Retire at age 65 or stay in the workforce? Things you need to know to help you decide

A survey from the Globe and Mail shows the most popular age to starting collecting a Canada Pension Plan (CPP) – or the Quebec Pension Plan (QPP) for those in Quebec – is 60. That’s the earliest you can start to get CPP payments. More traditional ages aren’t as popular:

• 34% start benefits at age 60,
• 19% at age 65, and
• 16% at age 70.

Taking CPP earlier than age 65 is happening despite traditional advice for Canadians to wait longer to receive a higher payout.

When I think about the classic retirement age, I see age 65. That’s when Canadians become eligible for full Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits from the federal government.

I’m getting close age 65 and am asking myself more often:

• Am I going to fully retire at age 65?
• Would it be better to keep working past age 65?

There’s a lot to think about, before I make my final decision. You may also be thinking about when’s the best time for you to retire.

Living longer

Canadians are living longer. In 2021, Canadians at the traditional retirement age of 65 could expect to live about two decades longer. According to the Life Expectancy dashboard from the Government of Canada:

• Women live an average of 22.3 years longer (to 87.3 years old).
• Men live an average of 19.5 years longer (to 84.5 years old).

By continuing to work and earn income, you could supplement your government benefits and pensions. That would help your savings last throughout this potentially decades-long retirement.

Benefits of continuing to work after age 65

Working longer allows savings to continue growing through ongoing contributions to:

• workplace pension plans,
• registered retirement savings plans (RRSPs),
• tax-free savings accounts (TFSAs),
• CPP/QPP, and
• OAS.

For every month you wait after age 65, your CPP payment grows by .7%. That amounts to an annual rise of 8.4% (.7 x 12). The furthest you can delay CPP is age 70. If you wait until then, you’ll get 42% more per year than what you would have gotten at 65.

You’ll get .6% more for every month you delay receiving OAS. That amounts to a 7.2% annual rise and a 36% boost in total. You won’t get any more increases by delaying either CPP or OAS past 70.

Working can also provide non-financial benefits for your health, and social and mental well-being:

• Physically and mentally active lifestyles in retirement lead to better health and quality of life.
• Using your skills, knowledge and experience can keep you engaged and help your employer.
• Isolation can cause depression, so interacting with colleagues can reduce the risk of negative mental health factors. Social and mental stimulation can delay the arrival of age-related diseases.

These are great reasons to keep working past age 65. But what if I really want to retire then?

Benefits of retiring at age 65

There are good reasons to retire at age 65 – or earlier.

What if you have a physically demanding job? It may be too hard for you to continue to perform it safely or effectively. The risk of workplace injuries tends to increase as you get older.

• Working at a stressful career could take a physical and mental toll. That could decrease your quality of life in retirement.
• In some cases, taking an early retirement allows a transition to less demanding work.
• You may want to volunteer more for your favourite charity or organization. Giving back in retirement can improve your physical and mental health.
• An earlier retirement can give you more time to:
  • travel,
  • start a new hobby or get more involved with your current hobby, or
  • be with your family (especially if you have grandchildren).

You can do one or more of these activities without the constraints of full-time employment. Starting retirement while you’re healthy gives you the opportunity to fully enjoy this stage of your life.

You may prefer a clear start and end date. A balanced or "phased retirement" approach could also work well. In this case, you’d continue to work. But you’d reduce your number of hours per week and could choose a different, less stressful role.

Saving for retirement

There’s some good news about Canadians saving for retirement:

• Families have been contributing more to one of more of the three registered savings accounts:
  • RRSP,
  • TFSA, and
  • Registered pension plan (RPP).
• In 2020, nearly 3 in 5 (58.1%) Canadian families contributed to one or more of these. In 2009, it was closer to 1 out of 2 (52.3%).

Some factors, however, can affect your ability to save for your retirement. Those include a high inflation rate, especially for food prices, and higher interest rates, affecting mortgage rates and borrowing costs.

There are many things to think about as you look at how you’ll pay for your retirement:

• How long do you expect to live?
• What do you want to do during your retirement to keep active and be happy?
• How much have you saved, and do you have a pension plan?
• If you own a home, do you want to sell it and downsize?
• Do you want to leave any money for your loved ones?

Check your financial plan

My advisor used a financial planning program to create three scenarios for me to consider. Each one assumed I’d retire at age 65 and work part-time from age 65-75. The difference was the age I’d sell my home and use the equity towards my retirement income:

1. Sell my home at age 65.
2. Sell my home at age 70.
3. Sell my home at age 75.

Each analysis used my current and expected assets to show how long my money would last. Each option has its advantages and disadvantages. But I’m pleased I have choices.

One answer doesn’t apply to all Canadians. The best choice will depend on your individual circumstances and priorities. Consider your:

• financial needs and resources,
• health,
• lifestyle interests, and
• work satisfaction.

The traditional retirement age of 65 may not suit everyone anymore. Your decision – and mine –needs careful consideration of the pros and cons, from both personal and financial viewpoints.