Are you planning to start your CPP at 60? You might want to reconsider. In this video, we’ll uncover why delaying your CPP could be the best financial decision you make for your retirement. I’ll go over 10 reasons why taking your CPP at age 60 might be a mistake.
Let’s start from the most obvious reasons to the least obvious.
Reason 1 to not take CPP at Age 60: You’ll get paid way more CPP if you delay
This is the most obvious reason as to why to delay your CPP, is that you’ll get paid way more for waiting. Let’s see how delaying affects your benefits with an example. Meet Jennifer, who is planning her retirement. If she starts CPP at age 65, she gets $1,000 monthly, which is the baseline amount.
Starting CPP at Age 60
Starting at 60 reduces benefits by 0.6% per month, totalling a 36% reduction vs starting it at age 65.
- $1,000 – 36% = $640 per month
Starting CPP at Age 70
Delaying to 70 increases benefits by 0.7% per month, totalling a 42% increase vs starting it at age 65.
- $1,000 + 42% = $1,420 per month
Comparing the Options
- CPP at Age 60: $640 per month
- CPP at Age 65: $1,000 per month
- CPP at Age 70: $1,420 per month
As you can see, delaying CPP to age 70 significantly boosts your monthly benefit as compared to starting it at age 60 by more than double the amount!
Reason 2 to not take CPP at Age 60: If you have enough income or savings to last until 70
If you have enough income or savings for the ages of 60-70, it’s another reason to delay your CPP. Say you have a solid retirement savings portfolio, including RRSPs, TFSAs, and perhaps a workplace pension. You can comfortably draw from these sources to cover your expenses from ages 60 to 70.
During this period, your investments continue to grow, and you avoid reducing your CPP benefits early. At age 70, you begin receiving the increased CPP payments, providing a substantial boost to your retirement income.
Delaying CPP can enhance your financial stability, provide higher guaranteed income, and allow your other investments to grow. This strategic decision can lead to a more secure and comfortable retirement in your 70’s and beyond.
Of course, if you need the money at age 60, then you should definitely start the CPP at age 60, but if not, it might be better to hold off for as long as you can.
Reason 3 to not take CPP at Age 60: If you’re in great health (longevity risk)
If you’re approaching retirement and you’re in great health, it could be a great choice for you to delay your CPP past 60. Life expectancy is much higher these days. A 60 year old’s in Canada today is expected to live to about 85. (living 24.95 more years)
If you start CPP at 60, you’re locking in a lower monthly amount for life. If you live longer than average, you might find that the reduced income isn’t enough to cover your needs as you get older.
By delaying CPP, you hedge against the risk of outliving your other retirement savings. The beauty about the CPP is that once you start it, it lasts for the rest of your life, so if you live well into your 80s and 90’s it’s well worth it.
I’ve done calculations in the past before, and the point for where you will be earning more money from CPP by delaying from age 65 to 70 it is at around 81 or 82 years of age. So if you think you’ll be living past that, or even well into your 90s, delaying your CPP could be an excellent choice.
Reason 4 to not take CPP at Age 60: You’re worried about inflation in retirement
As you know, inflation in Canada has been very high for the past few years. From restaurant and grocery prices, to rent and housing, everything seems to be getting way more expensive. If you’re worried about inflation in the future, the great thing about the CPP is that it is indexed to inflation to keep up with the cost of living.
This means that your CPP payouts will increase to keep pace with years of high inflation. In 2024, the CPP rate increased by 4.4%, as shown in the calculation here.
So, basically, the longer you can delay your CPP, the larger your indexed-to-inflation CPP payments will be. There aren’t too many great investments out there on the market that are indexed to inflation, so this is quite a unique and special pension from the Canadian government to support retirees in times of higher cost of living.
Reason 5 to not take CPP at Age 60: If you trust the CPP is managed well
Ok, this one is a bit of a touchey subject, but there has been a lot of mistrust of the Canadian government lately. There are a lot of people out there who think the CPP will run out of money, or they won’t actually get their payment if they delay, or that it is an unfair system that is being used to rob hard-working Canadians.
Let’s get into the risks. Is it possible for pensions to be underfunded? Yes, absolutely. In 2008 during the financial crisis, General Motors had an underfunded pension. After the company filed for bankruptcy, the US government had to step in and cover some of the pension payouts, and some retirees didn’t receive their full pensions.
Will this happen with the CPP? It’s highly unlikely, and here’s why.
First, let’s talk about contribution rates. CPP contributions are expected to grow from $61 billion in 2022 to $177 billion in 2050 for the base CPP, and from $9.3 billion to $45 billion for the additional CPP over the same period, which means that a lot of cash will be flowing into CPP.
Also, the CPP undergoes regular independent peer reviews to ensure the actuarial methods and assumptions are sound, and it determined in the latest report that the CPP had enough to be financially sustainable for at least the next 75 years. The CPP is well-funded and is at very low risk of being underfunded.
Finally, the Canada Pension Plan (CPP) has delivered pretty decent investment returns over the long term. According to the 2023 annual report, the CPP’s investment portfolio achieved a 10-year annualized net real return of 7.4%.
