Deciding whether to take your Canada Pension Plan (CPP) benefits at age 60 is a significant decision that can impact your financial security in retirement. Here are five critical factors to consider before making this choice:
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1. Impact on Monthly Benefits
- Reduction in Benefits: If you take CPP at 60, your monthly benefits will be reduced by 0.6% for each month before age 65, resulting in a 36% reduction overall. This means if you start early, you’ll receive less money each month compared to waiting until 65 or later.
- Lifetime Income: If you expect to live a long life, delaying your CPP could result in higher lifetime income, as the reduction from starting early could outweigh the extra years of receiving benefits.
2. Health and Longevity
- Personal Health: Consider your health and family history when deciding. If you have health issues or a shorter life expectancy, it might make sense to start receiving CPP early to maximize your benefits during your lifetime.
- Longevity in the Family: If you have a history of longevity in your family, delaying CPP could be beneficial as you’ll likely receive benefits for a longer period.
3. Employment Status
- Continued Employment: If you plan to continue working after 60, your CPP income could be added to your employment income, potentially pushing you into a higher tax bracket and reducing your overall net benefit.
- Early Retirement: If you’re retiring early and need the income, starting CPP at 60 might be necessary, but weigh this against the long-term reduction in benefits.
4. Other Sources of Income
- Supplemental Income: If you have other sources of retirement income, such as RRSPs, TFSAs, or a pension, you might be able to delay CPP and draw on these resources instead. This could allow you to take advantage of higher CPP benefits later.
- Financial Need: If you need the income right away, it might make sense to start CPP early, but consider the trade-offs with reduced future payments.
5. Inflation and Cost of Living
- Rising Costs: Consider how inflation and the cost of living may impact your financial needs in retirement. Starting CPP early might provide you with the income you need now, but delaying could offer larger payments that better keep pace with rising costs over time.
- CPP Indexing: Remember that CPP benefits are indexed to inflation, so delaying could provide higher inflation-adjusted income in the future.
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Deciding when to start your CPP benefits is a personal decision that should be based on your unique financial situation, health, and retirement goals. It’s essential to weigh the immediate need for income against the long-term benefits of delaying. Consulting with a financial advisor can help you assess these factors and make the best decision for your retirement.