The Canada Pension Plan is a powerful benefits that Canadians get to take advantage of in retirement. As you probably know, you can start receiving CPP payments as early as age 60, or wait until as late as age 70, with 65 being the “normal,” expected age. So when is the best time to start taking CPP? The answer depends on your personal situation, but if any of the following scenarios describes you, the answer might be age 60.
You’re in poor health.
As the saying goes, “you can’t take it with you.” If your health is failing you, then you’re better off receiving payments as soon as possible, so that you can enjoy the money while you can. The math says that, if you don’t think you’ll live past age 74, then you’re better off taking CPP as early as possible. If there’s a good chance you’ll live longer than that, then you’re better off waiting.
You need to put food on the table.
If you’re in a tight spot financially, then the economics of whether it’s better to wait or start getting paid now don’t matter. What matters is that you need to eat. This isn’t just about meeting you basic financial needs, either; if you’re carrying high-interest credit card debt, then it could also make sense to start receiving payments early, and use them to pay off your credit card.
You stopped contributing to CPP before age 55.
Because of the way your CPP payments are calculated, if you stopped paying into CPP before age 55, those years will count against you in determining the amount of your payout. When you take CPP at age 60, your monthly payments are based on your best 35 years of contributions, whereas if you take it at 65, they’re based on your best 39 years. Years where you’re making zero contributions obviously bring your average down, and will reduce your monthly payments anyway… so in this case, why wait until 65?
The closer to age 55 you stop contributing, the truer this becomes. If, for example, you’ve been contributing the maximum to CPP for the 35 years leading up to 55 (unlikely, but humour me), you’d be eligible for the max payout of $9627.52 (currently in 2022) per year. If you stopped contributing at age 55, but waited until 65 to take CPP, your annual payout would be $13,500 per year. Sure, it’s more, but that’s actually 11% less than the maximum benefit, even though you contributed the maximum for 35 years. In this case, it might be better to start enjoying the money early.
You want to live it up while you can.
Sometimes, emotion trumps hard logic. If you’re worried about failing health later in life, and have big plans to travel the world and do everything you can in the here and now, then it may be better to start taking payments early, while you can still put them to good use.
Wrapping it Up
Sometimes, there are good reasons for taking CPP payments early. However, there are also benefits to delaying the receipt of payments as well; the longer you wait – up to age 70 – the higher your payments will be. Next week, we’ll go over a few reasons why it makes sense to wait to take CPP until age 70.
