If you're planning to collect your CPP benefits early, you'll see your monthly amount decrease by as much as 36%. So why in the world would anyone choose to do that?
The Canada Pension Plan (CPP) is a retirement benefit funded by contributions from workers, employers, and self-employed individuals in Canada - and it includes almost all workers and self-employed individuals outside of Quebec (which has its own program).
To be eligible for CPP benefits, you have to be at least 65 years old and have at least one puropseful contribution to the plan from a job you've done in Canada or from credits from a previous spouse or common-law partner.
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Paying $777 a month, or $9,324 annually, which is 21% of the typical retiree's income – making CPP an important source of income for many Canadians in retirement, to go along with their personal retirement savings and any workplace pension they might have.
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Canada Pension Plan (CPP) benefits are reduced when you begin receiving them early.
benefit, up to 36% if you collect it at 60. For every month you delay past 60, you boost your benefit by 0.7%. Calculating this ends up leaving you with an increase of 42% by the time you're 70.
If you're eligible to receive $1,000 at 65, you'll receive $640 if you start receiving benefits at 60, and $1,420 if you wait until 70 (although it would likely be more, considering the cost of living adjustments over that time).
In 2023, 29% of new CPP recipients chose to start receiving their benefits at 60, while 24% started after 60 but before 65. A third of them, 32%, opted to receive it right at 65, and only 6% waited until 70. So why would someone choose to receive a reduced benefit?
8. "Disability: Certain medical conditions may cause individuals to receive a disability pension. In such instances, taking their CPP early might be unavoidable due to the need for higher financial assistance.
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You're not enjoying your current job and are looking to retire as soon as possible, and you'll need the Canada Pension Plan (CPP) to support your retirement.
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You're planning to retire by 60 and already have several years of minimal income anticipated ahead.
If you retire at 60 and have more years of low income before taking your benefits, you may end up limiting your benefits.
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You have health problems that will likely reduce your life expectancy.
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Old Age Security (OAS) benefits
As your income tops the minimum income recovery threshold of $90,997 in 2024. So, if you're already going to have a substantial retirement income, you may want to scale back your CPP payments to lower your earnings and boost your OAS payments.
- in addition to OAS
In this situation, you might aim to keep your Canada Pension Plan (CPP) payment as low as possible to make the most of your Guaranteed Income Supplement (GIS). It's a good idea to consult a financial advisor when using Old Age Security (OAS) or GIS to decide when to collect CPP, as these calculations can have long-term effects. A financial advisor will have access to software that can help them model out these decisions.
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- You're wary of the government's intentions.
A report by the Chief Actuary of Canada determined that the Canada Pension Plan will remain solvent for at least 75 years.
- You believe you're better off making the investment yourself rather than hiring somebody to do it.
It's not completely out of the question, but you would need to beat an annual guaranteed increase of 7.2% per year until you're 65, then 8.4% per year from 65 to 70, not to mention potential cost-of-living adjustments.
- You're retiring during a significant market downturn and want to claim your Canada Pension Plan to minimize the need to tap into your investments, thereby allowing them to potentially recover.
Taking your Canada Pension Plan (CPP) early is usually not recommended. However, there may be situations where receiving it early makes sense. If you are trying to decide if this is the right choice for you, it is advisable to consult a financial advisor.
Sources
If your employer used the liberalized performance bond during your years of service, and you reach the normal retirement age, you're automatically enrolled in the CPP retirement pension plan.
Income Explorer, 2021 Census
Canada Pension Plan: Pensions and benefit amounts paid each month
3. The earliest you can apply is 155 days before your retirement date.
Canada Pension Plan (CPP) - CPR By Age, Gender and by Calendar Year - Canada Pension Plan (CPP) - Number of New Retirement Pensions by Age Group, Gender, and by Calendar Year
We use your past earnings to calculate your Canada Pension Plan (CPP) payment. You pay CPP premiums from the time you start working and earning income. We use the contributions you and your employer paid into the plan to determine how much you'll get back when you retire.
Old Age Security
Canada Pension Plan (CPP) monthly payments are based on your estimated income. You'll get an estimated amount when you apply. The maximum monthly payment is $1,357.15.
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Guaranteed Income Supplement
Sustainability of the CPP
originally appeared on Money.ca
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Please note that this article is intended for informational purposes only and should not be taken as authoritative advice. It is presented here without any guarantees of any kind.
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