing the problem of accumulating the biggest post-death portfolio, possibly for bequest motives, by not maximizing spending in one's 60's, taking out early CPP payments, paying taxes, investing them, and possibly paying taxes again later while fully exposing the money to stock market risk. Just the fact of spending less in one's 60's will help accumulate a bigger post-death portfolio; there's no doubt.

Of course, on a probabilistic level, your approach is likely to effectively result into a bigger after-death portfolio; yet, there's still a possibility for this approach to fail (that's the risk, here). One could win the longevity lottery at the same time as stock markets decide to deliver much lower than expected returns.

Is the 7% real return an after-tax return, where contributions (in terms of calculations) consist of pre-tax CPP payments? (In other words, one should probably take into account the double taxation of reinvested early CPP payments, here, as delayed CPP payments grow free of tax; but it gets complicated to make a fair comparison as delayed CPP payments will be exposed to tax, on withdrawal, too).

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by longinvest » 29 Mar 2017 16:53

On a philosophical level, this all goes back to what one perceives as risk. As I wrote in an older thread, I like Zvi Bodie's definition which says: "Investment risk is uncertainty that matters."

To me, having a smaller portfolio after my death does not matter. But, on the other hand, the fear of ending up with too little income in old age matters a lot. Having more money to spend when alive (including the earlier part of retirement) matters more to me than leaving a big pot of money to my heirs. Mathematics tell me that deferring QPP and OAS are a good match for what matters to me. There's still a possibility that I could do better by taking these pension earlier, buying lottery tickets with them, and winning millions of dollars. But, this would increase risk; it would increase uncertainty that matters to me.

Bodie also writes: "Beyond the odds of hitting a rough patch, there are the consequences of loss to consider."

The consequences if I was to die early, during my 60's, while delaying QPP and OAS, would not matter to me. When I'm dead, I won't feel anything. I won't be able to have any regrets; I'll be dead. Not only that, but it's all the better if, when alive, I actually got to spend more by depleting my portfolio faster, than having taken QPP and OAS early (and be forced to preserve more of my portfolio for old age).

The consequences if I take QPP early with a steep lifelong penalty, and OAS at 65, then go on to survive for a very long time with poor portfolio returns, could be disastrous for me. This is something that matters a lot. If it was to happen, I would deeply regret my decision to accept a deep penalty to draw on my pensions early. I would not only be destroyed financially, but emotionally too in old age.

Others might have other objectives and, as a consequence, get to different conclusions. That's fine; I'm not trying to convince anybody. I'm only sharing what I've learned.
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by adrian2 » 29 Mar 2017 17:59

ghariton wrote:
29 Mar 2017 12:12
adrian2 wrote:
29 Mar 2017 08:51
You may be confusing strategy with outcome.
I'm not sure I'm interpreting you properly. But if the point is that I accepted higher risk by investing in VTI than by leaving the money in the CPP, that's quite correct.
What I meant is that you could not have known the outcome, ex-ante, with any degree of certainty.

The whole point of a DB pension is to offer you a baseline, a certain minimum income. Investing in stocks is a whole different kettle of soup.
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by ghariton » 29 Mar 2017 18:46

longinvest wrote:
29 Mar 2017 15:57
I think that we are addressing different problems.
Yes and no.

You are keeping the level of risk constant (more or less -- see duration and opportunity cost risk). That's fine for the exercise you are doing.

My point, which I should have articulated at greater length because it is much too terse upthread, is that delaying CPP forc3es me into a certain risk level. (There are workarounds by adjusting other parts of my portfolio, but I'm keeping it simple.) If that risk level is the one I want, great. If I want to take on a different level of risk, not so great. This should be factored into one's thinking about delaying CPP. This is not a criticism of your analysis. It just points to an omitted factor that is important to me.
You seem to be addressing the problem of accumulating the biggest post-death portfolio, possibly for bequest motives, by not maximizing spending in one's 60's, taking out early CPP payments, paying taxes, investing them, and possibly paying taxes again later while fully exposing the money to stock market risk.
Again, yes and no. If I have a certain bequest level in mind, using a riskier instrument to reach it means that I will devote a smaller part of my portfolio to reaching it. That will leave more money for spending during my lifetime. Of course, it does transform my bequest from less risky to riskier. But then, whether that matters depends on the nature of the bequest. I suppose that, in an ideal world, I should consult my prospective heirs about the risk level they feel comfortable with, rather than assuming a higher (or lower) risk tolerance. But I donèt live in an ideal world, so they will have to live with my risk tolerance.

