Should You Take CPP at 60? Analyzing the Pros and Cons

Generally speaking, it is not a good idea to willingly accept a 33.6 percent income reduction, particularly if that income is paid for life. But when retirees decide to start taking CPP at age 60, that is precisely what occurs.

I strongly believe that in order to reduce the risk of dying young and increase your monthly pension in retirement, you should postpone CPP until age 70. However, few retirees actually do so—many would rather begin receiving CPP benefits as soon as they become eligible.

Forget the notion of taking CPP early and investing. This concept, which was probably presented to you by your neighborhood financial salesperson advisor, seems good in theory but can backfire in real life.

Recall that the CPP is taxable income, so unless you invest the entire amount in an RRSP, you will not be able to do so. Next, account for investment fees and calculate the amount you must earn to surpass the guaranteed 7 2% return that comes with delaying CPP by a year?.

No, it’s preferable to postpone and receive a bigger, lifetime guaranteed pension that is inflation-protected.

Lastly, let’s dispel any worries you may have about CPP’s viability come collection time or the possibility that the current administration will raid the fund to settle its debts.

The Canada Pension Plan Investment Board (CPPIB) is managed independently of the federal and local governments and is not affiliated with the CPP. After an independent actuary audit, the fund was determined to be sustainable (using conservative projections) for at least the next 75 years.

CPP will be there for you in retirement. When do you intend to receive your benefits, I wonder?

Deciding when to start your CPP (Canada Pension Plan) benefits is a crucial decision for Canadian retirees. While the standard retirement age is 65, you have the option to start as early as 60 or delay until 70. This choice significantly impacts your monthly income and lifetime benefits.

This article delves into the pros and cons of taking CPP at 60, helping you determine the best option for your individual circumstances. We’ll also explore how much you can expect to receive, analyze a CPP breakeven chart, and provide guidance on applying for CPP at 60.

Pros and Cons of Taking CPP at 60

Pros:

Meet income needs: If you’ve retired and require additional income, starting CPP at 60 can provide a steady source of funds. You can also utilize your TFSA or RRSP to supplement your income, but if those options are unavailable or insufficient, accessing CPP early can help bridge the gap.
Shorter life expectancy: If you have a shorter-than-average life expectancy due to health concerns or family history, starting CPP at 60 might be advantageous. This ensures you receive benefits while you can still enjoy them.
No longer working: Once you stop working, you cease making CPP contributions. While some low-income years can be excluded when calculating your CPP entitlement, there’s a limit. Starting CPP at 60 could allow you to exclude more low-earning years, maximizing your benefits.
Opportunity cost of investments: If you’re a skilled investor who consistently earns high returns, starting CPP early could free up capital to invest and potentially grow your portfolio faster. However, this strategy requires careful consideration, as replicating high returns year after year is challenging.
Consider GIS eligibility: The Guaranteed Income Supplement (GIS) is a monthly benefit offered to low-income seniors. If you anticipate qualifying for GIS, starting CPP earlier could be beneficial. Delaying CPP until 65 might result in higher income and a reduced GIS amount.
Retirement plan: A well-defined retirement plan might favor starting CPP early. For example, if you anticipate higher expenses early in retirement and lower expenses later, starting CPP at 60 could provide the necessary funds.
Can work if you choose: Starting CPP at 60 doesn’t prevent you from working. You can continue contributing to the plan, increasing your post-retirement benefits.

Cons:

Lower lifetime benefits: Starting CPP at 60 results in a permanent 36% reduction compared to waiting until 65. If you live past your 80s, the cumulative loss in benefits becomes significant.
Longevity risk: There’s a good chance you could live longer than expected. If you live past 74 years, starting CPP at 60 could mean receiving less money than if you’d waited.
Guaranteed return: Delaying CPP until 65 offers a guaranteed 7.2% annual return (adjusted for inflation). Starting at 70 increases your benefits by 42%, or 122% compared to starting at 60. These returns are difficult to replicate through personal investments.

How Much CPP Will I Get at 60?

The maximum CPP in 2024 is $1,364.60 per month or $16,375.20 per year.

Starting CPP at 60 results in a 36% reduction, bringing your monthly benefit down to $873.34 or $10,480 per year. This assumes you qualify for maximum CPP benefits.

Many seniors don’t qualify for the maximum and receive a lower amount. As of this writing, the average monthly CPP paid in 2023 is $758.32.

CPP Breakeven Chart

Let’s analyze potential break-even points when starting CPP at 60 or 70, using a hypothetical maximum monthly CPP benefit of $1,000 at age 65:

Starting at 60: You receive $640/month (64% of $1,000).
Starting at 70: You receive $1,420/month (142% of $1,000).

The other ages are calculated considering a cumulative 7.2% reduction each year (60-64 years) and an 8.4% increase each year (66-70 years).

Key Insights:

The breakeven point for starting CPP at 60 is between age 73 and 74. If you live past 74, starting earlier results in lower lifetime benefits.
Starting CPP at 65 maximizes benefits for those who live past 78.
Delaying until 70 provides the highest total benefit for those who live past 90.

