Claim Early or Wait? The Surprising Scenarios Where Taking CPP at 60 Makes Perfect Sense

If you decide to claim the Canadian Pension Plan (CPP) earlier than usual, your monthly benefit could decrease by as much as 36%. Can you guess why someone might choose this option?

The Canada Pension Plan (CPP), which is a retirement benefit, is financed through contributions made by both employees and their employers as well as by self-employed individuals across Canada. This plan generally applies to nearly all workers and those who are self-employed outside of Quebec (where they have their own separate program).

To become eligible for CPP benefits, you need to be at least 60 years old and have made at least one contribution to the plan through employment within Canada or received credit transfers from a previous spouse or common-law partner.

The precise amount of your monthly CPP benefit hinges on several factors: your age upon initiating benefits, the duration of your contributions to the program, and your average income throughout your career. Should you choose to begin receiving these benefits at 65 years old in 2025, you might qualify for up to $1,364.60 .

According to the 2021 Census data, the mean overall income for Canadian residents aged 65 and above was $46,080 The typical CPP benefit amount in 2024 was $815 Per month or $9,780 annually, representing about 21% of the typical retiree’s income—thus, for numerous Canadians, the Canadian Pension Plan (CPP) serves as a significant supplement to their retirement funds, alongside personal savings and potentially an employer-provided pension plan.

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The CPP payments decrease if you start receiving them before your optimal age.

For each month you claim CPP benefits before your full retirement age, you face a permanent reduction. 0.6% Of the advantage, up to 36% more if you start receiving CPP at age 60. For each additional month beyond age 60 that you delay claiming, your benefit rises by 0.7%. Should you choose to wait all the way until age 70, this would result in a boost of 42%.

Should you become eligible for a $1,000 annual benefit at age 65, opting to claim it at age 60 would yield $640 instead. Conversely, delaying receipt until age 70 could provide an amount as high as $1,420 annually; moreover, these payouts typically rise over time due to adjustments linked to inflation rates.

Based on these figures, it appears astonishing that individuals choose to receive CPP benefits at age 60; nonetheless, numerous people still make this decision. statistics provided by the Government of Canada In 2023, 29% of individuals beginning their Canadian Pension Plan (CPP) benefits chose to do so at age 60, with an additional 24% starting them after turning 60 but prior to reaching 65 years old. Approximately one-third (32%) initiated their CPP when they turned 65, whereas just 6% deferred receiving their benefits until they were 70. Therefore, what motivates someone to accept a diminished benefit?

8 factors influencing individuals to claim their Canadian Pension Plan benefits sooner

You're unhappy with your current employment, you wish to retire right away, and require the Canadian Pension Plan to support yourself.
You're set to retire at 60 and you've already experienced numerous years of little or no income.

When determining your basic CPP payment, the authorities will Exclude as many as eight of your lowest-earning years. If you decide to retire at age 60 and include additional lower-earning years prior to claiming your benefits, you might inadvertently decrease your benefit amount.

You face health problems that could reduce your lifespan.
You aim to minimize or eliminate the portion that gets clawed back from your payment. Pensions from Old Age Security (OAS)

The OAS represents another cornerstone of Canada's social retirement framework. It is accessible to Canadian citizens and legal permanent residents aged 65 and above who have lived in the country for a minimum of ten years after turning 18, irrespective of their employment history. As of October through December 2024, the maximum monthly OAS payment The amount is $727.67 for individuals aged 65 to 74 and $800.44 for those 75 years old and above (this benefit is reviewed quarterly to account for changes in the cost of living). However, with regard to OAS, clawed back As your earnings rise above the minimum income recovery threshold of $90,997 in 2024, consider minimizing your CPP benefit to reduce your overall income and thereby increase your OAS payments if you anticipate having considerable retirement savings.

You have a low income and might be eligible for the Guaranteed Income Supplement (GIS) in addition to OAS

In such a scenario, reducing your CPP payments could potentially increase your GIS benefits. Consulting with a financial advisor for guidance related to OAS or GIS purposes would be wise when deciding about taking CPP, since these computations involve complex factors with long-term effects. A professional adviser typically uses specialized tools to simulate various scenarios aiding better decision-making.

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You have no faith in the government.

Some individuals might have concerns regarding the sustainability of these governmental initiatives; however, it’s important to recognize that the Canadian Pension Plan (CPP) operates independently from the government’s overall finances — thus, the government cannot utilize those funds. Moreover, a 2021 The report from the Chief Actuary of Canada indicates that the CPP will stay financially viable for a minimum of 75 years.

You believe you could generate greater returns by managing the funds personally.

Although it may be achievable, you will have to overcome an assured yearly boost of 7.2% up to age 65, followed by an 8.4% hike each year thereafter until reaching 70, along with adjustments made to account for inflation.

When you're planning to retire during a significant market downturn, you aim to start collectingCPP benefits to minimize the necessity of withdrawing funds from your investment portfolio. This way, your investments will have time to recuperate.

Typically, it's unwise to claim your Canadian Pension Plan benefits before the designated age. However, certain situations might justify doing so. When weighing whether this step suits you, seeking advice from a financial counselor is highly recommended.

Sources

1. Canada.ca: CPP retirement pension: The amount you might get

2. Statistics Canada: Income Explorer, 2021 Census

3. Canada.ca: Canada Pension Plan: Monthly Figures for Pensions and Benefits

4. Canada.ca: Canada Pension Plan Retirement Benefit: Timing for Commencing Your Retirement Income

5. Canada.ca: Canada Pension Plan (CPP) - Count of Newly Awarded Retirement Pensions by Age Group, Gender, and Fiscal Year - Canada Pension Plan (CPP) - Count of Newly Awarded Retirement Pensions by Age Group, Gender, and Fiscal Year

6. Canada.ca: How we determine your CPP benefit amount

7. Canada.ca: Old Age Security

8. Canada.ca: Old Age Security: What Amount Can You Expect?

9. Canada.ca: Recovery Tax for Old Age Security Pension

10. Canada.ca: Guaranteed Income Supplement

11. CPPInvestments.com: Sustainability of the CPP

This article If you opt for the Canadian Pension Plan (CPP) at age 60, you'll see a reduction of 36% in your benefits—but there are 8 scenarios where taking it early can be quite sensible. How many of these situations pertain to you? originally appeared on Money.ca

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