The decision of when to start receiving Canada Pension Plan (CPP) benefits is a crucial one for many Canadians approaching retirement. While conventional wisdom often suggests delaying CPP to maximize monthly payments, there are compelling reasons to consider taking it early at age 60.
This article explores 10 key reasons why opting for early CPP at age 60 might be the right decision for you. From financial flexibility to lifestyle considerations, I’ll examine the potential benefits of this strategy.
More Time to Enjoy the Money
Starting CPP at 60 means you have more years to use and enjoy the money. You might be in better health and more active in your early 60s, allowing you to do things like travel or pursue hobbies. This extra income could help you retire earlier or reduce your work hours, giving you more freedom to enjoy life while you’re younger.
Financial Flexibility
Getting CPP payments earlier can provide more financial options. You might be able to delay drawing from your RRSPs or other savings, allowing them to grow for longer. This extra income could also help you pay off debts or cover unexpected expenses, reducing financial stress in your early retirement years.
Break-Even Point Consideration
While taking CPP early means smaller monthly payments, you’ll receive them for more years. The “break-even point” – where the total amount received equals what you’d get by waiting – is often in your late 70s or early 80s. If you have health concerns or a family history of shorter lifespans, taking CPP early might mean you receive more money overall.
Reduced Impact on OAS
Starting CPP at 60 can result in lower monthly payments, which might help you avoid or reduce the Old Age Security (OAS) clawback when you turn 65. Lower CPP payments mean your total income might stay below the threshold where OAS benefits start to be reduced.
Protection Against CPP Changes
Government policies can change over time. By taking CPP early, you lock in your benefits and protect yourself against potential future changes to the program. While major changes to CPP are rare, starting your benefit provides certainty in your retirement planning.
Opportunity for Investment
If you don’t need the CPP money for immediate expenses, you could invest it. Over time, these investments could grow, potentially offsetting the reduced payment amount. This strategy requires careful planning and consideration of your risk tolerance.
Reduced Survivor’s Benefit Impact
If you’re married, starting CPP early might make sense if your spouse is younger or has a lower CPP entitlement. The survivor’s benefit is capped, so taking it early might mean more total benefits for the couple over time if both spouses have high CPP entitlements.
Help with Transition to Retirement
CPP can provide a financial cushion as you transition from full-time work to retirement. It can help cover expenses if you want to gradually reduce your work hours or face unexpected job loss in your early 60s. This extra income can make the transition to retirement smoother and less stressful.
Peace of Mind
Knowing you have a guaranteed income starting at 60 can provide peace of mind. It’s one less thing to worry about as you approach retirement. This regular income can help you feel more secure about your financial future, especially if you have concerns about your savings or other income sources.
Coordination with Other Income Sources
Taking CPP early can help you better coordinate your various income sources in retirement. It might allow you to delay drawing from your RRSPs, reduce withdrawals from your TFSA, or better manage your tax situation. This coordination can lead to more efficient use of your overall retirement savings and potentially lower your tax burden.
