One question many of our clients face is when to collect their Canada Pension Plan (CPP) retirement pension for retirement.

The standard for when one should begin to receive their CPP retirement pension, is the month after your 65th birthday. Having said that, elections can be made to receive the CPP as early as age 60, or delaying up to age 70.

The amount of your pension is going to depend on three specific criteria:

How long you have contributed to your CPP

How much you have contributed to your CPP

When you elected to take part in your CPP (what this post will focus on)

Quantitative Factors

Early (before 65)

If the CPP retirement pension is taken early the amount is reduced by 0.6% for each month taken prior to age 65.

Example - Age 60 – Electing to receive your CPP at age 60 would be 60 (5 years x 12) months prior to age 65. 0.6% x 60 months = 36%. This illustrates that, taking your CPP at age 60 would result in a 36% reduction than if waited until age 65.

Example - Age 63 – Electing to receive your CPP at age 63 would be 24 (2 years x 12) months prior to age 65. 0.6% x 24 months = 14.4%. Again, this shows that if elected early, your CPP retirement pension would be reduced by 14.4% from age 65.

Late (after 65)

If your CPP retirement pension is taken later, the amount received monthly will increase by 0.7% monthly.

Example – Age 67 – Electing to receive your CPP at age 67 would be 24 (2 years x 12) months post age 65. 0.7% x 24 months = 16.8%. The individual would therefore receive monthly pension amounts that are 16.8% higher than if taken at age 65.

Qualitative and Other Factors to Consider

Cash flow

Depending on your desired retirement age (perhaps later than 65) and the income your portfolio is generating, you may or may not need further income. This will have a clear effect on taking your CPP early, at 65, or later on.

Life expectancy

The gene pool as we know is not an equal playing field. Family traits may indicate your life expectancy is shorter or longer than the average person and this will have an influence on the timing of taking your CPP.

How much to expect?

The retirement pension at age 65 (maximum) for 2019 is $1,154.58 monthly or $13,854.96 annually. The average amount for new beneficiaries as at January 2019 was $723.89 monthly or $8,686.68 annually.

Only Part of the Plan

Deciding on what age to elect your CPP retirement pension is a part of a bigger retirement plan and cannot simply be looked at alone. If you are nearing retirement or beginning to think about retirement down the road, it might help to invest the time into putting a plan together where you can  understand what the future holds when looking at the bigger picture.

Sources

https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html

https://w3.cibc.com/sites/km/en/wg/services/Documents/marketing/special-reports/retirement-pension-system.pdf#search=CPP