7% real return an after-tax return, where contributions (in terms of calculations) consist of pre-tax CPP payments? (In other words, one should probably take into account the double taxation of reinvested early CPP payments, here, as delayed CPP payments grow free of tax; but it gets complicated to make a fair comparison as delayed CPP payments will be exposed to tax, on withdrawal, too).
The seven per cent is prior to income tax. The money is in a non-registered account, so returns are mostly capital gains. I agree that makes comparisons very tricky, especially as there are other non-registered assets, and accumulation of retained earnings in a CPCC. (I think you have to look at the incremental impact of delaying CPP on your total portfolio, rather than just a CPP pension and a plain vanilla RRSP.)

Yes, tax deferral is valuable, and delaying CPP does that. But that is only one impact out of many.

Anyway, I d rather use RRBs and equity ETFs to build my own retirement streams, because then I can design things to match my risk preferences, and change as those risk preferences change. But that is a personal choice, of course.

George
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by BRIAN5000 » 29 Mar 2017 18:59

I guess a rather obvious thing about delaying CPP & OAS at anytime within the CPP & OAS rules you can change your mind. If you decide to draw it down sooner than the latest time possible maybe no harm. Lots of investment decisions don't seem to have this option.
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by Park » 29 Mar 2017 21:40

When I retire, I've lost the ability to generate income from labor. I now rely solely on income from capital. I'm less diversified than I formerly was. There are certain financial risks that I'm now more exposed to: inflation risk, market risk and longevity risk.

CPP mitigates those risks: fixed income that is inflation indexed and has the credit risk of the government of Canada, which I"ll receive it as long as I live.

For a taxable investor in retirement, fixed income is needed and taxation of such income may be an issue. But the government has stacked the tax deck in favor of CPP. CPPIB doesn't pay taxes. I get a modest tax credit on my employee contribution. I get a tax deduction on the employer contribution. There are those who would say that I don't do as well, because I have to pay the employer portion. I would counter that the employer portion is already embedded in the compensation of those who only pay the employee portion. And one can share a pension with one's partner, which might decrease tax; such income splitting isn't possible for many income sources.

I'm unable myself to judge whether CPPIB manages money well. But I've never heard anyone argue that it does it poorly and its costs are too high.

Institutions can diversify their investments more readily than an individual can. I'm thinking primarily of alternative investments. CPPIB can and does invest in such alternatives. By deferring CPP, I"m getting alternative investment exposure and increasing my diversification. There are those who would make good arguments that alternative investment exposure isn't a good idea, and I don't dismiss those arguments. I think it very unlikely that I should personally be investing in alternatives. But Yale has done well with its alternative investments under Swensen. CPPIB is a big enough player to likely be able to profit from alternative investments. Of all my sources of possible retirement income, CPP has the greatest probability of benefiting from alternative investments. So I would consider the alternative investment exposure that I get with CPP to be an overall plus, although with some reservations.

In 2010 in the link below, Jamie Golombek estimated an average real return of 3%, for present CPP contributors. I assume that refers to the return of those who are self-employed. Undoubtedly, there are those who could invest and get a higher rate of return than 3%. But it would be difficult to get a better risk adjusted fixed income return. For purposes of comparison, the present return of RRBs is 0.68%. And I'm not sure whether the 3% takes into account survivor's pension.

http://www.jamiegolombek.com/media/jg-r ... sps-en.pdf

By having CPP, I diversify my risk. In retirement, I'll take income from my RRSP, TFSA and taxable accounts. If there are problems with those other sources of income, CPP will likely help.

Every year that I delay CPP, I get the equivalent of an inflation indexed annuity that pays 7-8%. When it comes to fixed income, I think it is very unlikely that I could find a better alternative. And I get that when I'm older, which is important. Assume a scenario, where my only source of income ends up being CPP. In such a situation, I'll have to think about going back to work. That's reasonable if I was 65, but less so if I'm 85. For those who think understandably that such a scenario is very unlikely, a reduction of 50% in your retirement income due to marital breakdown is more probable.

From the link below, max CPP at age 60 is $681.60 in 2016. At age 70, it is $1,512.30. I might be able to support myself on the latter, but I don't see that as a possibility with the former.

http://boomerandecho.com/when-to-take-c ... n-between/

What if the government changes the rules, and takes advantage of me? That is possible. But it could also do that to my RRSP, TFSA, and taxable accounts. When it comes to such shenanigans, I've diversified my risk.

