Wednesday, May 25, 2022

Why Do So Many Financial Advisors Recommend Taking CPP Early?

No doubt there are many financial advisors out there who do a good job of advising their clients on when to start their CPP benefits.  However, I frequently encounter advisors who declare that they always advise their clients to take CPP at 60.  Given the significant benefits of delaying the start of CPP benefits for those with sufficient assets or income to wait, why are some advisors so adamantly against it?  Here I offer some possible reasons.

According to Owen Winkelmolen, in 2018, 38% of Canadians took CPP at 60, only 7% waited until after they were 65, and only 2% waited until they were 70.  This certainly doesn’t suggest that many financial advisors advise their clients to delay CPP.

So, here are some possible reasons why so many financial advisors recommend taking CPP early.

Higher Assets Under Management (AUM)

When clients take CPP early, they spend less from their savings, and this increases the advisor’s AUM.  This is true, but the effect isn’t big, and it’s hard to imagine that many advisors are scheming to get a small bump in AUM.  For those advisors who are effectively salespeople, it’s possible that this is a motive for the organizations they work within.

Advisors are simply repeating what they were taught

It’s possible that advisors were taught that starting CPP early is best, and they’re simply repeating what they were taught.  This seems plausible for those advisors who work essentially as salespeople and whose training came primarily from their sales organization.  This seems less plausible for advisors who have more substantial training.

Some advisors have the same emotional need to take CPP early as their clients

Canadians have a strong bias toward taking CPP early for a variety of emotional reasons.  Perhaps some advisors have the same emotional reaction.  They intend to take their own CPP early, and they advise their clients to do the same.

Maintaining the illusion that they will bring client big returns

Less scrupulous advisors sell their services to potential customers (clients) by claiming they can generate high investment returns.  Perhaps claiming to be able to outperform the CPP increases that come from delaying the start of benefits is simply a matter of being consistent with the claimed ability to crush the market.

Haven’t kept up with CPP changes

Before 2011, starting CPP benefits before age 65 cost 0.5% per month.  This is now 0.6%.  Before 2011, starting CPP benefits after age 65 increased benefits by 0.5% per month.  This is now 0.7%.  A dozen years ago, the case for delaying CPP was much weaker than it is today.  Perhaps some advisors haven’t kept up with these changes.

Don’t understand how inflation indexing of CPP benefits affects this decision

I’ve seen detailed examples advisors provide where they conclude that you’re better off to take CPP early and invest the money.  However, these analyses ignored inflation.  CPP benefits are indexed to wage inflation before you start CPP, and they’re indexed to the consumer price index after you start CPP.  A flawed analysis might conclude that earning x% on your investments justifies taking CPP at 60.  A proper analysis would say that your portfolio has to beat inflation by x%.  See Taking CPP and OAS Early to Invest for a full explanation.

It’s too hard to bother fighting with clients who want to take CPP early


Clients have strong emotional reasons why they want to take CPP early.  The amount of money at stake may not seem very much from the advisor’s point of view, and it’s just easier to tell clients what they want to hear rather than fighting them.  Many lists I see with reasons to take CPP at 60 include some version of “you (or the client) want to start CPP early.”  All decisions are ultimately up to the client, and advisors have to be selective about when to push back if they don’t want to lose the client.

After advising early CPP for years, to change now is to admit past mistakes

Nobody likes to admit they’re wrong, to themselves or anyone else.  If you’ve spent a career advising your clients to take CPP early, the only way to protect yourself from finding out you’ve been giving bad advice is to ignore evidence and keep advising clients to take CPP early.


In recent years, several sensible analyses of the benefits of delaying CPP have appeared.  But, many advisors are undeterred.  I’d be interested to hear expert insight into the dominant reasons for this lack of reaction from many advisors.

21 comments:

  1. I’m also in agreement with postponing CPP if you have the means to do so. What I hear from some advisers is that you should take it early to enjoy it during your go go years as you won’t enjoy it as much in the go slow years.

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    1. Hi Charlie,

      The problem with this reasoning is that if you have the savings to live on until you start CPP, you can safely spend more in your 60s (and for the rest of your life) by delaying CPP.

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  2. Our defined benefit pensions were designed to pay more before 65 and then notch back on the expectation we would be taking CPP and OAP at 65 (plan designed before changes to CPP indexing changes and you don’t make individual modifications to DB plans).

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    1. I think the same rule applies in the case of DB pensions that are coordinated with CPP. If you have sufficient assets to spend before you're 70 to live as well as you would like, you can delay CPP to 70, and possibly OAS too. If you don't have enough assets, it probably makes sense to take CPP and OAS at 65 to smooth out lifetime income.

      I have friends in this situation who took CPP at 60 to live larger for a few years. Now they're on the verge of a big drop in income when their DB pension payments go down. When they were 60, they just couldn't imagine still being active at 65. Seems strange to me, but probably common.

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  3. I will absolutely delay CPP, and maybe OAS. My target retirement timeline is age 60 in 2028. I'll admit the current market pullback has me worried that I might have to delay a bit, but I'd much rather delay than pull the trigger on early CPP - too much to lose in my opinion. Besides, the rational part of me thinks that five years is plenty of time for the markets to get back on track and that side of my brain is confident my plan is sound.

