The Canada Pension Plan (CPP) is a crucial part of retirement planning for many Canadians. While the standard age to begin receiving CPP is 65, you can choose to start as early as 60 or delay until 70. Deciding when to start collecting your CPP benefits involves weighing several factors, including your financial needs, health, and other income sources. Here’s a breakdown of the pros and cons of claiming CPP at age 60.
Table of Contents
Pros of Claiming CPP at 60
- Immediate Income:
- Starting CPP at 60 provides you with immediate income, which can be beneficial if you retire early or need extra funds.
- This can help cover living expenses or allow you to enjoy your retirement earlier.
- Flexibility:
- Early access to CPP allows for greater financial flexibility, especially if you have other retirement savings or sources of income to supplement your reduced CPP benefits.
- Benefit from Early Retirement:
- If you are in good health and want to enjoy an active retirement, starting CPP early can provide the means to travel, pursue hobbies, or spend more time with family.
Cons of Claiming CPP at 60
- Reduced Monthly Benefits:
- Claiming CPP at 60 results in a permanent reduction in your benefits by 0.6% for each month before your 65th birthday, totaling a 36% reduction. This means you will receive less money each month compared to if you had waited until 65.
- Potentially Lower Lifetime Benefits:
- If you live a long life, the cumulative amount of benefits received might be lower when starting at 60 compared to waiting until 65 or later. The longer you live, the more beneficial it is financially to have waited to claim CPP.
- Impact on Other Benefits:
- Starting CPP early might affect other income-tested benefits, such as the Guaranteed Income Supplement (GIS). Receiving CPP earlier may increase your income and reduce your eligibility for these benefits.
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Considerations Before Deciding
- Health and Longevity: If you have a shorter life expectancy due to health reasons, claiming CPP at 60 might make sense. Conversely, if you expect to live longer, delaying could result in higher total benefits.
- Employment: If you plan to continue working after 60, your income from employment combined with early CPP might push you into a higher tax bracket, reducing the overall benefit.
- Other Retirement Income: Consider your other sources of retirement income. If you have sufficient savings or pensions, delaying CPP might be a better strategy.
Deciding when to claim CPP is a personal choice that should be based on your individual circumstances. Claiming at 60 offers the advantage of immediate income but comes with the trade-off of reduced benefits. It’s essential to consider your health, financial needs, and retirement plans when making this decision.
For personalized advice, it’s recommended to consult with a financial planner who can help you navigate the complexities of CPP and ensure that your retirement strategy aligns with your long-term goals.