Why don't I take CPP early, when my health permits me to enjoy the money more? I'd rather decrease the risk of me being poor at age 85.

What if I die at a comparatively young age? That is a very legitimate issue. There are people, who should take CPP as early as possible. Indeed there are some who should try to avoid making any CPP contributions. Those who die early increase the return of those who die late. But if you're reading this post, the probability is good that you'll live longer than the average CPP contributer, and will likely benefit from those who die early.

I've heard a variety of lifespans, as to when a delay until 70, pays off. The numbers I've seen range from 81 to 86. I'm not sure if those numbers take into account survivor's pension or tax reduction via pension sharing.

When I'm 59, I'll reexamine this issue every year until I"m 70, taking into account my health and any rule changes.
Last edited by Park on 30 Mar 2017 10:21, edited 1 time in total.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by rharvey199 » 30 Mar 2017 09:07

longinvest - thanks for posting. my situation is very similar to the scenario you posted on page 4. i will have a lot of zero contribution years to cpp combined with many tears of max earnings so my expected payment at 65 is approx $620. i always assumed i would take cpp early at 60. but based on your post and some of the other posts in this thread i will take another look at deferring cpp and using my portfolio to fund the gap.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by Peculiar_Investor » 30 Mar 2017 09:30

rharvey199 wrote:
30 Mar 2017 09:07
my situation is very similar to the scenario you posted on page 4.
Slightly off-topic with a bit of a shameless plug about a couple of board features.
  • I don't have a page 4 on this topic because I'm using the User control of posts per page setting feature.
  • The Clever quotes feature could be useful here :nudge: I think you are referring to
    longinvest wrote:
    26 Mar 2017 11:18
    Let me make some additional assumptions: (1) This worker had a well-paid but spotty work record.
Back to the topic at hand. I also appreciate longinvest's efforts to explain this topic with detailed examples, both in topic as well as here. As an early retiree, I've got lots of years of zero contributions and can see the day coming when the decision on early, normal or deferred CPP will be at hand. You've spiked my interest to starting to educate myself to understand the options and their implications.

Is there any chance there is a spreadsheet (or spreadsheets) that could be shared? Perhaps via our wiki article on Canada Pension Plan?
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by gaspr » 30 Mar 2017 10:16

Peculiar_Investor wrote:
30 Mar 2017 09:30

Is there any chance there is a spreadsheet (or spreadsheets) that could be shared? Perhaps via our wiki article on Canada Pension Plan?
I agree that it would be great to have a pension calculator spreadsheet on the wiki! Something where one could just enter all the info from their CCP statement of contributions, perhaps be able to forecast some future years' income, and then see all the various options and choices. Actually, this is something that should be available at Service Canada, but government....

The only problem is that Doug Runchey, who has been very helpful here on the forum, has a sideline business doing CPP analysis and projections. I have used his service and it is excellent. I almost feel we should get his blessing?

Thoughts?

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by StuBee » 30 Mar 2017 10:33

I would like to second PI concerning Loginvest's contribution. :thumbsup:

I am 55 and my wife will soon be 59. We both have (or will have) zero years above the dropout maximum. I will have to look into this within the next 6 to 12 months. For now, my take home message is to postpone as long it is convenient before taking CPP (in my case QPP). I will probably have (or can probably have) sufficient FI to bridge beyond age 65 (as in longinvest's well defended apology/defence/argument on CPP deferral).

Does anyone have a quick and simple rule to ascertain when the negative effect of accumulation of zero contribution years outweighs the positive effect of CPP postponement?

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by BRIAN5000 » 30 Mar 2017 10:52

StuBee wrote:
30 Mar 2017 10:33
Does anyone have a quick and simple rule to ascertain when the negative effect of accumulation of zero contribution years outweighs the positive effect of CPP postponement?

StuBee
This may have some info http://www.moneysense.ca/save/retiremen ... -pensions/


"So for people in this situation, the net impact is that the payoff they would otherwise get for deferring CPP would be curtailed to around 4.7% per year. (That’s the general deferment factor of 7.2% minus the 2.5% from adding additional zero income years.) “You get a larger slice of a smaller pie, but you still get more pie in total,” says Runchey."
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by leoc2 » 30 Mar 2017 11:37

Peculiar_Investor wrote:
30 Mar 2017 09:30
Back to the topic at hand. I also appreciate longinvest's efforts to explain this topic with detailed examples, both in topic as well as here. As an early retiree, I've got lots of years of zero contributions and can see the day coming when the decision on early, normal or deferred CPP will be at hand. You've spiked my interest to starting to educate myself to understand the options and their implications.

