CPP Guide: CPP 60 vs. 65

CPP Guide: CPP 60 vs. 65

When Should You Start Your Canada Pension Plan Benefits?

Deciding when to start your Canada Pension Plan (CPP) benefits is a significant financial decision that can impact your retirement income. The CPP provides Canadians with a stable source of retirement income, but the age at which you begin receiving benefits can influence the amount you receive each month. This blog will explore the pros and cons of starting CPP at age 60 versus 65, and quantify how much lower your benefits will be if you start early.

Understanding the Basics of CPP

The Canada Pension Plan is a government-administered retirement benefit program funded by contributions from both employers and employees. The standard age to start receiving CPP benefits is 65, but you can choose to start as early as 60 or delay until age 70. The age you start affects the monthly benefit amount:

• Starting at 60: You receive a reduced monthly benefit.
• Starting at 65: You receive the standard monthly benefit.
• Delaying beyond 65: You receive an increased monthly benefit.

CPP at Age 60

Pros:

1. Early Access to Funds: Starting your CPP at 60 means you get access to your benefits sooner, which can be crucial if you retire early or need additional income.
2. Flexibility: Early CPP can supplement other retirement income sources, giving you more flexibility in managing your finances.
3. Health Considerations: If you have health issues or a family history of shorter life expectancy, accessing your benefits early might be advantageous.

Cons:

1. Reduced Monthly Benefits: Starting at 60 means your benefits are reduced by 0.6% for each month before your 65th birthday, totaling a 36% reduction if taken exactly at age 60. For example, if your standard benefit at 65 is $1,000 per month, starting at 60 would reduce this amount to $640 per month.
2. Potential Longevity Risk: If you live longer than expected, the reduced monthly payments may not provide sufficient income in your later years.

CPP at Age 65

Pros:

1. Standard Benefits: Starting at 65 means you receive the full standard CPP benefit, without any reduction.
2. Balanced Approach: Age 65 is the midpoint, offering a balanced approach between starting early and delaying benefits.
3. Greater Financial Stability: The full benefit amount can provide more financial stability in retirement.

Cons:

1. Delayed Access: Waiting until 65 means you forego receiving benefits for five years, which could be a disadvantage if you need income sooner.
2. Health Uncertainties: Delaying might not be beneficial if health issues arise before or shortly after starting benefits.

Factors to Consider

When deciding between starting CPP at 60 or 65, consider the following factors:

1. Current Financial Situation: Assess your current savings, income sources, and financial needs.
2. Health and Life Expectancy: Consider your health status and family history of longevity.
3. Employment Plans: If you plan to continue working past 60, it might be beneficial to delay CPP.
4. Other Retirement Income: Evaluate other sources of retirement income, such as pensions, savings, and investments.
5. Lifestyle Goals: Think about your retirement goals and how CPP fits into achieving them.

Conclusion

Choosing when to start your CPP benefits is a personal decision that should be based on your unique financial situation, health, and retirement goals. Starting at 60 provides early access but with a significant reduction in benefits, while waiting until 65 offers the standard benefit amount. For example, if your standard benefit at 65 is $1,000 per month, starting at 60 would reduce this amount to $640 per month. Weighing the pros and cons of each option will help you make the best decision for your retirement. Consulting with a financial advisor can also provide personalized guidance tailored to your circumstances.

Ultimately, the right choice is the one that aligns with your financial needs and retirement aspirations. Whether you start at 60 or 65, understanding the implications of your decision will help ensure a secure and comfortable retirement.

If you have any questions, please feel free to book a call with me or pick up my book, “The Art of Retirement.”