Should I start my CPP early? – Real-Life Examples
The most common CPP question I am asked is: “Is it smart to take my CPP early?”
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A quick review of the facts:
- The maximum CPP benefit in 2017 at age 65 is $1,092.50 per month, or $13,110 per year.
- You can start as early as age 60, but you get 7.2% less for every year before age 65. If you start at age 60, you get 36% less, so the maximum is $8,390 per year.
- New rules in 2012 increased the penalty for starting early, but you can start CPP even if you are still working.
The simple breakeven calculation misses many important factors. For example, if John starts receiving $8,390 per year at age 60 and Jane starts receiving $13,110 at age 65, it will take her 9 years to catch up. The simple breakeven is age 74. John gets more before age 74 and Jane gets more after.
This implies if you expect to live past 74 (and most people will), you should delay your CPP. But this is not the full answer.
The answer depends on 5 main factors:
- How long do you expect to live? Morbid question, but important for this decision. If you start CPP at age 60 instead of 65, you collect for 5 more years. If you start at age 65, you get more and eventually catch up. The longer you expect to live, the better it is to delay CPP. Today, a 60-year old of average health should expect to live until age 85. (Actually, it’s 84 for men and 87 for women.)
- How do you invest? Starting your CPP early might mean you can take less income from your RRSPs and investments, leaving them to grow. Then you can take more income from your investments later.
- What will inflation be? CPP benefits rise by inflation each year. Higher inflation means you get more up front by starting earlier. With 2% inflation, the simple breakeven rises from age 74 to age 76.
- Are you still working? If you are still working, CPP income will be added to your work income and will probably be taxed at a higher rate.
- When do you need the money? Part of a retirement plan is figuring out how much income you want and when. If you plan to travel a lot for a few years, it might make sense to start CPP earlier.
Let’s look at some real-life stories from my clients. Should they start CPP early?
- Angela is 59 and ready to retire. She has no investments and only has a fixed pension (not integrated with CPP). Her breakeven age is 76 and she expects to live longer than that. Should she start CPP early? No.
- Brian is about to retire. He is a conservative investor with GICs in his RRSP and TFSA. If he starts CPP early, he can withdraw less from his GICs and keep earning 2% per year. His breakeven age is 77. Should he start CPP early? No.
- Chris is retiring and is a moderate investor. She wants her balanced and income funds to continue to grow. A reasonable expected return is 5% per year. Her breakeven age is 82. Should she start CPP early? No.
- Dave is a more aggressive equity investor. His investments are all in equity funds, which he expects should average 8% per year. The stock market has averaged 10-12% per year long term, but it is reasonable to expect somewhat less in this lower inflation environment. His breakeven age is 93. Should he start CPP early? Yes.
- Erin plans to keep working a few more years and makes $50,000 per year. If she starts CPP early, it will be taxed at 30%, because it is on top of her salary. If she waits until she stops working at 65, her income will be lower and she will pay only 20% tax on her CPP. If she was a GIC or balanced investor, the answer would be a stronger “No”. But she is also an equity investor. Her breakeven age is 86. Should she start CPP early? Yes.
- Fred is still working and earns $100,000 per year. He is a relatively aggressive investor expecting to earn 7% per year on his investments. His CPP will be taxed on top of his salary in a 43% tax bracket. The answer would normally be “No”. However, Fred has lots of RRSP room. His plan is to take CPP early, request no tax withholding, and then contribute the full CPP amount to his RRSP to offset the tax. His breakeven age is 87. Should he start CPP early? Yes.
The answer is complex and CPP is only one piece of your retirement income. The best advice is to look at this as part of a professional retirement plan.
Ed
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I am 60 years old, I have a work pension, not a lot but is better than nothing. I am planning to apply for the CPP now, and maybe work one more year. Everybody talks about $$$$, and how much they will lose, what about… will you make it to 65 or 70? My co-worker asked for the CPP at 61 and now he is 71, at least he got some of his money back. Don’t forget is your money, my uncle passed in April and he was retiring in October, no kids no wife… guess who enjoy his pension, (the government !!!). So don’t forget nobody knows your expire date, so today you can be in great shape and tomorrow bad news… My thoughts are, think about money before, not at the last minute. Of course there are different situations, you have to know your needs, but enjoy what you have not what you don’t have. But please , if somebody have any comments do not hesitate in posting them. Thank you
Thx so much for the article! I’m 61 almost 62. Making $59K a year. Have about $18,000 credit card debt, and $300,000 mortgage. We are barely scrape by with all this recent inflation. I’m tempted to take CPP early to pay down my debt. Thoughts?
