The Benefits of Taking CPP at 60 Instead of 65
Choosing when to start receiving Canada Pension Plan (CPP) benefits is a critical financial decision that can greatly impact your retirement income. While many people opt to begin CPP at age 65, it may not always be the best choice. In this post, we explore the reasons why taking CPP at 65 might not be ideal and discuss why initiating CPP at age 60 could be a better decision.
Understanding CPP Payments
Before we delve into the reasons against starting CPP at 65, it’s important to understand how the chosen age affects monthly payouts. Starting CPP at 60 results in a maximum reduction of 36%, significantly affecting the monthly benefit. Conversely, delaying until after 65 increases monthly payments by 0.7%, providing a higher income during retirement.
Reasons Against Taking CPP at 65
There are several factors to consider when deciding to start CPP at 65:
Financial Considerations
Starting CPP at 60, despite the 36% reduction, may be necessary for individuals facing urgent financial needs. This decision can provide immediate funds, especially if personal savings or alternative income sources are insufficient to sustain oneself in their 60s.
Reduced Life Expectancy
For individuals expecting a shortened life expectancy due to health issues or genetics, initiating CPP at age 60 makes financial sense. Understanding the breakeven point for early CPP take-up becomes crucial in such scenarios.
Low Earnings History
Those with eight or more years of low earnings resulting from job gaps due to education, disability, job loss, or other reasons may benefit from starting CPP early. The CPP credit system plays a role in determining the overall benefit, making early initiation a strategic move.
Qualification for GIS
Anticipating eligibility for the Guaranteed Income Supplement (GIS) is another reason to start CPP at 60. Seniors with low to moderate incomes can receive income support through GIS, making early CPP initiation a beneficial choice, even for those still working full-time.
Continued Employment Between 65 and 70
If you plan to continue working between the ages of 65 and 70, it is often advisable to delay CPP until age 70. This decision can maximize your CPP benefits while still earning income.
Final Considerations
The decision to start CPP at age 60 has its merits, but personal finance is subjective. It is important to weigh the pros and cons, considering individual circumstances and preferences. Whether starting CPP at age 60, 65, or 70, a comprehensive assessment ensures that the chosen path aligns with personal financial goals.
Conclusion
Understanding the implications of starting CPP at different ages is crucial for making informed decisions about retirement income. This post sheds light on why taking CPP at 65 may not be optimal and provides insights into when starting CPP at age 60 might be a more strategic choice. Ultimately, the decision should align with individual financial circumstances and long-term objectives.