Remember: These figures are based on a hypothetical $1,000 monthly CPP at age 65. The actual maximum figure for 2024 is higher, but the average senior receives less.

How To Apply For CPP at Age 60

You can apply online via your My Service Canada Account (MSCA) or complete a paper application and mail it to a Service Canada office.
Online applications are processed faster, with a decision within 7-14 days.
Paper applications can take up to 120 days.

Collecting CPP at Age 60 While Working

You can continue working past age 60 while receiving your CPP retirement pension. Between ages 60-65, you must continue contributing to the CPP, making you eligible for post-retirement benefits. The current maximum post-retirement benefit at age 65 is $44.46 per month.

Is It Better To Take CPP at 60 or 65?

The best age to start your CPP benefits depends on various factors, including your health, financial situation, and retirement plans. Consulting a licensed financial planner can help you make the most informed decision.

Take CPP at Age 65 or 70?

While most Canadian retirees take CPP early, consider delaying until after 65 to maximize your benefits. The breakeven points after age 65 are as follows:

Starting at 66: Breakeven at approximately age 78
Starting at 67: Breakeven at approximately age 79
Starting at 68: Breakeven at approximately age 80
Starting at 69: Breakeven at approximately age 81
Starting at 70: Breakeven at approximately age 82

Starting CPP at 60 offers immediate income but reduces lifetime benefits. Delaying until 65 or 70 provides higher benefits but requires waiting. Carefully weigh the pros and cons, consider your individual circumstances, and seek professional guidance if needed.

. You Need to Eat and Pay the Bills

Perhaps you struggled to return to the workforce after being laid off in the later stages of your career, or your poor physical health forced you to retire early. In any case, you need to create a source of income because you’re going to turn 60.

In other words, if you don’t have enough money saved up or income to last until your 60s, you might be forced to start taking CPP as soon as possible.

You may begin receiving CPP benefits as soon as one month following your 60th birthday. If you do this, your monthly benefit will decrease by %2036% permanently, but you will still have money in your pocket today.

When taking CPP at age 65, the maximum payment amount is $16,375. 20 per year (2024). That amount would be reduced to $10,480. 13 if you decide to take the CPP at age 60.

A decision to take that extra $10,000 at age 60 may make the difference between reaching your retirement income targets and not, so it’s important to consider the pros and cons of doing so before waiting five years to receive an additional $5,900 (or so) annually.

Lastly, it’s usually a good idea to start taking CPP at age 60 if you know for a fact that you will be eligible for the Guaranteed Income Supplement (GIS) once you turn 65.

Why Take CPP at Age 60?

Although it might not be the best financial choice, there are some situations in which taking CPP early can make sense. Here are three reasons to take CPP at age 60:

Top 8 Reasons to Take CPP at Age 60 | Canadian Retirement Benefits

FAQ

Is it worth taking CPP at 60?

Your breakeven age is 75. If you don’t expect to live past 75, you may be better off taking CPP benefits at age 60. If you expect to live past 75, you may be better off taking CPP benefits at age 65.

Is CPP worth having?

I think it’s one of the best retirement assets that money can buy. CPP is a social insurance plan designed to contribute to retirement incomes in Canada. Under new enhancements, CPP will eventually replace 33.33 per cent of pre-retirement income up to a maximum, improving the retirement income adequacy of Canadians.

Is CPP worth it?

Based on this math, CPP is a pretty good deal for employees. Especially if you add in the fact that the pension is indexed and that CPP is not only a retirement pension but a disability plan as well as a life insurance benefit.

Is it better to take pension early or wait?

If you take your pension before age 65, your monthly benefit amount is reduced from what it would have been if you had waited until age 65. Similarly, for each month after age 65 that you wait to begin your pension, your monthly benefit is increased.

What happens if you take CPP at age 60?

The Canadian government is clear on what happens when you take CPP at age 60, 65, or 70. Age 60: CPP benefits decrease by 0.6% each month or 7.2% per year. This means that at age 65, you will have a permanent 36% decrease in benefits (assuming you start taking CPP at age 60).

Should I take CPP if I’m 65?

Guaranteed return: There is a guaranteed 7.2% return (inflation-adjusted) when you take CPP at age 65 instead of age 60. And, if you wait until age 70 before starting, you enjoy a 42% increase in benefits or a 122% increase compared to what you get at age 60. These rates of return are difficult to replicate if you manage your own money.

When should I take CPP if I retire at 60?

If you retire at age 60, you could drop up to 7 years of low earnings. If the gap between age 60 and 65 takes you over this limit, it may make sense to take CPP early at 60 to avoid further decreases in monthly CPP benefits. Drop-out months based on the general dropout provision and the age you start collecting CPP are:

What if I start taking CPP at age 70?

If you start taking CPP at age 70: You will receive 0.7% more per month or 42% more than if you start taking your CPP at age 70 vs. age 65. Total cumulative CPP you will receive by each age, depending on when you start payments: