CPP Guide: CPP 65 vs. 70: 

When Should You Start Your Canada Pension Plan Benefits?

Deciding when to start your Canada Pension Plan (CPP) benefits is a crucial financial decision that can significantly impact your retirement income. The CPP provides Canadians with a reliable source of retirement income, and 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 65 versus 70 and quantify how much higher your benefits will be if you choose to delay.

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 delay until age 70. The age you start affects the monthly benefit amount:

• Starting at 65: You receive the standard monthly benefit.
• Delaying until 70: You receive an increased monthly benefit.

CPP at Age 65

Pros:

1. Standard Benefits: Starting at 65 means you receive the full standard CPP benefit, without any reduction.
2. Immediate Access: You can start receiving your benefits as soon as you reach 65, which can be essential if you need the income.
3. Greater Financial Stability: The full benefit amount can provide financial stability and help cover essential expenses in retirement.

Cons:

1. Lower Monthly Payments Compared to Delaying: Starting at 65 means you receive a lower monthly benefit compared to if you delay until 70.
2. Potentially Less Lifetime Income: If you have a long life expectancy, starting earlier may result in receiving less total income over your lifetime compared to delaying benefits.

CPP at Age 70

Pros:

1. Increased Monthly Benefits: Delaying CPP until 70 increases your benefits by 0.7% for each month after your 65th birthday, totaling a 42% increase if taken exactly at age 70. For example, if your standard benefit at 65 is $1,000 per month, starting at 70 would increase this amount to $1,420 per month.
2. Higher Lifetime Income: If you live a long life, the increased monthly payments can result in higher lifetime income.
3. Inflation Protection: Higher monthly benefits provide better protection against inflation, helping to maintain your purchasing power in later years.

Cons:

1. Delayed Access to Funds: Waiting until 70 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 65 or 70, 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 65, 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 65 provides immediate access to benefits but with a lower monthly amount compared to delaying until 70. Delaying until 70 increases your benefits by 42%, providing higher monthly income and better protection against inflation. For example, if your standard benefit at 65 is $1,000 per month, starting at 70 would increase this amount to $1,420 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 65 or delay until 70, 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.”