I am often the odd duck in the room. I regularly find myself surrounded by advisors debating the answer to any given problem and invariably there is an argument of opinions. But I’m a math guy in a financial world, so opinions are not productive and mostly irritating.
In our CFP class last week we were looking at a question about the Canada Pension Plan (CPP) benefit. The question was… at what age should Mary start receiving her CPP benefit: 60, 65 or 70?
The class started offering their answers and were somewhat evenly split between the 3 options.
My answer is always the same:
So I did a spreadsheet. It took 5 minutes.
There are some variables so we build them in as variables. In this scenario we had to determine an interest rate that represents what you would earn on the payments that were received early (called the time value of money) and that number could be inputted as anything from 0% to 10%. I used 3%.
The other variable is age at death.
So the spreadsheet says… If you die age 75 or earlier, start your CPP payments at age 60.
If you die between age 76 and 85, start your CPP payments at age 65.
If you die after age 86, your best option is to defer your payments so they start at age 70.
Now you can make a decision armed with the math. It’s a better way to make financial decisions. Is it perfect? No, but it sure beats the opinion of someone who doesn’t know the math.
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