This is a good, practical question that we encounter daily in our meetings. It becomes especially important as we enter our 60’s and get closer to retirement.
The CPP program is a benefit for working Canadians that provides monthly, lifetime, inflation indexed income through retirement until death. It is a program many of us began contributing to at age 18 – as soon as we had our first real job!
There are 3 options for starting your CPP payments.
- At the ‘normal retirement age’ of 65 you qualify for your full CPP monthly payment.
- You can start your payments early, any time after you turn 60. However, if you enrol before 65, you will have a permanent reduction in benefits equal to 7.2% per year, up to a maximum of 36%.
- You can delay starting your payments up to age 70. With this option you could see a permanent increase of 8.4% per year, up to a maximum of 42% in your payments.
If you are thinking about starting CPP early, the key question to ask is: “Do the 5 years of extra payments (from 60-65) make up for a lifetime of lower monthly payments?”
For context, in 2024 the CPP monthly maximum at age 65 is $1,364.60.
If you were to start CPP at 60:
- You would receive only $873.34 per month.
- Over the additional 5 years (age 60-65) an extra $52,400.40 would be earned (ignoring CPP inflation adjustments and taxes).
If you wait to start until age 65:
- You would receive $1364.60 per month (about $491.26 more per month), which equals $5,895 more per year.
- It would take just under 9 years (until age 74) to receive the equivalent amount of CPP that was earned by the retiree who started payments at age 60.
At age 74 the retiree is at a ‘break even’ point for CPP payments and has the same amount in their pocket whether they started at age 60 or 65. The key distinction is that from 74 onward the retiree that started their CPP at age 65 is earning more per month and, in the end, will have received more from this pension program.
A few situations where you would start payments early would be with a shortened life expectancy or cash flow needs at age 60 that require CPP payments.
If you wait to start until age 70:
- You would receive $1937.73 (about $573.13 more per month), which equals $6,877.54 more per year
- It would take just under 12 years (until age 82) to receive the equivalent amount of CPP that was earned by the retiree who started payments at age 65.
Age 82 would be the new ‘break even’ point for CPP payments and when the retiree would benefit from waiting until 70.
Again, life expectancy and cash flow needs would be the key considerations in deciding whether to delay these payments.
We would also look at the retirees’ tax bracket at age 65 vs 70. Tax rates often influence the decision to delay CPP when we are dealing with individuals in higher tax brackets.
Determining when to take CPP is a highly individual decision that is best made with a financial roadmap outlining expected cash flows in retirement. There are numerous calculators and articles online, but I suggest anyone considering taking CPP to consult with their financial advisor first.