One of the most crucial questions for workers preparing for retirement concerns the ideal age to apply for public pensions, those paid by Quebec and Ottawa. The calculation is far from easy, the temptation to collect “one’s dues” as quickly as possible is strong and the fear of leaving money on the table in the event of an early death is widespread.
Is it preferable to age 60 (despite the penalty), age 65 (the full amount) or age 70 (with bonus)?
Faced with the complexity of the matter, the decision is sometimes made a little haphazardly, vaguely remembering myths and listening to one’s instinct, when it is not the brother-in-law. Financial planners can do the calculations, but use of their services is not systematic and the advice obtained is not necessarily followed.
To begin the reflection, it is important to dissociate the retirement age and the age at which one begins to receive his public pensions. You are never obliged to claim your Quebec Pension Plan (QPP) check at age 60 and your Old Age Security (OAS) pension check at age 65, regardless of what some public sector workers think. due to the operation of their defined benefit plan.
In reality, being trigger-happy is almost always the worst thing you can do.
The unlucky person who dies before the age of 73 is one of the rare exceptions, calculated the Research Chair in Taxation and Public Finance (CFFP) at the University of Sherbrooke led by Luc Godbout and Daniel Laverdière, an actuary and financial planner at the retirement.
Of course, it is tempting to say yes to the QPP when it offers us the payment of a monthly pension from the age of 60. We have contributed all our lives, we can’t wait to reap the benefits. Moreover, almost half of Quebecers rush to fill out the application form.
The reflex is less widespread than in 2017, but it remains too high. We can see this clearly by looking at the scenarios presented in the new CFFP study.1. These cover at least 70% of Quebecers.
It’s counterintuitive, but the figures clearly show that it pays more not to receive a public pension in your early sixties.
Supporting graph, we even see that a person with $620,000 in savings and aiming for a retirement income of $40,000 would die without a single penny at age 95 while applying for their pension at age 65. If she waits as late as possible, her heirs will instead share a stash of $350,0002. Fascinating, isn’t it?
You will tell me that waiting involves living solely on your savings for a good while. It’s true. The idea is distressing, we imagine our bank account emptying visibly until we reach the age of 70, and we don’t see how it could be profitable, but the data is unequivocal.
Some people simply will not have the savings necessary to deprive themselves of public pensions for long, due to their health, their low income or their priorities. This is as true as it is unfortunate. “To have a comfortable retirement, you have to make an effort, there is no magic,” recalls Daniel Laverdière.
The maximum QPP pension at age 65 – which less than 3% of Quebecers obtain – is $15,679 per year. The OAS pension can reach $8,335.
If we claim our pensions so early, it is mainly because we underestimate our life expectancy3, insists Luc Godbout. It is 80 years for men and 84 years for women… at birth. Once retirement age is reached, it is higher, because all the risks of death have until then been “avoided”.
The 65-year-old retiree has a 50% chance of reaching 91 and a 25% chance of living to 96. For men, it’s two years less in both cases. The savings strategy must take this into account.
By the way, how much should you have aside before saying bye boss in complete peace and quiet?
This is where the CFFP’s new magic tool comes into play. Free, simple and very informative, this simulator4 allows you to visually discover the amount (before tax) that you would need to have accumulated to benefit from the desired income in retirement.
We enter a few figures to summarize our personal situation and tadam! we discover the illustrated answer. By moving the cursor, you can even see the exact amount you will need to withdraw from your personal savings each year to maintain your lifestyle. If you are entitled to the Guaranteed Income Supplement, this will be indicated. You then just have to play with the seven parameters proposed to generate scenarios with higher or lower savings needs.
Have fun ! Seeing your future has never been easier.
2. The assumptions used for the study’s calculations: return net of fees of 3%, average annual inflation of 2.1%, change in MGA (maximum eligible earnings) of 3.1%, age at start of career aged 25 and retired in 2023.