An individual qualifying for Canada Pension Plan benefits may elect to start collecting the CPP monthly retirement benefit at any time between the ages of 60 and 70. If the retirement benefit starts after age 65, the pension payments are increased (from the amount that would otherwise be paid at age 65) by 0.5% for each month after age 65. For example, if the retiree chooses to begin receiving the benefit after turning 68, the CPP payments will be increased by (36 months) × (0.5%) = 18%.
The average life expectancy of a man aged 65 is another 15 years. If a man aged 65 lives just the expected 15 years, compare the economic values at age 65 of the two alternatives of collecting a 100% pension from age 65 versus a 118% pension from age 68. Assume that money is worth 7.5% compounded monthly.