Hi Carla,
In general, the reasons to take CPP early are:
1. Because you are an equity investor and expect to make more money from your investments than you get from delaying the CPP. For example, you could take the CPP early and invest it, or take that much less from your investments.
2. You will be in a lower tax bracket from age 60-64 than later.
3. You need it to make your retirement cash flow work.
It sounds like the last 2 do not apply to you, but the first one might.
There are many possible scenarios, including creative ideas. You have not given me enough information to give you a clear answer, Carla. I would need to know how you invest, what your plan is for various retirement income sources, your taxable income, all your retirement investment sources you could withdraw from, and how much you need per year for the retirement you want.
Ed
What about a situation where someone has a DG govt pension that they take at 55 when they retire. The pension includes a bridge until 65. Should they take the CPP at 60?
Hi Nazma,
CPP (Canada Pesnion Plan) is based on how much you paid in during your career. They look at 40 years until you choose to start collecting it between age 60 and age 70, but they usually ignore up to 8 years of low income when you may have had kids. The maximum CPP is about $15,000/year now.
OAS (Old Age Security) starts automatically at age 65. It is based only on the number of years you were a resident of Canada up until age 65. You don’t have to have ever earned anything. The maximum today is about $8,000/year.
GIS (Guaranteed Income Supplement) is part of the OAS program, so you can only get it if you are getting OAS. If your net income is zero (other than OAS), you can get up to $12,000/year as a single person and $14,000/year as a couple. This is clawed back (reduced) by 50% of any net income you have and disappers completely at an income of $20-25,000/year for you and your spouse combined.
If your husband passes away, you will not get his OAS, but you can get 60% of his CPP in addition to your own CPP, as long as the total is not above the maximum for one person.
Planning when to start these can be complex, which is why I have a few articles working out all the details for taking CPP early or for delaying CPP and/or OAS.
Ed
Hello
My Name is Nazma Premji
I would like to learn how cpp is calculated.
can you please let me
also examples of couple who is receiving cpp,oldage, when does GIS come in place.
death of spouse. e.g if I am getting max cpp and my husband passes away do I get any of his pension?
thank you
Good article. I am facing many of these issues as well.
Great article. I’m experiencing many of these issues as well..
I’m bamboozled why Dave and Erin ought take their CPP early?
1. You’re assuming that just Fred has RRSP room. Right? Dave and Erin don’t.
2. Here’s my reasoning for Chris and Dave – Chris “is a moderate investor”, but Dave “a more aggressive equity investor.” Thus if I assume that stock prices will increase in the long run, Chris will earn less profits and rate of return than Dave, when they sell their equities. Thus Chris needs the CPP money less than Dave. Thus Chris ought take the CPP early, and Dave not.
But you concluded the opposite. Why? What am I missing?
3. For Erin, you wrote “If she was a GIC or balanced investor, the answer would be a stronger “No”. But she is also an equity investor.”
Again, I reason as I did for Chris and Dave. Being “an equity investor”, Erin needs the CPP money less than a “balanced investor”. As she “plans to keep working a few more years and makes $50,000 per year”, she doesn’t need the CPP money. Thus why not wait “until she stops working at 65, her income will be lower and she will pay only 20% tax on her CPP”?
Hi Dave,
You probably will not get maximum CPP. It is based on 40 years of paying the maximum, less your 7 worst years (assumable when raising kids)..
You were married for 26 years and your ex-wife earned very little, so you will lose half of 26 years, or 13 years of CPP-able (if that’s the right word. 🙂 ) income. Thta’s more then the 7 year knock-out they allow.
Your best bet is to call ESDC directly and ask them. You can also get online access (linked with your CRA account online) and look it up.
I hope that’s helpful, Dave.
Ed
I’m currently 60 years old and have worked full-time since I was 18.
in 2008 via divorce (26 years of marriage) where my ex-wife worked
part-time at best, my CPP and hers was combined/divided.
