Deciding when to claim the Canada Pension Plan (CPP) is a crucial step for maximizing your retirement income. For many seniors, age 60 might seem like an attractive option to begin receiving these benefits. However, there are significant advantages and disadvantages to weigh before making this decision.
This guide will explore the pros and cons of taking CPP at 60 in detail, along with how much you can expect to receive and how to apply.
Should You Take CPP at 60, 65, or 70?
The amount of CPP you receive hinges on three key factors:
- The age you start your pension: Taking CPP earlier translates to a reduced monthly benefit. Conversely, delaying CPP until later increases your monthly payout.
- The amount and duration of your CPP contributions: The more you contribute and for a longer period, the higher your CPP benefit will be.
- Your average earnings throughout your working life: Higher average earnings generally result in a higher CPP benefit.
The Canadian government is transparent about the impact of claiming CPP at different ages:
- Age 60: CPP benefits decrease by 0.6% each month or 7.2% annually. This translates to a permanent 36% decrease in benefits if you begin receiving CPP at 60 compared to waiting until 65.
- Age 65: This is the standard retirement age in Canada, and you’ll receive the full CPP pension you qualify for.
- Age 70: Delaying CPP past 65 results in a 0.7% monthly increase or an 8.4% annual increase. This means you’ll receive a permanent benefit increase of 42% if you wait until 70 to start receiving CPP (compared to taking it at 60).
For perspective, the maximum monthly CPP benefit in 2024 is $1,364.60. Here’s a breakdown of what you could expect to receive based on the maximum benefit:
- $873.34/month if you start collecting at age 60
- $1,364.60 if you start collecting at age 65
- $1,937.73 if you start taking CPP at age 70
You can estimate your CPP benefits using the CPP Statement of Contribution available on your My Service Canada Account (MSCA).
While maximizing your CPP benefit might seem like the clear choice, it’s not always the best option for everyone. Let’s delve into the specific advantages and disadvantages of taking CPP at 60.
Pros of Taking CPP at 60
There are several reasons why taking CPP earlier might be the better option for you:
- Meet income needs: If you’ve retired and require additional income to make ends meet, CPP offers an easily accessible source of funds. You can also utilize your TFSA or RRSP to cover income shortfalls. However, if these options aren’t available or adequate, taking CPP benefits as early as 60 can significantly improve your cash flow.
- Shorter life expectancy: The potential increase in future CPP benefits by delaying CPP may not be worthwhile if you have a shorter-than-average life expectancy. This could be due to a recent illness diagnosis or a family history of poor health.
Consider taking CPP early if you don’t expect to live as long as the Canadian average lifespan, which is roughly 80 years for men and 85 years for women (at age 60). Those who qualify for CPP disability based on mental or physical health might be eligible for the CPP disability benefit (higher than the CPP retirement pension) before reaching 65.
Utilize a CPP breakeven calculator to determine the total benefits you’d receive at each age. Alternatively, you can estimate using the CPP breakeven chart provided below. - No longer working: Once you stop working, you no longer contribute to CPP. While some periods of zero or low income can be excluded when calculating your CPP entitlement, there’s a cap (17% general drop-out rate). If you retire at 60, you could exclude up to 7 years of low earnings.
If the gap between 60 and 65 pushes you over this limit, taking CPP early at 60 might be prudent to avoid further reductions in your monthly CPP benefits.
Here’s a table outlining the drop-out months based on the general dropout provision and the age you begin receiving CPP:
| Start CPP Benefit | Maximum CPP Contribution Months | Maximum General Dropout Months |
|---|---|---|
| 60 years | 504 | 86 |
| 61 years | 516 | 88 |
| 62 years | 528 | 90 |
| 63 years | 540 | 92 |
| 64 years | 552 | 94 |
| 65 years | 564 | 96 |
*Calculated as 17% of the maximum contributory period in months. This table excludes other dropout provisions, such as those for child-rearing and employment income after 65.
Using the table, a retiree at 60 may qualify to exclude up to 86 months or 7.16 years. A retiree who waits until 65 can exclude up to 8 years of their lowest earning years when calculating their CPP retirement benefit.
- The opportunity cost of investments: If you’re a seasoned investor who consistently earns returns of 10% or more annually on your investments, you might choose to take CPP early and invest the money to grow your portfolio.
However, realistically, few people can consistently achieve such high returns. The guaranteed 7.2% annual increase offered by the Canadian government when you delay taking CPP between 60 and 65 is likely a better option for most individuals.
Another consideration regarding investments is the state of the stock market. If your TFSA or RRSP portfolio experiences a decline due to a market slump, you might prefer to wait for recovery before selling at a loss. In the meantime, CPP income can provide financial stability.
- Consider GIS eligibility: The Guaranteed Income Supplement (GIS) is a monthly benefit offered by Old Age Security (OAS) to qualifying low-income seniors. If you anticipate qualifying for GIS and other income-tested retirement benefits, taking CPP early could be advantageous.
Delaying CPP until 65 to receive the full pension could result in a higher income and a higher GIS clawback. This means you might lose a portion of the non-taxable GIS benefit due to the clawback, potentially offsetting the gain from the increased CPP.
If you expect significant income increases after 65, taking CPP early can minimize taxes and the OAS clawback. - Retirement plan: A well-crafted retirement plan might reveal that taking CPP earlier is more suitable for your situation. Consider factors such as:
- Higher-income needs early in retirement: You might plan to travel extensively or spend more during your early retirement years, scaling back later.
- Income and estate planning: You might prioritize maximizing CPP benefits to leave behind more investment assets for your heirs.
- Can work if you choose: While receiving CPP at 60, you can continue working and contribute to the plan. These contributions go towards post-retirement benefits, ultimately increasing your CPP payments.
Cons of Taking CPP at 60
There are also drawbacks to consider when taking CPP at 60:
- Lower Lifetime benefits: You’ll receive a permanent 36% reduction compared to waiting until 65. If you live well into your 80s, the amount of money you forfeit will be significant.
- Longevity risk: There’s a good chance you could live longer than anticipated. If you live past 74 years old, you might lose out on benefits by taking CPP at 60. You’d be stuck with a lower pension for the rest of your life.
- Guaranteed return: Delaying CPP until 65 offers a guaranteed 7.2% annual increase (adjusted for inflation). Waiting until 70 provides a 42% increase in benefits or a 122% increase compared to taking CPP at 60. These guaranteed returns are difficult to replicate through independent investment management.
How Much CPP Will I Get at 60?
The maximum CPP in 2024 is $1,364.60 per month or $16,375.20 annually. If you take CPP at 60, you’ll receive a 36% reduction, resulting in $873.34 per month or $10,480 per year. It’s important to remember that this assumes you qualify for the maximum CPP benefit. Many seniors receive a considerably lower amount. As of this update, the average monthly CPP paid in 2024 is $831.92.