When Should You Start CPP Benefits? Here’s What to Consider

The Canada Pension Plan (CPP) is one of the most important assets a Canadian retiree has.

It’s guaranteed for life income, that’s increased annually to keep up with inflation.

It’s a protection against bad markets, higher than expected inflation, and living longer than expected.

But so many people don’t have a full understanding of how it works.

When should you take it? How do you get the most out of it?

Choosing the wrong start date for your CPP might seem like a small decision, but it can quietly cost you hundreds of thousands of dollars over your lifetime.

Here’s a breakdown of how CPP works, and what you should be considering to help you get the most out of it:

CPP is a monthly benefit you’ll receive in retirement, as long as you’ve contributed during your working years. The amount you receive depends on how much you’ve contributed and for how long. If you’ve contributed the maximum allowable amount for at least 39 years, you’ll qualify for full CPP benefits.

Once you start your CPP benefits, they’re increased annually to keep up with inflation.

But you have some choice on when you can start taking CPP benefits. You can take as early as age 60, or as late as age 70.

Here’s why that matters.

If you take it early, your benefit is reduced by 0.6% for every month before age 65. That adds up to a 36% cut if you start right at 60. On the other hand, if you wait until after 65, your benefit increases by 0.7% per month. That’s a 42% bump if you wait until 70 versus taking it at 65.

The 2025 maximum monthly benefits look like this:

• Age 60: $917

• Age 65: $1,433

• Age 70: $2,035

And remember, this is guaranteed, inflation-adjusted income for life. This is why your CPP decision is so important. Your starting base is the amount that adjusts upwards annually.

A lot of people look at CPP and say, “I’m going to take it as soon as I can. I want to make sure I get something out of it.”

And that’s the right decision for some people.

If you’re 60 and retiring with limited savings or other income, you might need CPP right away just to cover your basic needs. That’s okay. It’s what it’s there for.

Or maybe you have serious health problems and a limited life expectancy. If that’s the case then taking it early likely makes sense as well.

If you’re not in these two situations, the number one determinant for deciding when to take CPP should be your expected longevity.

In a paper from the Canadian Institute of Actuaries they compared the difference of taking CPP at age 65 vs. age 70.

They found that only those who die before age 80 would receive more income from taking CPP payments at age 65. However, only a fifth of female CPP recipients and a quarter of males die before age 80 under current CPP actuarial tables.

Based on this, most people are better off waiting to take their CPP until they’re 70.

It’s important to note that this does not mean reducing your spending until you’re 70. The idea is that you’re taking more money out of your other assets (RRSPs, RRIFs, non-registered etc.) to fund your lifestyle before you start CPP.

And this brings up a question I’ve heard over and over, “What if I can do better with my investments than the CPP increase?”

That’s not impossible. But the same research paper also looked at this. They found that even in scenarios with high expected investment returns, the probabilities still favour deferring to age 70.ⁱ

It’s also not an apples-to-apples comparison.

Remember, your CPP is guaranteed, inflation protected income. Your investments are not.

If you live into your 80s or 90s, delaying CPP could be one of the best financial decisions you make. It could mean hundreds of thousands of more benefits over your lifetime.

Ultimately, the decision about when to start CPP should be part of a larger retirement plan that looks at your entire financial situation.

If you’d like to start a conversation about your retirement planning, click here to schedule a complimentary call.

*The views and opinions expressed in this article may not necessarily reflect those of IPC Securities Corporation.

 

ⁱ https://www.cia-ica.ca/app/themes/wicket/custom/dl_file.php?p=36773&fid=17551