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Should I take CPP early at age 60, wait until the standard 65 years, or defer CPP benefits until I’m 70 years old?

I get these questions a lot from my readers and while I certainly do not consider myself to be an expert on retirement planning, I will share my thoughts on when to collect CPP in this post and in a second one that will cover reasons to take CPP at age 70.

For a more robust assessment of your financial situation and how CPP timing can affect your retirement nest egg, contact a certified financial planner.

Related: RRSP Withdrawals Explained

CPP Basics

The amount of CPP you receive depends on how long and how much you contributed to the plan. Unlike the OAS pension which is paid out of government coffers, CPP is funded through workers (and their employers’) contributions.

The standard age to start taking CPP is 65 years.

You can choose to take CPP early starting at age 60 in return for a reduction in benefits equivalent to 0.6% for every month prior to your 65th birthday i.e. a decrease of 7.2% per year or 36% total by the time you turn 65 (0.6% x 60 months).

Alternatively, you can choose to delay taking CPP until as late as age 70 in exchange for a permanent increase in benefits equivalent to 0.7% for every month prior to your 70th birthday i.e. 8.4% per year or an increase of 42% total at age 70.

The conundrum many seniors find themselves in is whether or not it makes financial sense to apply for CPP as soon as they are eligible from age 60.

The answer is not straightforward and you will need to look closely at factors including your expected income, health, life expectancy, expenses, etc.

Related: LIRA, LRSP, LIF, PRIF Explained

How Much CPP Will I Get at Age 60?

For 2020, the maximum monthly CPP payment is $1,175.83 or $14,109.96 per year. If you start collecting CPP at age 60, your monthly payment is 36% lower at $752.53 or $9,030.37 per year.

It is worth noting that the average CPP benefit paid out to seniors is much lower than the maximum amount at $696.56 per month (as of March 2020). 

So, if you qualify for the average monthly payment, your monthly CPP benefit at age 60 is $445.80 (i.e. $696.56 x 64%).

Reasons To Take CPP Early At Age 60

Government data shows that a majority of Canadians start collecting CPP as soon as they turn 60. Even though you will get a boost in payout by waiting until you are 70 years of age, most Canadians cash out earlier.

Here are five reasons for taking CPP at 60:

1. You Need The Money Now: If you are hard for cash and have no other significant income sources to rely on, you may have no choice but to start collecting CPP right away to cover your expenses.

This also applies if you are carrying high-interest credit card debt… it makes financial sense to pay it off quickly rather than wait.

2. Poor Health Considerations: If you are facing health challenges that shorten your life expectancy, taking CPP as soon as you qualify makes sense. The breakeven point for taking CPP at 60 vs. taking it at 65 is around age 74. When it’s unlikely that you will live past 74 years, the math says it’s better to take CPP early.

Other considerations that may factor into your life expectancy include your family health history. As per Statistics Canada, the expected life expectancy of a 60-year old male is another 20.5 years (i.e. 80.5 years) and for a 60-year old female, it is 25 years (i.e. 85 years).

If your health challenges qualify as a disability and you meet the contributory requirements, a CPP Disability benefit is better than taking your CPP retirement pension early.

3. Lifestyle Expectations: If you plan to ‘live it up’ during your initial years of retirement, you may need the extra CPP income to maintain your lifestyle during these active years with a plan to spend less as you get older.

Want to travel the world? It’s best to get to it while you still have the desire and energy!

4. Investment Return Expectations: If your investments (e.g. TFSA and RRSP) are providing a healthy rate of return, you may want to take CPP early so your investments continue to compound. 

If you are earning a measly 1-2% on GICs or savings, an argument could be made for withdrawing from these savings first before taking CPP.

A 7.2% increase in CPP per year (or 8.4% per year after age 65) is tough to beat especially if you don’t need the money right now.

5. You Have Stopped Working: If you are under 65 and are still working, CPP contributions are mandatory and will increase your future retirement income. Also, if you are still working, the additional income from CPP may bump you into a higher tax bracket.

If you are no longer working, delaying CPP benefits may/may not be beneficial depending on how your non-contributory year’s factor into your CPP calculation. CPP dropout provisions allow you to exclude up to 8 years when your earnings are the lowest.

Related: 5 Reasons to Delay CPP Till Age 70

Reasons for not taking CPP early at age 60

The obvious increase in benefits if you delay when you start collecting.

There is a longevity risk that you may live longer than expected and have to make do with the reduced benefits permanently.

If your main reason for taking CPP benefits early is so you can invest the funds for higher returns, take a moment to consider reality.

Is your risk tolerance a match for a portfolio that returns 7.2% per year on average after investment fees? The fact is that not much out there is as guaranteed as your government-paid and inflation-indexed CPP benefit.

Related reading

How To Apply for CPP at Age 60

You can apply for CPP online or by using a paper application form.

Online: Visit your My Service Canada Account to apply. You should expect a decision between 7 and 14 days.

Paper: Complete the Application for a Canada Pension Plan Retirement Pension form (ISP-1000) and mail or drop it off at a Service Canada office. Paper applications take longer to process and may take up to 3 months. 

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Should I Take CPP Early at Age 60?