When planning retirement, one of the biggest decisions Canadians face is when to start collecting their Canada Pension Plan (CPP) benefits. The most common choices are at age 60 or age 65, and the right answer depends on your health, financial needs, and life expectancy. According to information available from Canada.ca, understanding your break-even age and long-term financial picture is key to making the best choice.
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What Happens If You Take CPP at 60?
Taking your CPP retirement pension at 60 means you can access money earlier, but with a permanent reduction. The government reduces your CPP by 0.6% for each month before age 65. That equals a 36% reduction if you start at age 60.
- Pros:
- You receive money sooner, which can help if you retire early or need income.
- You could benefit if your health or family history suggests a shorter lifespan.
- You may invest or use the funds strategically while still younger.
- Cons:
- Permanent reduction in monthly payments.
- If you live a long life, you may receive significantly less overall compared to starting at 65.
What Happens If You Take CPP at 65?
Waiting until age 65 means you receive your full CPP pension amount with no reduction.
- Pros:
- Higher monthly income for life.
- Best choice if you expect to live well into your 80s or beyond.
- Provides more stability in retirement planning.
- Cons:
- You forgo five years of payments compared to starting at 60.
- May not be ideal if you need money earlier due to job loss, health, or other expenses.
The Breakeven Age Explained
The breakeven age for CPP is around 75 years old. This means:
- If you take CPP at 60, you will likely come out ahead if you pass away before 75.
- If you take CPP at 65, you will come out ahead if you live past 75.
For example, at a 4% rate of return, the present value of CPP benefits shows that waiting until 65 generally pays off for those with longer life expectancy.
Factors to Consider Before Deciding
When choosing between taking CPP at 60 or 65, consider the following:
- Health and life expectancy – Do you have medical conditions or family history that suggest a shorter or longer lifespan?
- Employment status – Are you still working, or do you plan to retire early?
- Other retirement income – Do you have RRSPs, OAS, GIS, or workplace pensions to rely on?
- Lifestyle needs – Do you want more money earlier to travel, pay debts, or enjoy retirement sooner?
Key Takeaway
There is no one-size-fits-all answer to whether it’s better to take CPP at 60 or 65. If you need income earlier or do not expect to live past 75, taking CPP at 60 may be the right choice. However, if you’re in good health and expect to live longer, delaying until 65 ensures higher lifelong payments.
Careful planning using the tools and resources provided on Canada.ca can help you decide based on your personal financial and health situation.