Timing your Canada Pension Plan (CPP) benefits is a significant financial decision for Canadians. You may claim CPP payments as early as age 60 or defer them until 70; the decision ultimately depends on your finances, health, and retirement dreams. This post will explore great reasons to start receiving CPP benefits: at age 60.
What Is the Canada Pension Plan (CPP)?
The Canada Pension Plan is a contributory social insurance program to be used by Canadians upon retirement. Contributions are made for the number of years the employee is working, and the amounts are based on these contributions and the age in which benefits begin to be taken.
Why Consider Taking CPP at Age 60?
Here are some compelling reasons to start receiving your CPP benefits at age 60:
- Immediate Financial Needs
- If you retire early or face financial challenges, starting CPP at 60 can provide a steady income to cover essential expenses.
- This can be especially beneficial if you don’t have sufficient savings or other retirement income sources.
- Shorter Life Expectancy
- If you have health issues or a family history of shorter life expectancy, starting CPP early ensures you maximize the amount you receive over your lifetime.
- Waiting to take CPP may not be advantageous if you anticipate a shorter retirement period.
- Flexibility in Retirement Planning
- Taking CPP early gives you more control over your retirement funds, allowing you to use the income for travel, hobbies, or other personal goals.
- It can also provide the flexibility to preserve other retirement savings, such as RRSPs or TFSAs, for later use.
- Reduced Financial Risk
- Starting CPP at 60 reduces the risk of depleting your savings early in retirement.
- It provides a guaranteed income stream that isn’t subject to market fluctuations or investment risks.
- Enjoying Retirement While You’re Younger
- Starting CPP at 60 allows you to enjoy your retirement while you’re still active and healthy.
- This can be particularly valuable for those who prioritize early retirement and want to make the most of their time.
Considerations Before Taking CPP Early
While there are advantages to starting CPP at 60, it’s essential to weigh these against potential drawbacks:
- Reduction in Monthly Benefits:
- Taking CPP at 60 results in a permanent reduction of 0.6% per month (7.2% per year) compared to waiting until age 65.
- For example, starting at 60 means your benefits will be 36% lower than if you waited until 65.
- Impact on Survivor Benefits:
- Early CPP collection may affect the survivor benefits your spouse or dependents receive after your passing.
- Longevity Risk:
- If you live well into your 80s or 90s, the total amount received may be lower than if you had delayed CPP until a later age.
How to Decide If Taking CPP at 60 Is Right for You
To make an informed decision, consider the following:
- Assess Your Financial Situation
- Review your savings, investments, and other retirement income sources to determine if early CPP is necessary.
- Evaluate Your Health and Life Expectancy
- Consider your health and family history to estimate your likely retirement duration.
- Consult a Financial Advisor
- A professional can help analyze your specific situation and recommend the best course of action.
Conclusion
For many people, taking CPP at 60 can be a prudent choice, particularly if finances are something urgent to take care of, if the likely life expectancy is shorter, or if one just is eagerly looking forward to enjoying retirement sooner. It is advisable to balance the merits and demerits though before jumping into any decision so that one does not find themselves in a situation where that becomes counterproductive in terms of personal finances.
