Transcript 0:00 It can be really tempting that when you turn sixty, you want to immediately start collecting your Canada Pension Plan benefits. 0:05 You've been contributing for a long, long time, and now you're eligible to take some of that money out. I can see the appeal. 0:12 Generally speaking, though, it is advantageous in many cases to delay the take-up of that Canada Pension Plan, and especially in the environment we're in today with inflation running as hot as it is, the benefit of deferring that benefit really compounds here. 0:27 Inflation always has and always will have an effect on the CPP benefit system. With current numbers running inflation year over year at seven point seven percent, it is time to revisit this issue. 0:38 CPP amounts are adjusted in January of every year, and those are based on a percentage change from one twelve-month period to a previous twelve-month period. 0:47 When we look at twenty-twenty-two CPP rate increase as an example, we'll see the average CPI from November twenty to October twenty-one is divided by the average CPI by November twenty-nineteen to November twenty. 1:00 That will give us the price increase for the new year. We can see that this past year for twenty-twenty-two, the numbers increased two point seven percent. 1:08 So if you are receiving Canada Pension Plan already, you will receive a two point seven percent increase over the amount that you were taking the previous year. 1:17 If you're starting new collected CPP this year, that benefit equally will be two point se- uh, will be two point seven percent higher than it would have been if inflation had not been in play here. 1:27 If you'd like a little bit of good news in this whole formula here, in the event that we suffer a deflationary time, so if the cost of living or the consumer price index actually drops, and that does happen from time to time, your benefits will not be decreased. 1:39 As prescribed under the Canada Pension Plan Act, benefit amounts do not decrease. They stay at the same level they were if there is a decrease in the cost of living. 1:48 For reference, just looking back over the past few years, in twenty-twenty, we saw a one point nine increase in the benefit, the CPP benefit. In twenty-twenty-one, the benefits went up by only one percent. 1:58 As I mentioned, in twenty-twenty-two, there was a two point seven percent increase. Now, in twenty-twenty-three, so we're in the middle of those calculation months right now. 2:06 With inflation running as high as it is, the jury is still out on what that will, what that will be, but certainly it will be a higher number. 2:13 With the inflation that we've seen, with the wage inflation we've seen, uh, definitely that's going to come in at a higher number that will impact you. 2:19 Now, the second way that inflation also affects your Canada Pension Plan benefits is related to what's called the YMPE, or the year's maximum pensionable earnings number, and this number is now increasing at the fastest rate in about thirty years. 2:33 When this number increases, there's a couple things that happen. One is if you're a higher income earner, you have to contribute more. 2:39 The maximum earnings that you contribute into Canada Pension Plan goes up higher, but also you're going to get more of a benefit at the other end. 2:47 When we look back at twenty-twenty, for example, the YMPE was fifty-eight thousand seven hundred. 2:52 Now, when we look at twenty-twenty-one, that number went up four point nine four percent, almost five percent to sixty-one thousand six hundred. 3:00 And last year, it was the largest increase we've seen since nineteen ninety-two. The number went up five point three six percent to sixty-four thousand nine hundred dollars. 3:10 This means that if you're in a fortunate situation and where you're earning sufficient, uh, income, if you're earning that much income or more, you can contribute more. 3:18 Again, that's going to give you a higher benefit when you start collecting. So when you factor in inflation and the consumer price index as it rises, it affects both the benefit amount that you're going to receive. 3:28 It also affects how much money you can contribute to the plan, ultimately deciding on what your benefit's going to be. So how does this play in to when you decide to start actually taking your benefits? 3:39 You probably already know that the default age for taking, uh, Canada Pension Plan is age sixty-five. 3:45 You can start taking it as early as sixty or as late as seventy, and the date that you take this up does have a significant and a permanent impact on the amount. Thank you to Advisors Edge. 3:56 It has this very easy-to-understand chart here that shows if you take up your CPP at age sixty-five, there's no discount in the... what you'd normally qualify for. There's also no enhancement. 4:06 You can take it, as I mentioned, as early as sixty. Now, if you do, you can see there's a thirty-six percent discount to your normal rate. Or if you defer, it increases at point seven percent per month. 4:17 You can actually defer to age seventy, and at that point you're gonna get a forty-two percent enhancement over what you would take had you started taking it up at age, uh, sixty-five. 4:26 Just as an FYI, the average age that people start is around sixty-two and a half. If we take all Canadians who are eligible to start collecting, it's around, um, that age. 4:35 Now, inflation is high now, and this could have a significant impact. 4:39 The environment that we're going through right now, um, really should, I would suggest, um, affect your decision if you are eligible to take up your CPP. 4:48 I'd like to go over a case study that again, was in this Advisors Edge article, and they looked at a hypothetical person, I'm assuming, named Cynthia. 4:54 And Cynthia, like so many others, was anxious to start taking her Canada Pension Plan. So as soon as she turned sixty, January of twenty-twenty, she started taking her Canada Pension Plan benefits. 5:04 Now, in her case, she was eligible for the maximum amount, which would be one thousand one hundred and seventy-five dollars and eighty-three cents a month back in, uh, January of twenty-twenty. 