Overview
To start CPP retirement benefits, individuals generally have the flexibility to begin receiving payments as early as age 60 or as late as age 70, with the standard age being 65. The decision of when to start significantly impacts the amount of the monthly benefit received throughout retirement.
Understanding the various factors that influence your CPP benefit amount is crucial for making an informed choice that aligns with your financial planning and retirement goals.
- Eligibility: To qualify for CPP retirement benefits, you must have made at least one valid contribution to the Canada Pension Plan and be at least 60 years old.
- Benefit Calculation: The amount of your CPP benefit is determined by your average lifetime earnings, the number of years you contributed to the plan, and the age at which you choose to begin receiving payments.
- Early vs. Late Start: Starting benefits before age 65 results in a permanent reduction, while delaying benefits past age 65 leads to a permanent increase in your monthly payment.
- Financial Impact: The optimal time to start CPP benefits depends on individual circumstances, including health, other retirement income sources, and life expectancy for maximizing benefits.
When Is the Best Time to Start Your CPP Retirement Benefits?
You can start receiving CPP pension benefits when you reach age 65 (the month after your 65th birthday) which will entitle you to a full CPP benefit depending on how much and how long you have contributed to the CPP.
However, you have the following choices:
- Take a reduced CPP retirement pension as early as the month after your 60th birthday or
- Take an increased pension after reaching age 65
Taking your pension before age 65
From 2012 to 2016, the Government of Canada is gradually changing the early pension reduction from 0.5% to 0.6% for each month you receive it before age 65. This means that by 2016, an individual who starts receiving their CPP retirement pension at the age of 60 will receive approximately 36% less than if they had taken it at 65.
Taking your pension after age 65
If you take your pension after age 65, your monthly payment amount will increase by 0.7 percent for each month that you delay receiving it up to age 70 (8.4% per year).
This means that, an individual who starts receiving their retirement pension at the age of 70 will receive 42% more than if they had taken it at 65. More than twice as much as someone who started taking it at age 60. However, they will have received it for 10 years less.
It is important to mention that there is no financial benefit in delaying your pension after age 70. Also, starting at age 65, you can choose not to contribute to the CPP.
Your CPP retirement pension dos not start automatically. You must apply for it and before you do, you must:
- Be at least a month past your 59th birthday;
- Have worked in Canada and made at least one valid contribution to the CPP; and
- Want your CPP retirement pension payments to begin within 12 months
Before you decide when to take your CPP retirement pension, you may want to consider the following:
- How your age will affect your monthly payment (reduced or increased)
- Whether you plan on working while receiving your pension (stop or continue contributing)
- How much you have contributed and for how long
- Any personal savings, investments or company pension plan
- Whether you have other income such as rental or business investments
Generally speaking, we have found that in most cases it is better to start taking your CPP pension benefits as soon as possible. You have the money for longer and at a time when it has more impact to have it. However, each situation is different and should be approached uniquely. The best advice we can give is to talk to us a few months before you turn 60 to discuss what may be best for you.
Thanks to Richard Ouellette of KWB Chartered Accountants for providing this content.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.