The Big Decision

When it comes to retirement planning, one of the most important questions Canadians face is: When should I start collecting CPP (Canada Pension Plan) and OAS (Old Age Security)? Should you start early at age 60, wait until the standard age of 65, or delay until 70 to maximize your payments?

At Optiml, we specialize in helping Canadians make informed decisions about these types of choices. While the "right" answer depends on your personal circumstances—such as income, lifestyle goals, and health—one thing is certain: making the wrong choice can cost you thousands of dollars in missed benefits, higher taxes, or reduced cash flow.

In this blog, we'll explore the rules around CPP and OAS, share a case study where Optiml helped retirees make better decisions, and explain why personal emotions and financial math are both important when making these choices. Plus, we'll share exciting news about new updates to Optiml that give you even more control over your plan.

CPP and OAS: The Rules

Before diving into the case study, let's quickly break down how CPP and OAS payments work and how delaying (or starting early) can impact them.

Canada Pension Plan (CPP)

• Start age options: You can start CPP as early as age 60, or you can delay it until age 70.
• Reduction for starting early: If you take CPP before age 65, your payments will be reduced by 7.2% per year (36% less if you start at 60).
• Increase for delaying: If you delay CPP beyond 65, your payments will increase by 8.4% per year (42% more if you wait until 70).

Old Age Security (OAS)

• Start age options: OAS begins at age 65, but you can delay it until age 70.
• Increase for delaying: For every year you delay OAS past age 65, your payments increase by 7.2% per year, for a maximum increase of 36% if you wait until 70.

Case Study: When Should You Take CPP and OAS?

Let's look at a case study involving two retirees, Linda and Mark, and how Optiml helped them make the best decisions for their financial future.

Meet Linda

• Age: 60
• Income: $50,000/year from RRSP withdrawals and part-time work.
• Goal: Maximize her lifetime income to ensure she never runs out of money in retirement.

Linda initially planned to start CPP at 60 because she wanted to "get her fair share" after contributing to the program for decades. She also felt that taking CPP early was safer, especially since she wasn't sure how long she'd live.

What Optiml Showed Linda:

When Linda entered her information into Optiml, the software ran an analysis that considered her taxable income, RRSP withdrawals, life expectancy, and the impact of CPP and OAS start ages on her overall portfolio. The results were eye-opening:

• Starting CPP at age 60 would significantly reduce her estate balance by age 90 compared to waiting until 65 or 70.
• By starting CPP early, Linda would withdraw less from her RRSP in her 60s, which would increase her taxable income later in life and could trigger an OAS clawback.
• Delaying CPP to age 65 would allow Linda to balance her taxable income, avoid the OAS clawback, and grow her portfolio by tens of thousands of dollars over her lifetime.

Linda's Final Decision:

After seeing the analysis, Linda decided to delay CPP to age 65. Although she had initially been worried about "missing out," the financial benefits of waiting outweighed her concerns.

Meet Mark

• Age: 60
• Income: $150,000/year from real estate, dividends, and investments.
• Goal: Preserve financial flexibility and ensure a safety net of guaranteed income later in life.

Mark initially planned to delay CPP and OAS until age 70 because he didn't need the money right away. His reasoning: "I'd rather lock in the higher payments later in life as a safety net in case my investments don't perform as expected."

What Optiml Showed Mark:

When Mark ran his numbers in Optiml, the software provided him with a detailed analysis of how delaying CPP and OAS would impact his overall portfolio and lifetime finances. The results showed:

• Starting CPP at age 65 would technically result in a slightly larger estate balance due to reduced withdrawals from his investments in his mid-60s.
• However, the difference in Mark's estate at the end of his analysis was less than 1%—a few thousand dollars in total. This small financial benefit came from letting his investments grow slightly more in the early years.

Mark's Final Decision:

After reviewing the analysis, Mark decided to stick with his original plan to delay CPP and OAS until age 70. While Optiml showed that starting at 65 would mathematically result in a marginally better portfolio, Mark felt that the emotional value and safety net of higher guaranteed payments in his later years outweighed the small financial impact.

By quantifying this decision through Optiml, Mark was able to make an informed choice that balanced both financial and emotional priorities.

How Optiml Optimizes CPP and OAS Decisions

Optiml takes the guesswork out of retirement planning by using mathematics and personalized data to determine the optimal CPP and OAS start ages for each user. Here's how it works:

• Tax Optimization: Optiml calculates the impact of CPP and OAS payments on your taxable income, factoring in RRSP withdrawals, TFSAs, and OAS clawbacks to find the most tax-efficient plan.
• Portfolio Growth: Optiml runs detailed simulations to show whether starting CPP and OAS earlier or later results in the largest portfolio at the end of your analysis.
• Lifetime Spending: Optiml balances your spending goals to ensure you can enjoy your retirement without worrying about running out of money.

In Linda's case, Optiml showed her how delaying CPP and OAS could save taxes and grow her portfolio. For Mark, Optiml confirmed that his emotional preference to delay payments wouldn't harm his financial plan.

Life Isn't Just About the Numbers

While Optiml's optimization process often delivers the best financial outcome, we've learned that emotions and personal values matter too. Retirement is about more than maximizing numbers—it's about peace of mind, control, and achieving your unique goals.

For example:

• Some users want to delay CPP and OAS to lock in higher guaranteed payments later in life, even if they don't need the money right away.
• Others want to take CPP and OAS as early as possible to ensure they "get their fair share" or to invest the payments themselves for potentially higher returns.

Upcoming Changes: Giving You More Control

We're excited to announce a major update to Optiml that gives you more flexibility:

• CPP and OAS Start Age Control: You'll soon be able to choose your own CPP and OAS start ages in Optiml, based on your personal preferences.
• Quantifiable Comparison: After setting your preferred start age, you can run Optiml's optimization to see the exact financial difference between your choice and the mathematically optimal strategy. This way, you can weigh your emotional decision against the numbers and decide what matters most to you.

This update is part of a broader initiative to give you more control while still benefiting from Optiml's powerful insights.

Final Thoughts

Deciding when to start CPP and OAS is one of the most important retirement decisions you'll make. While the financial math matters, your emotions and personal goals are equally important. At Optiml, we're here to help you find the perfect balance between the two.

With our upcoming updates, you'll have even more control over your retirement plan, while still benefiting from our cutting-edge optimization tools. Stay tuned, and as always, keep optimizing!

What's your CPP and OAS strategy? Would you start early, on time, or delay?

Disclaimer: Mark and Linda are fictional Optiml users created to illustrate how Optiml can help Canadians make informed financial decisions. These case studies are based on real-world scenarios, data collected through our platform, and feedback from our users. Every individual's financial situation is unique, and results may vary.