Canada Pension Plan – Solid Reasons to Take CPP at Age 60

The Canada Pension Plan (CPP) is a cornerstone of retirement planning for Canadians, offering flexibility in when benefits can begin. While the standard starting age is 65, you can opt to start as early as 60 with reduced payments or delay until 70 for higher benefits. This choice significantly impacts your financial security and lifestyle during retirement.

Though taking a 36% reduction by starting CPP at 60 might seem counterproductive, there are valid reasons to do so. Let’s find the reasons for starting CPP early versus delaying it, and how each approach aligns with individual circumstances.

Financial Necessity

Life is unpredictable, and financial emergencies can arise near retirement. If you’re facing job loss, unexpected expenses, or health-related income gaps, starting CPP at 60 can provide crucial support.

For instance, taking CPP at 60 gives you approximately $10,480.13 annually, compared to the maximum $16,375.20 annually at 65. This immediate income can stabilize your finances when employment or savings fall short, despite the long-term reduction in monthly benefits.

Reduced Life Expectancy

If you anticipate a shorter-than-average lifespan due to health issues or family history, starting CPP at 60 might make financial sense.

• Break-even analysis: If you start CPP early and don’t live beyond 69, you would have received more total benefits compared to starting at 65.
• Life expectancy averages: While the average 60-year-old Canadian can expect to live another 25 years, personalized factors should weigh heavily in this decision.

Career and Contribution Gaps

Your CPP benefit calculation is based on your top 35 earning years. Retiring early or having career gaps can reduce your contributions, impacting your final payment.

For example:

• Business owners: Those who transition to entrepreneurship and rely on dividends instead of a salary don’t contribute to CPP.
• Early retirees: Individuals who leave the workforce at 55 may find their contributions lower by age 60, but the benefit may still approximate the maximum.

For those with limited or interrupted contribution histories, starting CPP early can maximize its value.

Reasons to Delay CPP

Delaying CPP payments until 70 has its advantages, particularly for those seeking to optimize long-term financial security and reduce the risk of outliving savings.

Financial Optimization

Each year you delay taking CPP after 65, your benefit increases by 8.4%, up to 70. This adds up to a 42% higher monthly benefit. Combined with inflation adjustments, delaying CPP can significantly enhance your income in later retirement.

Investment Considerations

Some argue for taking CPP early and investing it. However, this strategy comes with risks:

• Market volatility: Returns are not guaranteed, and market downturns can erode investment gains.
• Taxes and fees: These can eat into any potential returns, making it hard to outperform the inflation-protected increase gained by delaying CPP.

Long-Term Sustainability

A common concern is whether CPP will remain sustainable for future generations. Fortunately, the CPP Investment Board (CPPIB) operates independently and ensures the plan’s solvency for at least 75 years under conservative projections.

For those anticipating a long retirement, delaying CPP mitigates longevity risk, ensuring sufficient income for life.

Choosing when to start CPP is a deeply personal decision that depends on your financial needs, health, and retirement goals. Starting early can address immediate challenges, while delaying provides long-term income security.

Consulting a financial advisor can help tailor this decision to your unique circumstances, ensuring you make the most of your CPP benefits.

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