    My wife has a DB plan with a bridge to 65 and we may opt to trigger her OAS to backfill for the income reduction, but I think we can avoid that outcome.

    I much more interested in pushing as much reliance on guaranteed returns from CPP and OAS than I am trying to stretch out our own savings.

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  4. I wonder if passing on money could also be a factor. Money in your portfolio is passed on, CPP payments stop at death.

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    1. I've always found this to be a strange concern. To start with, if you live to be 80 or so, delaying CPP will make your estate bigger, not smaller. It's only if you die young that your estate will be smaller. But the part I find weird is that it's OK to pass nothing at all to your heirs over the next 20 or more years if you live long, but suddenly it's important to leave lots if you die in 10 years.

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    2. I concur with your opinion about whether to leave a large legacy to heirs. The only guaranteed way to leave a sizeable legacy is to die young.
      So go ahead, take CPP at 60, start smoking, gain weight, switch to a high salt, processed food diet etc. Your heirs will be thankful ;)

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  5. One thing I find a little frustrating is once you have reached your required no. of years and level of paying into CPP to get the maximum benefit level when retiring, you still get your paycheck deducted, but get no added benefit for what technically is an "overpayment" into CPP. Both by you and your employer. It's like another 2 x $3500.00 (11.4%) tax to add to Canada's already high tax rate system.

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    1. I don't expect fairness from a system designed to help the less fortunate. When I look at the abject poverty among large numbers of Americans, I'm glad to live in Canada where we shift some money from those who have it to those who have little.

      That said, I'm not very happy about the massive number of unionized public employees, a troubling fraction of whom aren't needed because those whose hiring was a mistake usually don't lose their jobs. This form of "charity" isn't productive or compassionate.

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    2. Unfortunately, unions get hammered or blamed for protecting bad employees, but get little praise for protecting good employees from bad employers and managers, including bullies, "hands=on", mostly male, managers, and much more that goes way beyond the unionized workplaces, including the enhancements to CPP.

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    3. Odd that is the first time in 10 years of posting that I am "Anonymous", and Google does not automatically sign me in?
      Some money is fine to shift, but there is a point where it seems that enough is enough. This is like an invisible loophole which is being technically abused.
      As for the other Anonymous comment, there is just so much wrong with those stereotypical talking points that have no merits in reality. These are usually comments from employees that bring little value to a company. I would like to see unionized employees responsible (and benefit) both for profits and losses. (not being subsidized or bailed out by taxpayers, because there is no incentive for efficiencies) You get paid and a measure of job security and usually some kind of good pension plan regardless of your individual performance. With that brings an certain entitled attitude that workers in the private sector do not have.

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    4. "there is just so much wrong with those stereotypical talking points that have no merits in reality." I've lived that reality, and it is indeed a reality for many. It's easy for the strong willed, confident, often men, to just stand up to their managers and move jobs if they don't like it. Well, there's another half to the human race, who often get the short-end of the stick. I didn't want to hijack Michaels excellent post, so, I'm going to leave this conversation here.

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  6. "there is just so much wrong with those stereotypical talking points that have no merits in reality." I've lived that reality, and it is indeed a reality for many. It's easy for the strong willed, confident, often men, to just stand up to their managers and move jobs if they don't like it. Well, there's another half to the human race, who often get the short-end of the stick. I didn't want to hijack Michaels excellent post, so, I'm going to leave this conversation here.

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  7. I would be okay delaying it past 65. But it’s difficult to plan and justify the delay because it’s so difficult to calculate how much I would get. I do get the CRA statement of accounts every year, but that amount is based on if I work right up to the point that I would start collecting CPP, which I plan to stop working at 59-60…. It would be great if there was a way to calculate an accurate amount based off my contributions and taking into account that I would stop contributing about 5 or more years before I start collecting.

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    1. Hi Leok,

      Keep in mind that the reduction you're describing only applies for the delay from 60 to 65. There is a special dropout of the contribution months from 65 to 70. I wrote a post explaining that even if you suffered the maximum possible reduction for not working from 60 to 65, the return from waiting is still higher than one can reasonably expect to recoup with investment returns. See this post: https://www.michaeljamesonmoney.com/2022/05/taking-cpp-and-oas-early-to-invest.html

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  8. https://www.finiki.org/wiki/CPP_and_QPP_calculator. This one even calculates for QC. Enter your birth date, & real contrib numbers from your statement of participation. Put zeroes in the future years where you expect to contribute zero.

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    1. Thanks for sending the link to the CPP and QPP calculator. I haven't tried it yet, but after a quick look it appears promising.

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    2. I've been tinkering with the spreadsheet, adding calc's of present values of total payments, starting at different ages. Present values of streams of income show apples-to-apples comparison of total income received. Makes it easier to make a fact-based decision. What I like about this spreadsheet it is that it actually includes QPP particularities, but not the recent enhanced pension contributions rules or child-rearing drop-out years (I think). So hard to find QC info online.

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  9. Most arguments for delaying CPP are discussed in financial terms. A very few consider it in human terms. I have considered both for myself. With my pension, I can actually "receive" my CPP at age 55. My pension payment will be clawed back at 65 leaving me with the same overall pension payment. Having done the math, I notice that the point where I lose out financially is between 80 and 81 years of age. Personally, I cannot imagine a scenario where I would need the money. Even if my health were to suffer and I were to lose all my savings.

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