Obviously I’ve worked an additional 11 years since then and will
continue to work until most likely 67.
My question is – do you think I’d get Max CPP given that I’ve worked
so long even after loosing 50% of 26 years?
Think I need to provide more information:
– I’ve maxed out CPP for the past 25 or more years. Income >99k
– I have no work Pension, only RRSP’s which I’ve been
building back up since my divorce;
– probably delay CPP until I stop working 67 is my goal (unless you think otherwise)
– might take part-time job to hold off drawing RRSP or taking less
– house will be paid off prior to retirement
I’m currently 60 years old and have worked full-time since I was 18.
in 2008 via divorce (26 years of marriage) where my ex-wife worked
part-time at best, my CPP and hers was combined/divided.
Obviously I’ve worked an additional 11 years since then and will
continue to work until most likely 67.
My question is – do you think I’d get Max CPP given that I’ve worked
so long even after loosing 50% of 26 years?
Hi Ed – great web site and great articles – read your article on taking CPP or OAS early and the questions that were asked by your readers with great interest – didn’t come across a situation like mine though so…. – I am a OMERS pensioner ( 35 years of service ) 58 years old and as I understand it OMERS is integrated (bridged) with CPP – so at age 65, CPP starts paying the bridged part of my pension and OMERS stops paying the CPP portion of my penson – my question is, would it be better for me to take CPP at age 60 that way I would be ” double dipping ” for 5 years having my full OMERS pension plus the CPP pension coming to me OR would it be better for me to delay CPP until 65 or 70 ? I have RRSP’s and other private investments as well to compliment my pension should I need too.
[…] GIS. Rempel has tackled the timing question on his Unconventional Wisdom blog a few times, notably here and here. For those who qualify, the maximum monthly CPP benefit in 2018 at age 65 is $1,134,17 per […]
[…] GIS. Rempel has tackled the timing question on his Unconventional Wisdom blog a few times, notably here and here. For those who qualify, the maximum monthly CPP benefit in 2018 at age 65 is $1,134,17 per […]
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[…] to take CPP early or delay it depends on many factors. I showed them my studies of “Should I start my CPP early?” and “Should I Delay CPP & OAS Until Age 70?“. They showed that how you invest is one of […]
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[…] to take CPP early or delay it depends on many factors. I showed them my studies of “Should I start my CPP early?” and “Should I Delay CPP & OAS Until Age 70?“. They showed that how you […]
Ed,
First off, great blog. So much good info here.
I’m looking to retire early, ~35 (two years from now). Will be using a mix of RRSP/TFSA to provide an annual income of $30,000 (split between my wife and I) for my wife and kids. I maxed out CPP contributions every years since 21. I want to know what, if any, CPP I can expect. Since so many of my years between 21 and 60 will have very low income, I wonder if my CPP will be low.
Say I earned $100,000/yr between 21 and 35 and then $15,000/yr from 35 to 60. After accounting for 8 low years of $15,000, my average income would be ~$52,000. Reduce that by 36% and I get ~$33,000. Is this correct? Should I expect to still get max CPP?
Thanks for your info! I have struggled to find a clear answer on how CPP works if you “retire” early.
Dave
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Hi Dave,
Congrats on retiring at 48! That’s cool.
In your case, you should probably start CPP at age 60.
The good news for you is that CPP does drop-out the 8 years with the lowest income. You already have 12 low years from 48 to 60. They can drop out 8 of those 12.
The process is that they calculate your average income over your working life, excluding the 8 lowest years. Then they reduce that figure by 36% (7.2% x 5) to calculate your CPP retirement income.
If you delay starting CPP until 65, those would all be low years that won’t be dropped out, so your average income will be lower. You wouldn’t have the 36% reduction, but your average income would be lower, so you wouldn’t get that much more by waiting.
To know for sure, you could call Income Security Programs to get an estimate of your CPP income. Do the math both ways, taking into account inflation and possibly being able to leave your investments grow longer.
In your case, though, most likely taking it at age 60 is best.
Ed
What about someone who retires very early eg age 48 and only worked 30 years? Take at 60 or 65? I have a pension, not disabled and with a comfortable life. I know I am penalized for only working 30 of 40 years ie maximum CPP would be 75% and then if taking CPP early this would be further reduced by 7.2% per year, but of what – the 75% or the original 100%?