News & Notices

Should you take early CPP retirement benefits?

Posted: July 8, 2014

Before talking about the financial implications of taking your Canada Pension Plan benefits early, you should know that if you pass away before you elect to take your CPP benefit, your spouse will not be entitled to the survivor’s benefit. And if you have a pressing financial need to take CPP early, then you may want to consider doing so.
How your age will affect your monthly payment
The standard age for beginning to receive your Canada Pension Plan (CPP) retirement pension is the month after your 65th birthday. However, you can take a reduced pension as early as age 60 or begin receiving an increased pension after age 65. The maximum payment at age 65 in 2014 is $1038.33 and the average is $633.46.
The amount of your pension will depend on how much and for how long you have contributed to the CPP and on your age when you want your pension to start. You can visit your My Service Canada Account to view or print a copy of your Canada Pension Plan (CPP) Statement of Contributions, at your convenience.
Taking your pension before age 65
From 2012 to 2016, the Government of Canada is gradually changing the early pension reduction from 0.5% to 0.6% for each month you receive it before age 65. This means that by 2016, an individual who starts receiving their CPP retirement pension at the age of 60 will receive 36% less than if they had taken it at 65.
The following table shows the percentage by which your retirement pension will decrease for each month that you receive your pension before age 65. These amounts will change every year until 2016.
For example, if you begin receiving your retirement pension in 2014, it will be reduced by 0.56% for each month that you receive your pension before age 65.
Year of retirement   % (monthly reduction)
2012   0.52
2013   0.54
2014   0.56
2015   0.58
2016   0.60
For a person who applies for and receives their retirement pension at age 60, this represents a maximum reduction of 33.6% if taken in 2014, 34.8% if taken in 2015, and 36% if taken in 2016.
Taking your pension after age 65
If you take your pension after age 65, your monthly payment amount will increase by 0.7 percent for each month that you delay receiving it up to age 70 (8.4% per year).
This means that, an individual who starts receiving their retirement pension at the age of 70 will receive 42% more than if they had taken it at 65.
Example
Although Amrita enjoys her job as a nurse, she plans to retire when she reaches 65 in 2014. Based on her CPP Statement of Contributions, she expects her CPP retirement pension in 2014 to be $6,220 annually. This amount will then grow with the cost of living, as measured by the Consumer Price Index.
However, if Amrita decides to delay taking her CPP pension until she reaches 66 in 2015, her CPP retirement pension will increase by 8.4% (0.7% x 12 months). Based on this change, the annual amount of her pension will increase by $522, and will then grow with the cost of living, as measured by the Consumer Price Index.
So what should you do?
Using the Net Present Value of your CPP payments can provide a useful guide. If your CPP were going to be $1000 at age 65, you would get $664 monthly for life if you take it at age 60 instead. At the above CPP level, the present value of your pension if you take it at age 60 (using a 5% rate of return) would be $123,691 assuming you live to age 90.
The present value of your pension if you take it at age 65 would be $133,290. So it is marginally better to wait but that depends on the discount rate you use and how long you live.
For help determining your projected total retirement income including CPP and OAS, please feel free to get in touch with tim@retireonyourterms.ca or call Tim Weichel at 416-230-2703 or 705-798-0062.