My partner and I have $1.5M in savings, no debt and nearing 70. We’re considering retiring and claiming CPP. Do we have enough to retire comfortably?

Understanding your CPP benefits

Canadians can start collecting CPP benefits as early as 60, but anyone who does so will see a reduction in the size of their benefit cheques.

To avoid a reduction, Canadian seniors are encouraged to delay collecting CPP until at least 65, but there are advantages to delaying your claim even further. CPP benefits increase by a certain percentage for every month (0.7%) that you delay your claim — up to 8.4% per year or a maximum increase of 42% if you start collecting at 70 or thereafter. Just be mindful that 70 is the cut off age in order to reap the rewards of an increased CPP.

Since you and your spouse are nearing this golden age, the two of you won’t have to wait long to claim your full benefits — which, as you’ve already calculated, would give you $34K per year. With annual expenses totaling $28K, your benefits would barely be able to cover your living costs, but that could change.

But the good news is that you and your partner won’t have to rely solely on CPP in retirement. With $1.5M in savings, the two of you could settle on a safe withdrawal rate of, say, 3.7% — which would give you an additional $55,500 per year. Coupled with the $34K you’d receive in CPP benefits, that’s an annual income of roughly $89,500.

That’s much more than you would need to cover your $28K in annual expenses. In fact, with so much extra annual income, you and your partner may even consider a more conservative safe withdrawal rate of 2% — which would give you $30,000 per year from your savings.

Add that to your $34K in benefits and you’d have roughly $64K in annual income. That’s more than enough to handle your annual expenses, and a lower safe withdrawal rate will help you stretch your savings even further.

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Supplementing your CPP benefits

Delaying CPP benefits until age 70 isn’t always an option for everyone. And while that may seem appealing to you and your partner right now, uncertain economic factors derail your plans quite quickly.

If you and your partner were to retire according to plan — $34K in CPP, coupled with a safe withdrawal rate from your savings — the two of you could retire comfortably. But inflation is likely to drive your annual expenses up in the coming years, and the yearly cost of living adjustment on your benefit cheques doesn’t always keep up with inflation.

The good news is, with CPP you are allowed to work as much as you want without your benefit being affected. This means that if you and your partner were to retire as planned, only to realize that your current income stream savings wasn’t enough to keep you afloat, you could always take on a part-time job without it affecting your benefits.

Since you have the freedom to earn as much money as you can without your benefits being affected, you may decide to claim CPP at 70 to give you some retirement income while also working part-time, earning extra income to supplement your benefits.

This could allow you to lean even less on your retirement savings, which means your savings can stretch a little further. And if you’re using less of your savings in retirement, that money can remain in your investments, allowing you to potentially add more to your retirement funds.

Ultimately, you and your partner will need to decide what works for you, but with a nest egg of $1.5M and $34K in CPP annually, you can likely retire quite comfortably.

Sources

1. Government of Canada: When to start your retirement pension

2. Government of Canada: Canada Pension Plan amounts and the Consumer price index