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That said, it seems to me that a 20% hit plus no indexation means the real value of this pension will drop considerably over time (compared to full pension - I know there's no indexation in any case).

In your shoes, I think the defining factor might be what proportion of retirement income you expect to come from this pension. If you expect a large proportion of retirement income to come from the pension, I would hold off on taking it as long as possible - especially as you say you do not need the money at age 58.

You should also think about the tax implications, not just the income-splitting component. If you will take the pension at age 58 but (I presume) you are still working, it will likely be taxed at a higher rate than if you delay and take the pension in retirement (note that this assumes you will have a lower tax rate at retirement, which may or may not be the case). If you don't need the money and you are interested in income-splitting with a spouse, there are other ways to do so that don't affect your longevity-insured income.

All in all, the two reasons you've put forward for taking the pension early don't seem that compelling to me. You "want the money now" (but don't need it), and you rationalize you can income-split some of the resulting income with your spouse. If you step back and look at the whole picture, you will almost surely see that over your [expected] lifetime, the decision to take the pension early has a big and very real cost.

Just my opinion, given that you asked...

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6,865 Posts

After 18 years, it appears to have been a great financial decision. YMMV

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1,165 Posts

I was almost in the same position and decided to wait till 62. 6% penalty in my case.

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3,936 Posts

What will you DO if you retire right now? Any plans?

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5,464 Posts

OK, I'm coming back to this, because I'm not sure how "dying early" benefits your estate if you are only looking at a DB pension and/or CPP. I am assuming you are saying this is true when the person has no surviving spouse (because otherwise the SPOUSE benefits, not the estate) - but if the person has no surviving spouse, there is no remainder from the pension, whether CPP or DB.

Can you explain what you are talking about here? I'm very familiar with the actuarial component.

the reason your estate benefits if you take db early and die young is that you receive a greater total dollar value of payments.

To take the example to the extreme, suppose you have the choice of taking cpp at 60 or at 65 and know that you will die on you 64th birthday.

You clearly benefit by receiving the extra four years of pension payments (even though at a reduced rate).

Conversely, if you knew that you would live to 120 you would give up the payments between age 60-65 in return for higher payments between age 65-120.

it is possible to calculate the exact age at which you break even between taking the early pension or waiting.

The decision to take early reduced pension depends heavily on family medical history + your own health.

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5,464 Posts

No, this doesn't make any sense. Leaving aside survivor benefits (which are not estate benefits, properly constructed; they are a residual living benefit which passes to a spouse), CPP and DB pensions provide no financial legacy (i.e. "estate") value at death.the reason your estate benefits if you take db early and die young is that you receive a greater total dollar value of payments.

All other factors held constant, there is no way in which to "time" the DB pension decision or the CPP decision to maximize estate benefits.

What you are describing is a situation in which you are optimizing or maximizing the payments

Finally, if you take your DB and/or CPP early and do NOT die young, you will in fact maximize the total payments from the pension/CPP. Nothing about the "take early to maximize estate value" argument makes sense.

Off to make more coffee.

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5,464 Posts

If the argument depends on other factors, then these other factors must be included in the argument (i.e. "Taking a DB pension plan early can increase the expected financial legacy of a retirement income plan when the retiree has wealth in excess of [some specified value]." This actually presents a solveable problem, not a vague position which doesn't give me any ground to grapple on.

If he waits to take his CPP at 65, his 'die-broke at 95' lifestyle solves at $37,049. Which means he can live a constant 37049 aftertax/afterinflation spending level of 37049 annually before his capital just runs out.

Should he live that same 37049 lifestyle but instead take his CPP early, at 60 instead of 65, his capital will run out at age 93.... 2 years earlier.

Here is his net worth plotted over time... for the two scenarios (CPP at 60 and CPP at 65) When to take CPP

You can see, that if he takes his CPP at 60 and makes it past age 78 (roughly) then his estate will be disadvantaged and vice versa.

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I just think this whole argument is very poorly specified, and it doesn't actually help anyone think through this problem properly.

In addition, I think it is much more useful to assign probability weighting to these outcomes.

You've given me two examples, one for age 95, and one for age 93. But what is the probability that a Canadian man aged 59 will live to the age of 93 or 95?

In both cases, it is less than 10% (closer to 5%, but I have not run the specific calculation).

So why are you futzing around with a calculation that gives you an outcome with only a less than 10% chance of being realized?

Seems to me this is what you are saying: IF you live to age 93, then you would be worse off than if you live to age 95:

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5,464 Posts

To simplify the decision let us pretend tax does not exist and that a future dollar is worth the same as a dollar today.

If the argument depends on other factors, then these other factors must be included in the argument (i.e. "Taking a DB pension plan early can increase the expected financial legacy of a retirement income plan when the retiree has wealth in excess of [some specified value]." This actually presents a solveable problem, not a vague position which doesn't give me any ground to grapple on.

Since you lose 1/20th of your pension if you take it one year early You would need to die within the next 20 years to come out ahead by taking the early pension. (you start with a 19/20th's of a payment headstart, but the delayed pension catches up by 1/20th each year. If you live 21 years then you would have been better off waiting.

Of course money today is worth more than money tomorrow. So in fact the breakeven point is more than 20 years away..

Also, if you can earn a 5.25%+ return by investing the first years pension payment you will always be better off taking the early pension.

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3,197 Posts

This may be a non sequitor, but have you looked at taking your CPP early, but leaving your DB pension until age 62? If your DB pension has integrated benefits with CPP (and most do), it will be reduced at age 65 by an amount approximately equal to your CPP. For most people in this situation it pays them to take their CPP early.

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