When should you start your CPP benefits?

February 26, 2015

By Sheryl Smolkin

I retired early and elected to start receiving my Canada Pension in 2010 at age 60. As I result my pension was reduced by 30% (.5% for every month prior to age 65) and I currently receive $675.20/month. At the time, the general consensus among many financial advisors was based on the old adage, “one in the hand.” In other words, it was worth taking the reduction to receive the reduced benefit for five extra years.

With changes made to the program beginning in 2012, if you choose to take CPP early, the reduction is greater. For example, if you retire in January 2015 at age 60, your pension will be reduced .58% for every month prior to your 65th birthday (to a maximum of 34.8%) and a January 2016 retirement will lead to a reduction of .60% per month until age 65 (a total reduction of 36%).

For a recent Toronto Star article, Some math on taking CPP early or late, Adam Mayers asked two actuaries and a financial planner for a few rules of thumb readers could use. Although there isn’t a simple one-size fits all answer, here is what they told him:

  • If you need the money to live on, take it as soon as possible.
  • If you have health problems or have a family history of short life spans in retirement, take it as early as possible.
  • If you think you can invest the money and come out ahead take it early. But be warned you will need a pretty hefty rate of return because you will pay tax on the pension and tax on the profit unless you can put it into an RRSP or a Tax-free savings account (TFSA).

I particularly like how Retire Happy blogger Jim Yih approached the problem in Taking CPP early: The new breakeven points.  Here is the chart he created for 2015.


Yih’s table reveals that if you take CPP at age 60 in 2015, (assuming you qualify for the maximum CPP at age 65) your benefit will be $643.31/month (reduced from $986.67).

Alternatively, if you wait until age 65 to collect a higher amount, you are foregoing the $38,598.53 to get more in the future. It will take until age 74 (the breakeven age) to make up the $38,598.53 you left on the table.

If you think you will live past age 74, the math suggests you should wait until age 65 or later to start receiving CPP. Unfortunately no one knows how long they will live. However, the Canadian Business Life Expectancy Calculator is one way to get a rough idea if you will live to a ripe old age. For example, I am currently age 64 and the calculator says I will live to 87.01 years.

You can apply for CPP at age 60, but if you continue to earn income beyond that age, you will still have to make CPP contributions until at least 65. A self-employed person will have to make both the employer and employee contributions. After age 65, CPP contributions are optional to age 70.

As noted by government benefits expert and consultant Doug Runchey in an earlier blog on savewithspp.com, CPP post-retirement benefits are actually quite a good deal. A Service Canada PRB Calculator will help you calculate how contributing after you begin receiving CPP benefits but before you stop working will increase your CPP benefits at retirement.

Based on your age, financial situation, projected life expectancy and whether you intend to keep working for some period of time after you retire, your financial planner can help you decide what the best time is for you to apply for CPP.

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1 thought on “When should you start your CPP benefits?

  1. As I understand it, the so-called ‘breakeven’ analysis, including ‘advanced income” is based on pre-tax amounts. Actual figures will be affected by individual circumstances that would include other sources of income (current and future) and the ability to share CPP pension with a spouse, now or in the future.

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