Financial advisors should help clients carefully weigh their options when deciding when to retire, as this decision can have a huge impact on the amount of savings clients will need to accumulate, a new report from the BMO Retirement Institute suggests.

In a report called When to Retire: Age Matters!, BMO warns that the timing of a client’s retirement may mean the difference between having a retirement nest egg that is more than adequate to last their lifetime, or putting them at risk of running out of money and forcing them to drastically cut back on their lifestyle during retirement.

The report notes that upcoming changes to the Canada Pension Plan, which were implemented to create equity under actuarial assumptions between individuals who retire at different ages, could significantly impact when clients choose to retire, providing bigger incentives for those who retire later.

Under the current rules, drawing CPP benefits prior to the age of 65 reduces monthly payments by 0.5% per month. This translates into a monthly payment will be reduced by 30% for clients who begin drawing from CPP at age 60.

Conversely, pensions are increased by 0.5% for every month one defers drawing on their payments past age 65. For a client who begins taking CPP at age 70, this means a monthly payment that’s 30% higher for the rest of that client’s life.

Under the changes to the CPP, which will be fully implemented by 2016, a client who takes CPP five years early will get monthly payments that are 36% lower than if they waited until age 65. Clients who wait until age 70 will enjoy monthly payments that are 42% higher.

The report determines that at age 90, a client who begins drawing CPP at age 70 will collect about $100,000 more from the CPP than an early retiree who begins collecting CPP at age 60.

“The upcoming changes to CPP are just one example of why Canadians need to educate themselves on their retirement options,” said Tina Di Vito, head of the BMO Retirement Institute. “In order for Canadians to start thinking about their retirement start date, they need to have a clear financial picture, be able to envision their goals and have a plan for the future.”

The report also illustrates the ways that retirement age impacts a client’s levels of retirement income, concluding that the earlier a client retires, the more they’ll need in personal savings to fill the income gap.

For example, a client who retires at age 60 versus 65 will not receive Old Age Security for five years, and will require an additional $31,000 in personal savings to make up for that missed income.

When deciding when to retire, clients with a defined benefit employer pension plan should also determine how their monthly income will change depending on when they apply for pension benefits.

In addition to financial considerations, advisors should urge clients to think about lifestyle factors when deciding when to retire.

“For many, work provides mental stimulation, a social network and a sense of purpose; future retirees should think about how these psychological benefits will be impacted once they retire,” Di Vito said.

IE