Is there any chance there is a spreadsheet (or spreadsheets) that could be shared? Perhaps via our wiki article on Canada Pension Plan?
I found a CPP spreadsheet at:
http://www.holypotato.net/?p=1694

I will download it and try it later today.
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Added: I tried it out and it works out to give me numbers similar to the spreadsheet I cooked up on my own using the sample calculation from Doug. Here is a link to Doug's calculation.
https://retirehappy.ca/how-to-calculate ... t-pension/
Last edited by leoc2 on 30 Mar 2017 13:03, edited 2 times in total.

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Re: CPP Deferral debate - Fred Vettese article discussion

Post by Park » 30 Mar 2017 12:42

Park wrote:
29 Mar 2017 21:40
When I retire, I've lost the ability to generate income from labor. I now rely solely on income from capital. I'm less diversified than I formerly was. There are certain financial risks that I'm now more exposed to: inflation risk, market risk and longevity risk.

CPP mitigates those risks: fixed income that is inflation indexed and has the credit risk of the government of Canada, which I"ll receive it as long as I live.

For a taxable investor in retirement, fixed income is needed and taxation of such income may be an issue. But the government has stacked the tax deck in favor of CPP. CPPIB doesn't pay taxes. I get a modest tax credit on my employee contribution. I get a tax deduction on the employer contribution. There are those who would say that I don't do as well, because I have to pay the employer portion. I would counter that the employer portion is already embedded in the compensation of those who only pay the employee portion. And one can share a pension with one's partner, which might decrease tax; such income splitting isn't possible for many income sources.

I'm unable myself to judge whether CPPIB manages money well. But I've never heard anyone argue that it does it poorly and its costs are too high.

Institutions can diversify their investments more readily than an individual can. I'm thinking primarily of alternative investments. CPPIB can and does invest in such alternatives. By deferring CPP, I"m getting alternative investment exposure and increasing my diversification. There are those who would make good arguments that alternative investment exposure isn't a good idea, and I don't dismiss those arguments. I think it very unlikely that I should personally be investing in alternatives. But Yale has done well with its alternative investments under Swensen. CPPIB is a big enough player to likely be able to profit from alternative investments. Of all my sources of possible retirement income, CPP has the greatest probability of benefiting from alternative investments. So I would consider the alternative investment exposure that I get with CPP to be an overall plus, although with some reservations.

In 2010 in the link below, Jamie Golombek estimated an average real return of 3%, for present CPP contributors. I assume that refers to the return of those who are self-employed. Undoubtedly, there are those who could invest and get a higher rate of return than 3%. But it would be difficult to get a better risk adjusted fixed income return. For purposes of comparison, the present return of RRBs is 0.68%. And I'm not sure whether the 3% takes into account survivor's pension.

http://www.jamiegolombek.com/media/jg-r ... sps-en.pdf

By having CPP, I diversify my risk. In retirement, I'll take income from my RRSP, TFSA and taxable accounts. If there are problems with those other sources of income, CPP will likely help.

Every year that I delay CPP, I get the equivalent of an inflation indexed annuity that pays 7-8%. When it comes to fixed income, I think it is very unlikely that I could find a better alternative. And I get that when I'm older, which is important. Assume a scenario, where my only source of income ends up being CPP. In such a situation, I'll have to think about going back to work. That's reasonable if I was 65, but less so if I'm 85. For those who think understandably that such a scenario is very unlikely, a reduction of 50% in your retirement income due to marital breakdown is more probable.

From the link below, max CPP at age 60 is $681.60 in 2016. At age 70, it is $1,512.30. I might be able to support myself on the latter, but I don't see that as a possibility with the former.

http://boomerandecho.com/when-to-take-c ... n-between/

What if the government changes the rules, and takes advantage of me? That is possible. But it could also do that to my RRSP, TFSA, and taxable accounts. When it comes to such shenanigans, I've diversified my risk.

Why don't I take CPP early, when my health permits me to enjoy the money more? I'd rather decrease the risk of me being poor at age 85.

