By Cole Kachur – Wellington-Altus

Earlier or Later? Deciding When to Start Canada Pension Plan Retirement Benefits

Nov 16, 2022 | 9:48 AM

“The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of Pattison Media and this site.”

Many individuals approaching retirement wonder if there is an optimal age to begin taking their Canada Pension Plan retirement pension benefits (CPP). The question often arises because CPP is calculated based upon the age at which an individual starts to receive monthly payments. Though the standard age to start CPP is 65, Canadians can start receiving CPP as early as 60 or as late as 70.

The standard CPP entitlement at age 65 is reduced by 7.2% for every year (0.6% per month) taken before 65 and is increased by 8.4% for every year (0.7% per month) taken after 65.

Should individuals defer taking CPP to take advantage of the increased CPP benefit entitlement? It depends. The CPP breakeven age is a good starting point to evaluate one’s options; however, it should not be the sole factor in deciding.

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What is the CPP break-even age?

This concept is best explained with an example. Let’s assume Peter and Paul are both 60 years of age in 2022 and will be eligible for the maximum CPP benefit at age 65. For 2022, the maximum benefit at age 65 is $1,253/month ($15,036 per year). Peter decides to take CPP now at age 60, and as a result his benefits are reduced by 36% to $802/month or $9,624 per year. Paul decides to wait until age 65 to start collecting his CPP benefits. The table on the right demonstrates the cumulative annual CPP payments they will each receive.

Peter has collected almost $50,000 before Paul has received his first CPP benefit payment. The general perception is that Peter will be permanently better off financially. This is incorrect. If Paul lives beyond the breakeven age of 74 (73.9 to be exact), he will not only catch up to Peter, but he will also receive greater benefits than Peter for having delayed receipt of his CPP to age 65.

This analysis does not consider annual inflation adjustments to CPP benefits, which may further increase the pension entitlement of an individual who chooses to delay receipt of their CPP benefits.

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