You Probably Shouldn’t Take Your CPP at 60: Understanding the Implications of Early Withdrawal
The Canada Pension Plan (CPP) is a cornerstone of retirement income for millions of Canadians. Enacted to provide a basic income during retirement, the CPP is often at the forefront of discussions about financial planning for the golden years. One question frequently arises among soon-to-be retirees: Should I take my CPP at age 60? While it may seem appealing to start receiving benefits early, the decision carries significant long-term financial implications that warrant careful consideration.
Understanding CPP Basics
To grasp the consequences of taking CPP early, it’s essential to understand how the system works. Canadians can begin to receive their CPP retirement pension as early as age 60 or as late as 70. However, the monthly amount you receive changes depending on when you choose to start your benefits. Taking CPP at 60 means you’ll receive a reduced monthly amount compared to waiting until the standard age of 65 or even later.
The Financial Impact of Early Withdrawal
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Reduced Monthly Payouts: If you opt to take your CPP at 60, your pension will be reduced by a certain percentage—typically around 36%—compared to what you would receive if you waited until age 65. This reduction is permanent and can significantly impact your overall retirement income.
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Longevity Considerations: With average life expectancy in Canada increasing, retirees may find themselves needing their pension for a longer duration. Taking CPP early might result in a financially strained later life, especially if healthcare needs arise as you age.
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Survivor Benefits: The election of early CPP can also affect survivor benefits. If you pass away before your spouse, they may only receive a percentage of your reduced pension, potentially leaving them in a precarious financial position.
- Opportunity Cost: The money you receive from CPP could be best used elsewhere if you wait to withdraw it. Investments or savings can potentially grow substantially over time, and you might find that the benefits of waiting outweigh the immediate gratification of early payments.
When Taking CPP at 60 Might Be Justified
While there are many reasons to consider delaying CPP, there may be circumstances where taking it at 60 could be appropriate:
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Health Concerns: If you have health issues that may limit your life expectancy, it may make more sense to begin taking CPP early to ensure you receive benefits while you can.
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Financial Need: In certain situations, financial necessity might compel an individual to take CPP at 60. If you’ve lost a job or face unexpected expenses, the upfront cash flow may outweigh long-term considerations.
- Lower Lifetime Earnings: People with lower lifetime earnings may find that the reduced CPP at 60 still meets their needs, particularly if they have other sources of income.
Alternatives to Consider
If you are leaning toward taking your CPP early, consider exploring the following strategies:
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Part-Time Work: Many retirees choose to work part-time. This allows them to supplement their income while deferring CPP, enabling them to receive a higher benefit later.
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Financial Planning: Engaging with a financial advisor can provide personalized insights into your retirement strategy, helping you understand better when to take CPP based on your unique circumstances and retirement goals.
- Delaying Other Income Sources: If you receive other pensions or retirement accounts, evaluating when to withdraw from these sources can help you delay CPP and boost your eventual monthly benefit.
Conclusion
Taking your Canada Pension Plan at 60 may seem like an attractive option for immediate income, but it’s vital to weigh the long-term financial implications. A careful review of your health, financial situation, and retirement goals is essential to make an informed decision. For many Canadians, delaying CPP until at least 65—or possibly even 70—can provide significantly greater financial security throughout retirement. Always consider speaking with a financial professional to carve out the best path tailored to your circumstances. Remember, planning today can lead to a more secure and enjoyable tomorrow.
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Please explain how it’s better to wait. If I take it early, I can keep my money earning interest and delaying it only gives you 0.6%. This is what confuses the heck outta me!
I’m 62 and drawing CPP but also paying into it at my new job. Just wondering your thoughts on this.
Taking CPP later also does not take into account the erosion of purchasing power due to inflation/currency debasement. I ran the numbers and decided to take it at 63.
I’m not healthy, I have two major diseases and was still denied cpp disability twice. I’ll take early cpp at 60 , I’m 57 now. I’ll be thrilled to live to 65.
Also being a widow is a HUGE consideration, since it will most likely make you CPP max out at 60.
Unless you've worked in the public sector and are receiving a lucrative taxpayer funded pension, you'll be fine until 70, but for most people they would need considerable RRSP savings to pay bills or they'd continue working well into old age simply to defer the CCP until 70. Not for me. I'm holding off until 65.
A lot depends on your current financial situation. If you really need the money at 60 then start taking it then.
I'm 65 healthy, I chose to wait 'til 70 for CPP.
By doing so I will receive 42% more than I would today.
I am not understanding the end game. Why do I want to spend my money first? Why not spend the CPP and keep my own money and perhaps leave some for the kids? They could definitely use what I don’t.
It's case specific and never forget that.
When you die it doesn’t matter anyways, cause you won’t know your not getting your cpp.
Planning to live long enough to be grateful I waited till 70. Mom died at 62 but other relatives are 96 and well! Doing my best to be a healthy and very old lady! If I 'go' earlier…well it really won't matter then!
Delaying until 70? For something we started paying into since we were teenagers…. Perhaps the monthly payout is greater but if I start at 65 then I'm at least receiving a benefit for 5 YEARS MORE??? Average Canadian life expectancy is what 84ish?
I had a stroke at 58 in Jan 2019 and a pacemaker at 61 December 2022 while on CPP Disability since my stroke and was required by my private insurer to apply for CPP Disability so………..
I don't know – a bird in the hand is worth two in the bush.
Statistically speaking, in Canada the average lifespan of men is 82 and women is 84. The break even point between taking cpp at 60 or at 70 is when you reach 82-83 years of age. So statistically speaking, only half of people should defer it to 70 years. I’m not trying to give you a hard time, but every time i work the number’s out, that’s what i get. You are also in the no-go phase at 82 where you aren’t spending much money. Please tell me if i’m wrong.
A good financial planning should start with a personal and family health history analysis. Any assumptions should be based on that.
Also most people slow down their lifestyle significantly after 75. Having a higher CPP income then may not always make the most sense.
You are right Adam my husband is turning 65 this year his plan to take CPP in 70 years it would make sense ❤ always ur advice
Dad was diagnosed with cancer in his 50s. Took cpp as soon as he was eligible. He didn’t
Iive to be 70. It would have been pointless for him to wait to receive cpp any later.
One out of 4 CanadianS Are diagnosed with Cancer. It is a leading cause of death. That is more than 1% of Canadians.
Hi. Can you look at this in the case of someone who stopped paying into it at 57 because of early retirement? Thx.
99% of people should not srart taking CPP at 60 – I disagree with this statement.
I've had my numbers done by Doug as Adam suggested. If you retired early (54) you will have a number of non contribution years. Your numbers will start to drop. For me 63 makes sense. I'm still not a fan of RRSP meltdown in your GoGo years. Why burn through YOUR money early when you can balance your sources of income? I know that I'm luckier than a lot of people as I have a DB pension with a bridge until 65. Meltdown of my RRSPs from 60 to 65 just puts me in a higher tax bracket. If I burn through my money until 70 sure I'll have a greater CPP but I'll have paid significantly more taxes from 60 onwards. Plus there's a risk of complications that come with age. At 70 I'll get more CPP and have less of my own money left. I'll have less to leave for family.
I need Adam to do a financial plan for me!!
Take it as soon as possible. My mom was so called healthy then had a pain went to the dr was diagnosed with cancer. died 4yrs later. U never know your due date.