Choosing the right time to begin your Canada Pension Plan (CPP) can easily be one of the most important financial decisions in the journey towards retirement. The CPP allows people to start receiving your payments as early as the age of 60 and as late as the age of 70. While delaying your CPP benefits increases your monthly payment amount, starting your CPP at age 60 should, for those Canadians, be the right reason for making such a choice.
This blog applies a lens into some of the benefits offered in terms of starting your CPP at age 60, factors to consider, and some frequently asked questions to help you get well-informed in making this decision.
- Immediate Access to Your Money
Turning 60 marks the beginning of your CPP payouts. This means that there will be a more consistent flow of income into your pockets. This can prove to be beneficial in cases where you are retiring early or working fewer hours for more leisure time. Such extra income can help with covering day-to-day expenses, paying for travel, or helping make that bucket list of must-dos shorter.
Though the amount will be smaller, you will collect the amount for many more years. Usually, this would mean a greater cumulative payout, if you live to a typical lifespan, by taking CPP early.
- Flexibility for Financial Planning
This has given you flexibility to manage other sources of income, including personal savings, RRSPs, or investments when you start with CPP at the age of 60. Furthermore, early CPP payments can preserve the available pot of retirement funds for future use and maximize tax-deferred growth by deferring accessing the other accounts for longer. This can give one’s tax management and overall retirement income some fine-tuning.
- Health and Life Expectancy Considerations
Health and life expectancy would also influence any of the relevant factors in deciding when to take CPP. If a person has less life expectancy or health-related concerns, then at the age of 60, the CPP benefits would begin. This might actually have fewer payments throughout life, if the client in such situations continues to defer CPP payments.
You will enjoy an earlier retirement income when you are healthy and active enough to do all the things that will be too difficult to do later.
- Protecting Against Uncertainty
With uncertain future conditions, life can change in the blink of an eye. You could take your CPP at the age of 60 and keep it safe in case an expense arises unexpectedly, or if other sources of income are cut short, a stream of income is always stress-free and provides peace of mind during the retirement years.
- Cumulative Payout Advantage
Taking your CPP at 60 does reduce the dollar amount your payment will receive by 0.6% for every month before your 65 birthday (a total of 36% at age 60). You will receive payments for the next five years compared to someone who starts to receive an old-age pension at 65. Depending on your life span, it may also turn out that starting earlier offers you more in total payouts over the long run.
Life expectancy dictates that if you are going toward the end of your 70s or more into the 80s, the total amount you will have received by starting at 60 could equal or surpass the amount you would collect by delaying.
6. Greater Control Over Your Retirement Timeline
The option of applying for early CPP retirement payments allows retirement at the age of 60 or partial working to be considered possible. Whereas, it forces you to enjoy retirement in the manner or time frame of enjoyment according to one’s own decision, with no link to the start date for future income. With CPP at 60, you have more command over your time and way of life when you are young enough to enjoy it.
What You Should Know Before Going for 60 CPP
While some benefits may accrue when CPP starts at age 60, the following should also weigh in the balance:
- Monthly Payment Reduction: 36% lower than the amount payable monthly from age 65.
- Other Income Sources: Analyze how the CPP fits in with the total financial plan of savings, pensions, and investments.
- Tax Consideration: This is considered taxable income, so early CPP start dates may raise your tax burden depending on your income.
- Personal Health and Family History: This gives an individual the insight into the life expectancy and health conditions to know the best age to start with the CPP.
- Future Work Plans: This may lead to a condition that a CPP income might dictate the marginal tax rate if the intention is to work further.
Conclusion
It is profoundly personal to start your CPP at the age of 60 because how you would define everything depends on your finances, health, and retirement aspirations. Many Canadians find it appealing because they can have flexibility; safety; and even enjoying time retired, while still active.
Looking to start your CPP? Take time to consider your unique situation when deciding when to start your CPP and consult a financial advisor to make sure all the t’s are crossed and i’s are dotted for solid long-term thinking.
1. Can I still work while receiving CPP at 60?
Ans: Yes, you can work while receiving CPP. If you’re under 70, you’ll also contribute to the CPP Post-Retirement Benefit (PRB), which can increase your retirement income.
2. Does starting CPP early affect survivor benefits?
Ans: Yes, starting CPP early may reduce the survivor benefits your spouse or common-law partner receives. It’s important to consider how your decision impacts your loved ones.
3. Can I change my CPP start date once I’ve applied?
Ans: No, once you start receiving CPP payments, the decision is permanent and cannot be reversed. Carefully weigh your options before applying.
