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It's Your Money  

Failing marshmallow test

Should you wait to take CPP?

Have you ever heard of the marshmallow test?

It was a study led by a Stanford professor back in the 1970s on delayed gratification. In the test, a child was offered a choice between one small, but immediate reward, or two small rewards if they waited for a period of time.

In follow-up studies, researchers found that the children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured in education achievements, health and other life measures. 

In a much more recent study, it turns out that Canadian adults can’t resist their impulsive urges either when it comes to their retirement.

The study released last week in partnership with the Ryerson National Institute on Ageing and the FP Canada Research Foundation looked at the lifetime loss calculation by taking Canada Pension Plan (CPP) benefits early instead of waiting.

Now, before you get all defensive with your reasons why you should take CPP early, understand that I’m not a big fan of the CPP program and am certainly not trying to defend it.

I agree that it makes sense for many people to take their payments early instead of waiting and the fact that this is your money that you put in and your beneficiaries don’t get it if you pass away prematurely is infuriating.

But having said that, for every person who should take their payments early there is a second who really should wait. Yet the study found that only one per cent of Canadians are waiting until age 70 to start taking payments.

“It is vital that Canadians understand the value of delaying the collection of their government pensions,” said Joan Yudelson, executive director of the FP Canada Research Foundation.

“With thoughtful planning, people can diversify their retirement incomes so that they are not only relying on CPP or QPP. Seeking the advice of a professional financial planner will help to ensure enough money is saved to fund a long retirement.”

Just how much money are people potentially losing out on?

The report found that the average Canadian receiving the median CPP income can expect to lose more than $100,000 of secure lifetime income (in today’s dollars) by choosing to take their payments at age 60 rather than 70.

Again, I want to be clear that not everyone should be waiting.

The report did not take an individual’s personal situation into account and in my opinion, also did not properly account for all of the factors involved in a proper “apples to apples” comparison. But it does highlight that there are far too few Canadians choosing to wait until age 70 to take their payments, largely because they aren’t aware of the benefits.

If you’re trying to decide when to start taking your CPP, make sure to speak to certified financial planner professional who should run your situation through multiple simulations in planning software to see which choice is right for you.  

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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