The Canada Pension Plan (CPP) forms a crucial part of retirement income planning for millions of Canadians. Traditionally, individuals are eligible to start receiving CPP payments at age 65. However, options exist to begin early at age 60 (with reduced benefits) or delay up to age 70 (for enhanced benefits). The timing of this decision is critical, as it impacts long-term financial security and retirement lifestyle.
Starting CPP early can result in up to a 36% reduction in lifelong payments, while delaying it to age 70 can yield a 42% increase in monthly benefits. The choice depends on individual circumstances, including financial needs, health, and career history. Below, we explore the pros and cons of starting CPP early versus delaying it, helping you make an informed decision.
Why Consider Taking CPP at 60?
Immediate Financial Necessities
For some individuals, starting CPP at age 60 is driven by financial emergencies such as job loss, health crises, or insufficient savings. While taking CPP early results in lower monthly payments (around $10,480.13 annually compared to the maximum $16,375.20 at age 65), it can provide a lifeline to cover basic living expenses.
Key Scenario
| Age | Annual CPP Benefit | Reduction/Increase |
|---|---|---|
| 60 | $10,480.13 | -36% |
| 65 | $16,375.20 | Base Amount |
| 70 | $23,258.88 | +42% |
This early withdrawal is especially beneficial for those unable to work and lacking alternative income sources.
Life Expectancy Considerations
Shortened life expectancy due to personal health conditions or family medical history can make early CPP a financially sound decision. For example, if a person expects not to live beyond age 69, they may benefit more by accessing CPP early. Since the average Canadian aged 60 lives an additional 25 years, evaluating life expectancy is vital before making this choice.
Career and Contribution Gaps
Career shifts or early retirement can leave gaps in CPP contributions, affecting the overall benefit. For example:
- Early Retirees: Individuals retiring at 55 may have reduced contributions.
- Business Owners: Entrepreneurs who rely on dividends rather than salaries do not contribute to CPP.
Since CPP payments are calculated based on the top 35 years of earnings, those with strong earnings between ages 18 and 54 may still secure near-maximum benefits by starting CPP at 60.
Advantages of Delaying CPP
Enhanced Monthly Payments
Delaying CPP results in guaranteed increases to monthly payments. For every year deferred after age 65, payments rise by 7.2%, totaling 42% by age 70. This strategy ensures higher income during the later stages of retirement, especially beneficial for those expecting to live beyond average life expectancy.
Inflation-Protected Benefits
The CPP provides inflation-protected payments. By delaying, you enhance not only the monthly amount but also its purchasing power over time, making it more robust against rising costs during retirement.
Longevity Risk Mitigation
With average life expectancies increasing, retirement often spans several decades. Delaying CPP helps mitigate longevity risk—the possibility of outliving your savings—by ensuring a more sustainable income stream.
Investment vs. Deferral
Some individuals consider taking CPP early and investing it. However, this strategy entails risks such as taxation, investment fees, and market volatility. Achieving returns that consistently exceed the guaranteed increases from delaying CPP is challenging, making deferral a safer option.
Sustainability of CPP
Concerns about CPP’s future availability are largely unfounded. Managed by the Canada Pension Plan Investment Board (CPPIB), CPP is independently operated and projected to remain sustainable for at least 75 years under current models. Canadians can confidently plan their retirement with CPP as a reliable income source.
FAQ
What is the penalty for starting CPP at age 60?
Starting CPP at 60 reduces the monthly benefit by 36%, as payments are spread over a longer retirement period.
What are the benefits of delaying CPP to age 70?
Delaying CPP until 70 increases the monthly benefit by 42%, offering a higher inflation-protected income for life.
How is CPP calculated?
CPP payments are based on your contributions during your working years, specifically the top 35 earning years. Gaps in contributions may lower the final amount.
