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Canadians can choose to collect CPP benefits anytime between the ages of 60 and 70. It is well known that the later you start, the higher the annual benefits: wait until age 70 and you will receive almost double the amount you would receive at age 60.

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However, you need to keep in mind the time value of money and the fact that all of those deferred benefits into your early 60s could have increased if they were invested wisely. Calculating the optimal time to start benefits is no small feat, especially if you are half a couple. A big consideration is the life expectancy.

A web-based tool called CPPOptimizer.com can help you decide where the ideal point is to begin benefits. It is available from Distinguished Retirement Income Specialists in Burlington, Ontario. (emeritusfinancial.com).

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Founder Emeritus Doug Dahmer says a bad decision can cost a Canadian over $ 100,000 in benefits. In fact, when I executed a script for my wife and I (we’re in our early 60s but so far we’ve postponed performances), the number went over half a million dollars. The site told us that our combined CPP earnings should be between $ 707,000 and $ 1.2 million, which means a bad decision would cost more than half a million dollars. The site tells you this simply by entering your date of birth and life expectancy but to get the optimal response it is necessary to book a half hour session with Emeritus (conducted online / phone).

Dahmer calls the potential loss of benefits “the big Canadian pass”, adding that “most people seriously underestimate their lifetime entitlement to CPP income”. Just relying on conventional wisdom to know when to start CPP can be very expensive, he says.

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Between its launch in 1965 and until 2012, the rules for the CPP barely changed, but the situation became more complex when the rules were changed in 2012.

Typically, wives can be expected to outlive their husbands, which means that a bad decision (usually starting benefits too early) will have a particularly unfortunate impact on them. Interestingly, one spouse’s start date is rarely the best start date for the other, Dahmer says.

The calculations of the decision are complex: individually, each partner has a total of 121 start date options to choose from: each month between the month they turn 60 and up until their 70th birthday. But as a couple, the permutations escalate into a whopping 14,641 different combinations of start dates that need to be factored in. Add to that the death and survivors’ benefits, as well as the count of the years you left the labor market, and the decision becomes even more difficult.

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At the end of the day, you also have to factor in taxes, investment income, other pension plans and many other variables, but the CPP decision is fundamental and the fruit at hand.

When I asked Dahmer to enroll in CPP early and invest all those extra payments that would otherwise be deferred, he told me that an investment was unlikely to result in the increase. 8.4% guarantee that a CPP beneficiary gets each year after age 65. In addition, you must remember that CPP benefits are indexed to inflation, an important additional benefit that is sometimes overlooked. For many, it may be a good idea to take it early if you don’t expect to live long.

Personally, I think most of us will live longer than we imagined or, as ChangeRangers.com’s Mark Venning said, we should “plan for longevity, not retirement”. In our own situation, I didn’t want to hear that I shouldn’t start performing on my next birthday (63 next April), but Dahmer stuck to his guns and suggested that it would be much better to start. to melt my RRSP instead. Worse yet, he said I should consider paying myself a salary from my company and starting to make CPP premiums again.

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However, not all financial experts agree that CPP should be taken later. Ernie Zelinski, Edmonton-based author of the international bestselling “The Joy of Not Working” and “How to Retire Happy Wild and Free” says he took CPP at age 60, on the theory that a bird in the hand is worth two in the bush. However, his book royalties far eclipse CPP benefits, so he is not very concerned about the “great Canadian pass”.

Marie Engen, a paid financial planner who is half of the Boomer & Echo blog, says that even though the maximum CPP benefit in 2015 for a 65-year-old is $ 1,065, or $ 12,780 a year, most people do not receive the maximum because their income often fell below the limit (the YMPE or annual maximum pensionable earnings) and / or they did not have enough years of contributions. As a result, the average monthly payment at age 65 is only $ 618.59.

Jonathan Chevreau heads the Financial Independence Hub and can be contacted at [email protected]

Illustration by Chloe Cushman, National Post