In many cases, it makes sense to take CPP at age 60. Remember, if you take your CPP at age 65 you get 100% of your entitlement. If you take it at age 60 your benefit is reduced by 36% (.6% for each month) If you delay taking your CPP to age 70, you will receive 42% more than what you would have received at age 65 (.7% for each month). The break-even point for a person waiting until 65 is approximately age 75, and a person waiting until age 70 will be 77 before they each catch up to the guy who started at age 60. This is not taking into consideration indexing or the time value of money, which will change the break-even points again. You can read our related blog on this: Before Taking CPP early: Read this.
Here are 3 cases where it is a good idea to consider waiting until age 65 or later to start collecting CPP benefits.
First Case: The length of time you contributed to the plan. Let's take Janet for example. She was a stay-at-home mom until she was 42 and did not have enough earnings to contribute to CPP. After the kids were grown she decided to go back to school and become a Teacher. Now at age 45, she is just starting to contribute to CPP at the highest rate (Salary of over $64,900 per year in 2022).
Because she started late into her career she would like to teach for as long as she can. She doesn't need the extra income, so it would be a good idea for her to continue working and paying into CPP for as long as possible and she will enjoy an enhanced pension when she does retire at 65 or later. She can even choose to pay into CPP until age 70. She will also benefit from an increased CPP pension because she can subtract the "Child-Rearing Years".
Second Case: High-income earner in really good health. Let's consider Gerry in this example. He is 60 years old, in excellent health, and has a family history of longevity. Gerry has sold his business and is receiving the payout in installments for the next 10 years. In this case, Gerry doesn't need the extra CPP income for the next 10 years, but at age 70 he will see a major reduction in his income. It would be a good idea to delay collecting CPP until age 70 and receive a higher amount at that time.
Keep in mind that if you are single and pass away prematurely, no one receives your CPP pension. There is a provision with CPP where your Estate can collect CPP for 1 year retroactively if you have never taken any CPP pension and you were over age 70 when you died. This must be applied for within 1 year of your death.
Third Case: If it is possible that you may qualify for a CPP disability pension, it is better to take that pension rather than a regular CPP pension. Once you opt to take your CPP early you cannot switch to a disability pension. A disability pension will be higher than a regular pension. At age 65 a disability pension will revert to a regular pension, which will pay a reduced amount. You will also benefit from an OAS pension at age 65 to make up for some of the loss.
Are you getting all of the pension benefits that you are entitled to? Are you maximizing your benefits? If you do not understand CPP, how will you know what you are rightfully entitled to? You cannot benefit from what you do not know!
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Retirement Income, Investment & Tax Planning,
Willis J Langford BA, MA, CFP
Nancy Langford CRS
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