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Taking the Canada Pension Plan (CPP) at age 60 versus delaying it until age 65 or 70 is a crucial decision that can significantly impact your retirement income. Here's a comprehensive analysis of the pros and cons of each option.
Starting CPP at Age 60 Starting your CPP retirement pension at age 60 allows you to access the funds earlier, providing an immediate source of income. However, this comes at the cost of a reduced monthly payment. For each month you take CPP before age 65, your pension is reduced by 0.6%, resulting in a maximum reduction of 36% if you start at age 60. |
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Pros of Taking CPP at 60
Cons of Taking CPP at 60
Delaying CPP Until Age 65
Delaying your CPP until age 65 means you'll receive the full pension amount based on your earnings and contribution history, without any reductions or increases.[4]
Pros of Taking CPP at 65
Cons of Taking CPP at 65
Delaying CPP Until Age 70
Delaying your CPP until age 70 can significantly increase your monthly payments. For each month you delay past age 65, your pension increases by 0.7%, resulting in a maximum increase of 42% if you start at age 70.
Pros of Taking CPP at 70
Cons of Taking CPP at 70
Factors to Consider
When deciding when to take your CPP, it's essential to consider your personal circumstances, including:
It's really important to carefully weigh the pros and cons of each option and seek professional advice from a Financial Planner to make an informed decision that aligns with your unique circumstances and retirement goals.
- Early Access to Funds: If you need the income or prefer to have a steady stream of payments earlier in retirement, taking CPP at 60 can provide financial relief and flexibility.
- Longevity Risk Mitigation: For individuals with shorter life expectancies or health concerns, taking CPP early can ensure they receive more of their entitled benefits during their lifetime.
- Investment Flexibility: With an early CPP income, you may have more flexibility in managing your investment portfolio and potentially taking on less risk as you age.
Cons of Taking CPP at 60
- Reduced Monthly Payments: The 36% reduction in monthly payments can significantly impact your overall retirement income, especially if you live a longer life.
- Missed Opportunity for Growth: By taking CPP early, you forfeit the opportunity for your pension to grow at a rate of 0.7% per month after age 65, up to a maximum of 42% at age 70.
- Potential Tax Implications: Receiving CPP at 60 may push you into a higher tax bracket, resulting in a larger portion of your income being taxed.
Delaying CPP Until Age 65
Delaying your CPP until age 65 means you'll receive the full pension amount based on your earnings and contribution history, without any reductions or increases.[4]
Pros of Taking CPP at 65
- Full Pension Amount: You'll receive the full CPP retirement pension amount you're entitled to based on your contributions.
- Potential for Future Increases: If you continue working past age 65, your CPP contributions can increase your pension amount.
- Tax Efficiency: Receiving CPP at 65 may help you avoid being pushed into a higher tax bracket earlier in retirement.
Cons of Taking CPP at 65
- Missed Early Income: You'll miss out on the early income stream that taking CPP at 60 would provide.
- Longevity Risk: If you have a shorter life expectancy, you may not receive the full benefit of your CPP contributions.
Delaying CPP Until Age 70
Delaying your CPP until age 70 can significantly increase your monthly payments. For each month you delay past age 65, your pension increases by 0.7%, resulting in a maximum increase of 42% if you start at age 70.
Pros of Taking CPP at 70
- Maximized Monthly Payments: By delaying until age 70, you'll receive the highest possible monthly CPP payment, which can provide a substantial boost to your retirement income.
- Longevity Protection: If you have a longer life expectancy, delaying CPP can ensure you receive more benefits over your lifetime.
- Inflation Protection: CPP payments are indexed to inflation, providing protection against the rising cost of living in your later years.
Cons of Taking CPP at 70
- Delayed Income Stream: You'll miss out on the income stream that taking CPP earlier would provide, potentially requiring you to rely more heavily on other sources of retirement income.
- Longevity Risk: If you have a shorter life expectancy, you may not receive the full benefit of the increased payments.
- Continued Contributions: If you continue working past age 65, you'll still be required to contribute to the CPP, which may not be financially advantageous if you're already receiving other retirement income.
Factors to Consider
When deciding when to take your CPP, it's essential to consider your personal circumstances, including:
- Life Expectancy: Your estimated life expectancy plays a significant role in determining the break-even point where delaying CPP becomes more advantageous.
- Other Sources of Income: Evaluate your other sources of retirement income, such as workplace pensions, investments, and savings, to determine your need for CPP at different ages.
- Tax Implications: Understand how taking CPP at different ages may impact your overall tax situation and plan accordingly.
- Lifestyle and Expenses: Consider your desired lifestyle and anticipated expenses in retirement, as this can influence the timing of your CPP payments.
- Spousal Considerations: If you have a spouse or common-law partner, factor in their CPP entitlements and potential survivor benefits.
It's really important to carefully weigh the pros and cons of each option and seek professional advice from a Financial Planner to make an informed decision that aligns with your unique circumstances and retirement goals.
