An advisor is urging a Canadian couple to delay Canada Pension Plan benefits until age 70 and use Registered Retirement Savings Plan withdrawals to cover living costs. The guidance, shared this week, highlights a growing shift in retirement planning as households weigh longevity, taxes, and market risk.
The recommendation addresses a common decision for new retirees: when to start CPP and how to draw from registered savings. The expert’s view is that larger, inflation-adjusted CPP payments later in life can create more stable income. Using RRSP funds first may also lower lifetime taxes and protect against outliving savings.
Why Delay CPP to 70
CPP payments rise for each month a person defers after age 65, up to age 70. The increase is 0.7% per month, or 42% more at 70 than at 65, according to federal program rules. Those who start as early as 60 see a reduction, which can be significant over time.
“Couple should consider deferring CPP to age 70 and tapping into RRSPs to meet their cash flow needs,” the expert recommended.
Delaying turns a portion of market risk into a government-backed, indexed income stream. That can help if one spouse lives well into their 80s or 90s. For many Canadians, the break-even age for deferring CPP lands in the early to mid-80s, depending on taxes, investment returns, and survivor benefits.
Using RRSPs to Cover Cash Flow
Drawing from RRSPs between ages 60 and 70 can smooth taxable income. It may also reduce the size of required withdrawals later. Canadians must convert RRSPs to a Registered Retirement Income Fund or annuity by the end of the year they turn 71. Minimum withdrawals begin the next year and rise with age.
By spending RRSP dollars earlier, retirees can lower future RRIF minimums. That can prevent being pushed into higher tax brackets in their 70s and 80s. It can also reduce Old Age Security clawbacks for higher-income seniors.
Tax and Benefit Implications
The timing of CPP and RRSP withdrawals shapes lifetime taxes, not just one year’s return. Coordinated planning can help manage bracket creep, credits, and benefit reductions.
- CPP at 70 increases guaranteed, indexed income later in life.
- RRSP draws before 71 can lower future RRIF minimums.
- Reducing taxable income in later years may ease OAS clawbacks.
Spousal RRSPs, pension income splitting, and the age amount can also help couples balance taxes. Proper withholding on RRSP withdrawals avoids surprises but may not match the final tax bill, so retirees should plan for installments or refunds.
Risks and When Early CPP May Fit
The advice to delay is not universal. Households with poor health or limited savings may need CPP earlier. Starting CPP at 60 raises near-term cash flow but locks in lower payments for life.
Market conditions matter. If investment returns are low or volatile, shifting some risk to guaranteed CPP can be helpful. If a couple expects high returns and has strong risk tolerance, drawing less from RRSPs and starting CPP earlier could still fit, though it raises long-run tax and longevity risks.
Liquidity needs also play a role. Large, near-term expenses may require a blend of RRSP withdrawals and partial CPP timing for each spouse.
What Retirees Should Watch
The expert’s message points to careful sequencing rather than a one-size plan. Couples should model cash flows through age 95, stress-test investment returns, and include survivor benefits. They should also revisit plans yearly as markets, health, and spending change.
Independent sources, such as the Government of Canada CPP and OAS calculators, can provide baseline figures. A planner can then adjust for taxes, splitting, and provincial rules.
The bottom line is clear. Larger, inflation-protected CPP payments at 70 can strengthen retirement security, while strategic RRSP withdrawals can trim future taxes. Couples weighing this choice should compare scenarios side by side, focus on lifetime outcomes, and update their plan as circumstances shift.