5:12 Because she's taking it those, um, sixty months earlier or five years earlier, her discount from the average amount or from the, the full amount would be thirty-six percent, so she would end up getting a benefit of seven hundred and fifty-two dollars and fifty-three cents. 5:27 The question is, what happens if she would have waited even one year? And this is the critical part. 5:32 If she had waited until January twenty-twenty-one, her benefit would be eight hundred and fifty-seven dollars and seven cents. 5:38 However, because she locked in that earlier rate starting in twenty-twenty, she got a one percent rise, a one percent increase. 5:45 The benefit in her case would be seven hundred and sixty dollars, a one percent increase over the amount that she had previously started taking. 5:51 Let me take a moment to acknowledge, because I know that minds are worrying right now, the argument has always been, yes, she... 5:57 If she delayed, she'd get a higher amount, but she had a year's worth of the payments at the lower amount to either invest, to bank, to spend, et cetera. 6:04 No question, when you look at this purely from a mathematical perspective, in the nearer term-Yep, you've already got that money you've put away, so it takes a while. 6:13 There's a sort of, I guess, what's referred to as the break-even point where you would eventually catch up. 6:18 If you are up for a sort of an in-depth, uh, actuarial type report onto whether it's better to delay or take up your CPP earlier, generally, like I say, uh, the, the math works out in your favor to delay. 6:32 But I, I will put a link here for a video that I previously did that goes into some degree of depth there, and I would encourage you to check that out, uh, after this video is o- uh, is over here. 6:42 First, though, I'm gonna give you one more example. So she started in '20. She could have gone to 2021. Now, what if she would've delayed her take-up until January of 2022? 6:51 If she did, her benefit would now be nine hundred and eighty-two dollars and eighty-one cents a month. Again, contrast that to seven hundred and eighty dollars that she would be getting now, having started in 2020. 7:02 This study itself assumes going forward that the Canada... the CPI will be two percent per year, and the wage index or the yearly m- uh, maximum pensionable earnings will increase by three percent. 7:13 Those are good, solid, longer-term numbers. But as we can see at this critical juncture we're going through right now, the numbers are running pretty much higher than that. 7:22 If we just look at a delaying to age sixty-five, we see an eighty-two percent larger payment she could be eligible for versus her starting payment. 7:31 Now, you compare that for, uh, against ten percent if she had taken starting back in 2020. 7:36 An even starker example is if she did delay up until age seventy, she would be eligible for twenty-two hundred and fifty-four dollars a month versus the nine hundred and fourteen. 7:45 So an almost tripling of the amount that she started with, uh, back at seven hundred and fifty-two and fifty-three cents. 7:51 A big question here is how many months, how many quarters, or how many years, in fact, will we go through before the Bank of Canada is able to sort of tame, uh, this inflationary environment that we're in right now? 8:01 The higher the inflation rate for now, the bigger impact this has on the money that you could potentially receive and, and obviously on your, um, on your decision as to when to take up that CPP. 8:11 And there is a hidden bonus, I think. When you, when you stop crunching the numbers themselves, uh, you transfer a couple of risks over to the government. One is you transfer the risk of investing. 8:23 So if you were taking the money yourself, yes, it's great you have that money to invest, but it also you're assuming an element of, of risk there. 8:29 Also, you're tran- uh, you're transferring the risk of the inflationary times because, again, those numbers are gonna continue to increase every year as you go by. 8:36 So if, if inflation gets high like it is now, you can actually benefit from that as opposed to someone who's locked in at a lower rate. 8:44 Inflation doesn't care if you started taking Canada Pension Plan a couple of years ago. 8:47 It's gonna continue to do its thing and, uh, you know, you're gonna be losing purchasing power essentially, um, every year that goes by. A couple of key assumptions here. 8:56 Number one, if you are in poor health, the dynamic shifts quite a bit, and if you have a shortened life expectancy, then absolutely it makes sense to take your Canada Pension Plan earlier rather than deferring it because you may never get it. 9:08 Also, if you have no savings, a, a, a built-in assumption in a model like this or in a decision like this is that you don't need that benefit on day one. 9:18 If you are struggling financially and you absolutely need that benefit, well, then that will sway the, you know, the pendulum over to possibly taking it right away. 9:25 But if you do have sufficient savings, RRSPs or otherwise, that you can start taking the money out to, to fill that gap, then it does, um, weigh in favor here. 9:33 Another scenario is if you are s- receiving CPP survivors benefits currently, that might affect you as well, and I'm sure there's some other, uh, benefits or there's some other issues that you wanna be, uh, cognizant of as well 9:45 before you ultimately make this decision. The key is this. You wanna be strategic. 9:50 You don't want to just do what the masses do typically and start taking your Canada Pension Plan as early as possible, uh, just because you can. Think it through. 9:59 If you wanna learn more about Canada Pension Plan, about the, um, Old Age Security system, about the Guaranteed Income Supplement that is available to most Canadians, a video I did, uh, about a year ago covers that off in detail, everything that you need to know about those, uh, government-sponsored pension plans. 10:14 I would encourage you to check that out. Uh, also we have our Investing Academy. It is, uh, the first link in the description below. 10:21 I would really invite you to check out how we help other Canadians manage their investments over, you know, over the course of their lifetime. 10:28 As always, I would thank you for watching the video, and I do look forward to seeing you in the next video