What if I die at a comparatively young age? That is a very legitimate issue. There are people, who should take CPP as early as possible. Indeed there are some who should try to avoid making any CPP contributions. Those who die early increase the return of those who die late. But if you're reading this post, the probability is good that you'll live longer than the average CPP contributer, and will likely benefit from those who die early.

I've heard a variety of lifespans, as to when a delay until 70, pays off. The numbers I've seen range from 81 to 86. I'm not sure if those numbers take into account survivor's pension or tax reduction via pension sharing.

When I'm 59, I'll reexamine this issue every year until I"m 70, taking into account my health and any rule changes.
http://forums.redflagdeals.com/what-act ... a-1089150/

"For every year that you contribute after age 65, you can drop out a previous year of low or no contributions. This over-65 dropout is in addition to the general dropout"

http://www.moneysense.ca/save/retiremen ... ore-later/

"it’s easy to use up all your drop-out years if you spent a long time getting an education or just “finding yourself.” If you then stop working in your early 60s and don’t take CPP right away, you’ll immediately start adding more years of zero earnings to the calculation. This will lower your average pensionable earnings, which in turn will make your benefit go down...By my estimates, this factor in isolation can reduce your pension by as much as 2% to 3% for each year you delay taking CPP after age 60. So for people in this situation, the overall net cost of starting CPP early is liable to be 3% or 4% per year (that’s the current 6% overall reduction, minus 2% to 3%)."

That's from 2011. The current overall reduction is now 7.2%, not 6%. At that time, one could remove 15% of your lowest earning years in calculating your CPP. It's now 17%. It looks like what is written in the last link doesn't apply to those 65-70. See the link below.

http://www.michaeljamesonmoney.com/2013 ... g-cpp.html

"if you’re working beyond age 65 at a high income level, you’re allowed to replace an equal number of lower earning months with these after-age-65 earnings. And if you’re not working or working only minimally, you can simply drop out those over-65 months so that it doesn’t reduce your calculated retirement pension"
Last edited by Park on 30 Mar 2017 13:38, edited 1 time in total.

Chuck
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by Chuck » 30 Mar 2017 13:32

The more I think about this, the more it seems like deferral is the way to go.

I can only see two obvious cases not to defer:

1) You simply can't afford to. You need the CPP at age 60 to cover your monthly needs. Reduced as it might be, you still need to take it.
2) You really fear you are going to die young AND you wish to maximize your estate (or bequest as some call it). It seems odd to hope to die young, but the theory here would be to spend the government money as soon as you can and save yours for your heirs. Of course, if you fail to die young, you will also fail to maximize your estate in this scenario as you will end up with less government money overall. So careful what you wish for.

Pretty much everyone else would appear to be better off by deferring.

Note: There is a 3rd possibility, per ghariton's posts, that you may feel you can take the CPP early, invest the proceeds, and then outperform the CPPIB by a sufficient enough margin to make the early payout reduction moot. This is very complicated to analyze, especially if you want to try and keep the investment risk level equivalent. So I am not going to try. My gut says it would be hard to pull off.

gaspr
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Re: CPP Deferral debate - Fred Vettese article discussion

Post by gaspr » 30 Mar 2017 14:05

Chuck wrote:
30 Mar 2017 13:32
The more I think about this, the more it seems like deferral is the way to go.

I can only see two obvious cases not to defer:

1) You simply can't afford to. You need the CPP at age 60 to cover your monthly needs. Reduced as it might be, you still need to take it.
2) You really fear you are going to die young AND you wish to maximize your estate (or bequest as some call it). It seems odd to hope to die young, but the theory here would be to spend the government money as soon as you can and save yours for your heirs. Of course, if you fail to die young, you will also fail to maximize your estate in this scenario as you will end up with less government money overall. So careful what you wish for.

Pretty much everyone else would appear to be better off by deferring.

Note: There is a 3rd possibility, per ghariton's posts, that you may feel you can take the CPP early, invest the proceeds, and then outperform the CPPIB by a sufficient enough margin to make the early payout reduction moot. This is very complicated to analyze, especially if you want to try and keep the investment risk level equivalent. So I am not going to try. My gut says it would be hard to pull off.
Agreed. Hard to pass up a chance to almost double a source of inflation adjusted, government guaranteed (implicit), lifetime income with some small survivor benefits. Allows you to safely spend down more of the nest egg early in retirement, thereby reducing market risk.

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