Reason 6 to not take CPP at Age 60: You’re Not Worried about OAS Clawback
Your Old Age Security, otherwise known as OAS payments, can be quite large in retirement. You can get up to $784/month of OAS payments. But the OAS is different than CPP, because if you make too much income you will be subject to clawbacks, meaning the government will not pay you out the entire amount, or perhaps even any amount at all.
The OAS clawback will start if you earn more than $90,997, as of the latest figures. That’s why you might want to be careful about earning too much money during the ages when you start collecting OAS, and if your CPP payments are too high for example, it might push you into that clawback territory.
But if you know you won’t earn close to this amount, then that’s another reason to delay your CPP payments.
Example:
Delayed CPP in Retirement:
Meet Simon. He has:
- Employment Pension: $30,000
- RRSP Withdrawals: $20,000
- Investment Income: $10,000
- CPP Benefits (starting at age 70): $21,000 (assuming an increase due to delay)
- Total Income (after age 70): $81,000
By delaying CPP until age 70, his total income after age 70 increases to $81,000. This is still well below the $90,997 threshold, so no OAS clawback applies, and he gets to keep all the money. Plus, he benefits from larger CPP payments for the rest of his retirement.
Reason 7 to not take CPP at Age 60: Your income is too high for GIS
If you know you won’t be receiving Guaranteed Income Supplement (GIS) in retirement years, it’s another reason to delay your CPP payments.
If you already know you’ll have a higher income in retirement, whether it’s through your RRSPs or work pensions, you probably won’t need to worry about keeping your income low enough to qualify for GIS.
Income Limits for GIS (As of 2024)
- Single, Widowed, or Divorced:
- Your annual income must be below $21,624 CAD
- Married/Common-law (both receiving OAS):
- Combined annual income must be below $28,560 CAD.
If you think you will be well above to the income limits here for GIS in retirement, it’s just another reason that you should consider delaying your CPP past 60. This is because by delaying and having larger CPP payments, your income will be higher, but that won’t matter because you wouldn’t qualify for GIS anyways.
Reason 8 to not take CPP at Age 60: RRSP tax planning
There are reasons where you might want to draw down your RRSP quicker in retirement, such as you want to minimize RRSP taxes upon your death to leave more more money to your estate.
If you come into a situation where you want to draw down your RRSP quicker than you thought during ages 60-70, then you might want to consider delaying your CPP until age 70 since you won’t need income.
Here’s a simplified example: Age 60-70: Using RRSP Funds
- Annual Living Expenses: $40,000
- RRSP Withdrawals: $40,000 per year
For the next 10 years, you withdraw $40,000 annually from your RRSP to cover your living expenses. This reduces your RRSP balance but ensures you have enough income to maintain your lifestyle.
Age 70: CPP Kicks In
- Annual CPP Benefits: $21,000 (delayed benefits are higher)
- Additional Income Needed: $19,000 (to cover $40,000 in annual expenses)
When you turn 70, you start receiving your enhanced CPP benefits of $21,000 per year due to the delay. Now, you only need an additional $19,000 annually to meet your living expenses, which you can draw from other sources like any remaining RRSP, or work pensions, or your TFSA, and you’ll have to pay less taxes upon death so you can leave a larger estate for your family.
Reason 9 to not take CPP at Age 60: If you’re still working in your 60s
People in Canada are working later into their 60’s and even 70s more than ever now.
If you know you’re going to be working well into your 60’s, it might not make sense to take your CPP at 60 for these reasons:
- If you’re working, you likely won’t need the CPP income early anyways, so you can delay it for the additional payouts.
- If you continue working, you’ll need to continue making contributions to your CPP from age 60 to 65, even if you start your CPP early at 60.
- Your benefit from delaying CPP will likely be greater than taking the CPP early and investing it, as it would be difficult to earn that much of an increase in the market by investing.
Reason 10 to not take CPP at Age 60: For more predictable and stable income
Another great reason for delaying your CPP, is if you want a more predictable and stable income.
For example, when you turn 60, you’ll have to make a choice about whether you want to delay your CPP, or take it. If you decide to delay it, you might have to draw down on your investments such as your RRSP, TFSA, or non-registered assets to cover your expenses.
Example:
Let’s say you are eligible for a CPP payment of $640 per month at age 60. If you delay taking your CPP until age 65, your payment increases to $1,000 per month.
If you decide to delay it, you might need to use your savings, like your RRSP or TFSA, to cover your expenses. For instance, if your monthly expenses are $2,000, you could withdraw $2,000 each month from your RRSP or TFSA.
Think of it this way: by using your savings earlier, you’re trading uncertain investment returns for a guaranteed increase in your CPP payments. So instead of relying on potentially fluctuating investment returns because you never know exactly how well your investments will do, you secure a higher, inflation-adjusted CPP payment of $1,000 per month for the rest of your life starting at age 65.
When to take CPP depends on you
Now, even though we went over all these ways on why you shouldn’t take CPP at age 60, I’m not saying that everyone should start CPP at 65 or 70! There are actually many logical reasons why someone would want to start CPP at age 60, and it all depends on your personal financial situation.
There are so many different factors to consider. Evaluate the decision of when you should take CPP the best that you can based on your unique situation, and make the choice from there.
If you’re planning for retirement and need expert guidance, check out the planning services we provide. Our team can help you optimize your CPP and other retirement benefits. Check out the planning services we offer, and book a free consultation when ready!
