But the age at which you start collecting CPP is a very important choice that can greatly affect how much money you get each month.
In the next few years, the most you can get each month under enhanced CPP rules could be as much as $1,760. The time you start getting benefits could mean the difference between hundreds of dollars more or less each month for the rest of your life.
As payment dates get closer and retirees plan how they will make money, it is very important to know how CPP payments change based on when you start. This in-depth guide explains how the system works, how much you could get at 60, 65, or 70, and how to figure out which option is best for your finances.
Getting to Know the Basics of CPP
You have to pay into the Canada Pension Plan to get benefits. You and your employer put a percentage of your pay into CPP throughout your working life. If you work for yourself, you pay both parts.
Your retirement benefit is based on:
- How much you put in
- How long you worked for
- The amount of money you made on average while you worked
- The age at which you begin receiving payments
You don’t automatically get CPP when you retire. You have to apply, and you can start getting benefits at any time between the ages of 60 and 70.
The “normal” age for CPP is 65. If you start before 65, your payment goes down. It goes up after 65.
The highest monthly CPP amount
Every year, the maximum monthly CPP retirement pension goes up because of inflation and improvements to the program.
The enhanced CPP system is expected to allow new recipients to get a maximum monthly retirement benefit of up to $1,760 in the future for those who:
- Always gave at least the maximum amount
- Worked for most of their adult lives
- Start making payments at 70
It’s important to remember that most Canadians don’t get the full amount. The average monthly CPP payment is a lot lower. But knowing the maximum helps show how important the start-age decision can be.
Starting CPP at 60: Lower Payments
You can start CPP when you turn 60. But your monthly payment is permanently lower.
The rate of decrease is:
- 0.6% a month until you turn 65
- 7.2 percent a year
- If you take it at 60, it can cut your risk by up to 36%
If you were going to get $1,200 a month when you turned 65, starting at 60 would cut that amount by 36%.
For example, $1,200 minus 36 percent equals $768 per month.
If you thought you would make $1,400 a month at 65, starting at 60 would cut that down to about $896 a month.
For someone who is eligible for the higher maximum of $1,760 at age 70, the difference is even bigger if they take it early.
The Standard Benchmark for Starting CPP at Age 65
Age 65 is the starting point. There is no bonus and no cut.
If you meet the requirements, you will get $1,200 at 65, $1,400 at 65, or $1,500 at 65.
This is the point of reference used to figure out whether to lower or raise something.
A lot of retirees choose 65 because it fits with how retirement planning has always been done and how to qualify for Old Age Security.
The most you can get by starting CPP at 70
If you wait to get your CPP until after age 65, your benefit goes up by:
- 0.7% every month
- 8.4% each year
- If taken at 70, it could go up by as much as 42%
That rise is permanent and will last for the rest of your life.
For example:
- If you get $1,200 a month in benefits at 65,
- $504 is a 42 percent rise. 70 years old, the new monthly payment is $1,704.
- If you get $1,400 when you turn 65:
- 588 dollars is a 42% increase. At 70, the new monthly payment is $1,988.
But there are program maximum limits, so the higher cap in the next few years is expected to be around $1,760, depending on how much you have contributed in the past.
Comparison by Start Age Each Month
This is a simple example using a benefit of $1,300 for a 65-year-old:
- At 60, about $832 a month
- At 65, $1,300 a month
- Around $1,846 a month at 70
Now let’s look at an example with a bigger contributor:
- $1,500 benefit for people age 65 and older:
- At 60: About $960
- At 65: $1,500
- At 70: About $2,130 (but this is the most you can get from the program)
In some cases, the difference between starting at 60 and 70 can be more than $1,000 a month.
Comparing Lifetime Income
It’s not just about the monthly payments when you decide when to start CPP. It’s about how much money you make over your whole life.
If you start early, you’ll get payments for a longer time, but they’ll be smaller.
If you wait, you’ll get fewer total payments, but they’ll be at a higher monthly rate.
The break-even age is usually between the late 70s and early 80s. If you live into your 80s or 90s, putting things off often means you will make more money over your whole life.
Things to think about before starting early
If you want to start CPP at 60, it might make sense if:
- You need money right away.
- You are worried about your health.
- You think people will live shorter lives.
- You stopped working and don’t have any other income.
But you need to think carefully about the permanent cut. Once you start, you can’t change the lower rate back after a certain amount of time.
Reasons to Put Off CPP Until Age 70
If you wait, it might be good if:
- You are still working.
- You have other ways to make money.
- You think you’ll live into your 80s or 90s.
- You want to make more money in the future that is guaranteed.
The rise is like a guaranteed return, but it takes inflation into account. That safety is important to a lot of retirees.
How Inflation Affects CPP
Every year, CPP payments go up with inflation. This means that your benefit will go up each year based on the Consumer Price Index once you start getting payments.
If you wait and start with a higher base amount, those yearly inflation adjustments will apply to a larger amount, which will give you an even bigger advantage over time.
The Improved CPP Effect
Changes to the CPP in the past few years raised contribution rates and future benefits.
Younger workers and those who put in the most money under the new program will get more money in retirement than people in the past.
This is one reason why the maximum payments for future retirees who wait until they are 70 years old are expected to be close to $1,760.
CPP and Other Benefits for Retirement
CPP works with:
- Old Age Security Guaranteed Income Supplement
- Employer pensions and withdrawals from RRSPs or RRIFs
The age you start can change how these programs work together.
For instance:
- OAS starts at age 65 (unless you put it off), and GIS is based on income, so it could go down if your CPP income is high.
- More CPP at 70 could make you ineligible for GIS.
It is very important to coordinate carefully.
Things to think about when it comes to taxes
You have to pay taxes on your CPP payments.
If you have other sources of income, paying more each month at 70 could put you in a higher tax bracket.
Starting earlier can sometimes lower your overall tax bill by spreading out your income more evenly.
Each retirement plan is different.
Things to think about for survivors and people with disabilities
The age at which you start can also affect survivor benefits.
If you die, your spouse may be able to get a survivor’s pension. The calculation takes into account your age at death and the amount of your benefit.
A higher base CPP can mean better protection for survivors.
The Emotional Part of the Choice
There is a psychological aspect in addition to maths.
Some retirees would rather get their payments sooner because they feel like they have earned them after years of work.
Others would rather have the most security possible in later years, when health care costs might go up.
There is no one answer that fits all.
When to pay and how to apply
CPP does not happen automatically. You have to apply.
It can take weeks to process. Payments are made once a month on the dates set by the federal government.
As the next payment cycles get closer, people who want to start benefits should apply several months ahead of time to avoid delays.
Important Things to Know About the CPP Start Age
Beginning at 60:
- Less money coming in each month
- Longer time to pay
- Permanent drop
Starting at 65:
- Regular payment
- No extra money or punishment
Beginning at 70:
- Up to 42% more money each month
- Less total payments
- More security in the long run
The difference between 60 and 70 can be huge, and for people who give a lot, it could be more than $1,000 a month.
You will have to live with your CPP decision for the rest of your life. Once you start, your monthly payment is set and can only go up because of inflation.
The choice of when to pay has real financial effects, since maximum contributors who wait could end up paying as much as $1,760.
Before you make a choice
Look over your history of contributions
Be realistic about how long you will live.
Think about your health, job, and other sources of income.
Take into account taxes and benefits for spouses.
As payment dates get closer and retirement plans come together, taking the time to carefully think about when you want to start could mean the difference of tens of thousands of dollars over your lifetime.
