There is little debate that if you have a decent investment portfolio, you should delay CPP and Old Age Security payments. You’ll be the recipient of a significant boost in government benefits that we can consider as pensionable income. It’s guaranteed for life and adjusted for inflation. From age 65 to age 70, the guaranteed income boost is 42%. If you take CPP at age 60 compared to age 65, you’ll receive 36% less. But what happens if you take cpp at age 60 and invest the amounts? Can you beat the CPP returns?
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Out of the gate consider that delaying CPP and OAS almost always wins. “More pension is more better” as I like to say. In fact the RRSP meltdown strategy might be the number one retirement hack for Canadians. We employ the RRSP meltdown to allow the CPP delay, the RRSP amounts provide the bridge as we wait for the enhanced CPP payments. The RRSP meltdown can also enable overall tax efficiency within the optimized cash flow plan. You might be able to manage any OAS claw back.
Can you catch a 122% total return?
That would be the total increase of CPP payments from age 60 to age 70. Aaron Hector of TIER Wealth offered this beauty of a chart a few months ago on Twitter …
Of course, it is mostly those who don’t need the CPP payments who would be considering whether they can “beat” CPP. Later in this post you’ll find the valid reasons to take CPP early.
Thing is, while it’s a common mention, the above framing is wrong. Not the boost that Aaron is demonstrating, but that you have to beat the “annualized return” of the CPP boost. You’re not trying to keep up with that 122% return from age 60 t0 70, or the 42% boost you’d receive from age 65 to 70. If you invest your CPP payments at age 60 you will have a sizable head start. The question is, when will the eventual (delayed and larger) CPP payments, collected and invested, catch up and pass your head start?
Also, consider that the CPP boost is tax free. Anyone considering investing the CPP amounts is likely in a very generous tax bracket. Also when Aaron offered the table, he added …
Technical note: If wages grow in the future at a faster rate than CPI (which they usually do) then the enhancement figures in the chart will be slightly understated.
As you wait, the payment schedule is adjusted to wage (growth) not CPI.
Impact of Wages on Benefits
While in payment, benefits are adjusted by the CPI, but the calculation of your initial benefit amount and future increases in the maximum possible benefit are linked to average Canadian wages.
- Year’s Maximum Pensionable Earnings (YMPE): This is the maximum amount of earnings on which CPP contributions are based. The YMPE is adjusted each year in line with increases in the average Canadian wage.
Given that, your “CPP Portfolio” might need to beat a boost that is also greater than inflation.
The CPP catch up comparison
Lets’ say you take CPP early at age 60, and you’re towards the top of allowable benefits. You’ll receive $780 every month. If we use a simple interest returns calculator and give early CPP guy an 8% annual return, here’s the results. This is for demonstration purposes only, the calculator is not adjusting the $780 payments for inflation.
You have a $142,000 head start. Keep in mind we do have to account for the inflation hit. The real dollar value would be closer to $125,000 in a 2.5% inflation era. We also have to keep in mind that this retiree is accepting money they ‘don’t need’ but they will pay taxes on each amount, at the top marginal rate. This is the trap of looking at CPP in isolation, but I wanted to demonstrate the gross math on investment amounts.
You can check out this very good investment calculator from Fidelity. You can adjust for inflation for the investment inputs and the ending values. Here’s the same 8% return, inflation adjusted.
Now the race is on for the increased CPP payments and investments to catch up. All said, over the last 10 years if you had a balanced growth portfolio you might be looking at a $200,000 head start. We’re in a period of out-sized returns. And yes, inflation took a good-sized bite out of these results.
Keep in mind the above does not factor in taxes on investment returns, though it’s possible a retiree could direct the CPP payments to their TFSA and they might have TFSA catch up space available.
If that investor had waited until age 70 the payments would be $1730 monthly. We might frame the race as the near $1000 per month age-70 boost trying to catch that $125,000 (real dollars) head start.
When does delayed CPP catch up?
Back of the napkin math suggests that age 70 CPP will catch age 60 CPP at around 80 years old. When I run various plans at MayRetire retirement cash flow planning tool, it allows you to compare plans, I end up in this range. It is often at age 79 or 80 when the CPP amounts delivered are all ‘caught up’.
The catch up period with CPP funds invested are very similar. Another way to look at it, is within a total financial plan. Here’s the total liquid assets (the investments) value over time. I’ve used a balanced growth return model in the 8% annual return area. The remaining assets are in TFSAs so this is the tax-free estate value as well. That would be the measure of success if the goal was to leave a greater legacy.
It’s important to understand the estate planning basics and how assets are treated.
We see that the catch up is in years 82 and 83. Age 65 CPP and age 70 CPP then pull ahead. In the above model the retiree has a large RRSP, more than they need, so the excess funds (CPP) feeds the TFSA.
All said, everything has to go right for the investor with regards to behaviour and being able to invest the dollars, not spend the dollars. Every plan and situation will be at the mercy of returns, behaviour, taxes, OAS claw back concerns and more.
All said, it would be difficult to make an argument for investing CPP dollars if the goal is a larger estate, that is for those with at least average longevity. Plus, the investor is taking on so many different risks and variables compared to the pension-like income of the CPP program.
Instead, stick to the simple strategies that set you up for retirement success.
But in the end, to each his or her own. If you are able to generate ridiculous returns from age 60, it’s possible to come out ahead.
Reasons to take CPP early
Rhys Martell of Well Built Wealth offers the top 8 situations in which you might take CPP early.
There are certainly very many valid reasons to take early CPP. You might need the money. You might want to spend more or gift more in your early 60’s. A shortened life expectancy would be a reason, well unfortunate to take early CPP. Rhys’s video will fill in the rest.
Thanks for reading. You’ll find these discussions and studies and more at Retirement Club for Canadians. You’ll also learn how to use Retirement Calculators that can often find retirees additional life-changing retirement income.
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Use the Contact Dale form at the top of the page if you’d like to join us for 2026. We’re accepting new members. You’ll also be invited to a Zoom Presentation new week as Jason Heath of Objective Financial Partners takes us through the estate planning essentials. Space is limited.
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And we’ll see you in the comment section. Are you considering taking early CPP?
