Canada Pension Plan: The Canada Pension Plan (CPP) is an extremely important part of retirement planning. Most Canadians plan their retirement around the CPP. Usually, it is started at the age of 65, but under the law you get the option to take it at the age of 60 as well. On the other hand, there is also an option to postpone it till the age of 70, in which your monthly pension amount increases further.
The question is, in what circumstances can taking CPP at the age of 60 be the right decision? Because starting CPP at the age of 60 gives about 36% less amount every month. Many people may feel that this decision is a financial loss. But the truth is that in some situations, taking CPP early is a sign of wisdom. It completely depends on your financial situation, health and family circumstances.
In this article, we will know in which circumstances people consider it right to take CPP at the age of 60 and in which circumstances postponing it can prove to be a better option.
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Benefits of taking CPP at the age of 60
When a financial crisis suddenly comes in life, starting Canada Pension Plan early can be a relief. In a situation like job loss or serious illness, when you have no other source of income, then CPP comes forward as a regular and reliable income. Even though in this option the total amount you get in your entire life is reduced, but it becomes a support to meet the necessary needs at that time.
If you start taking CPP at the age of 60, you can get about $10,480 annually, while if you start it at the age of 65, this amount can be around $16,375. That is, there will be a difference of about $6,000 annually, but if money is needed in the current situation, then this reduction is not that important at that time.
Health and life expectancy play a big role in this decision. If a person is already suffering from a serious illness or has a low life expectancy in family history, then taking CPP early can prove to be beneficial. According to calculations, if a person is not able to live till the age of 69, then it is more beneficial for him to start CPP at the age of 60. However, if the health is better and there is a possibility of living a long life, then it would be wise to avoid it.
Apart from this, if there is a gap in the years of contribution in the career, then taking CPP early can prove to be a smart decision. Suppose a person quits his job at 55 and starts a business and earns income through dividends. In such a situation, contribution to CPP stops. CPP is calculated on your best 35 years of earnings. So if you have earned well till the age of 54, then taking CPP at 60 will not be a loss for you.
Benefits of delaying CPP
However, if you still have a source of income or have good savings, then delaying CPP is more beneficial. When you defer CPP every year, you get a guaranteed increment of 7.2% every year. If you start taking CPP at 70 instead of 60, your monthly pension increases by about 42%. This means that in the future you will get more money every month, which will make your retirement life financially more secure.
This decision becomes even more important for those who are healthy and who expect to live a long life. In this case, your monthly income will not only grow according to the inflation rate, but your financial security will also remain for a long time.
Some people may think that they will take CPP early and invest it, but this strategy is more risky. There is no guarantee in investment, and taxes and fees are also deducted in it. On the other hand, the increase in CPP is guaranteed and it is also adjusted according to inflation. Therefore, if security is a priority, then taking CPP late is considered a more sensible decision.
Many people also raise the question whether the government will reduce or stop the CPP scheme in the future. There is no solid reason for this fear. Canada Pension Plan Investment Board (CPPIB) independently manages this scheme and according to reports, CPP is completely safe and sustainable for the next 75 years. Therefore, there is no need to take CPP early in the worry of the scheme ending or weakening.
Which decision will be right?
When to take CPP – this decision should be completely based on your personal situation. If you are currently facing financial difficulties, are concerned about your health, or have a short life expectancy, taking the CPP at 60 may be right for you. On the other hand, if you are healthy, have other sources of income, and want more income in the future, it may be more beneficial to delay it until 65 or 70.
For the right advice, the best option is to contact a professional financial advisor. He can analyze your entire financial situation and help you make decisions according to your circumstances.
There is no single rule for when to take the Canada Pension Plan. This decision is as personal as it is important. Only a well-thought-out decision can give you both financial security and mental peace.
FAQs On the Canada Pension Plan
Q. Can I start CPP at age 60?
A. Yes, but payments will be reduced by 36%.
Q. How much will I get if I start CPP at 60?
A. Around $10,480.13 per year depending on contributions.
Q. Is taking CPP at 60 better than at 65?
A. It depends on your financial situation and life expectancy.
