Here are just a few reasons why you may want to consider starting your Canada Pension Plan at 60.
Immediate income
First and most obvious, if you start your CPP at 60, you actually receive money today. If you’re worried about what-ifs of tomorrow, taking CPP early lets you use that money to pay for your mortgage, travel, or daily living expenses now while you’re young enough to enjoy it.
After all, the utility of a dollar at age 60 is likely much greater than the utility of a slightly larger dollar at age 70.
Health concerns
If you don’t expect to live a long time due to health issues or family history, taking CPP at age 60 is a logical option. The pension amounts are strategically calculated such that if you live to be an average age, you’ll receive roughly the same total payout whether you start early or late.
If you feel that you won’t make it to your mid-80s, start receiving your hard-earned pension benefit at age 60. That way, you know for certain you’ll receive the money you’ve paid into your whole career.
Break-even point
Financial advisors love to speak about the break-even age. When do the total dollars you receive by waiting for that bigger cheque equal the total dollars paid out to someone who started collecting at age 60?
For most people, that break-even age is in their late 70s or even early 80s. If you take CPP starting at age 60, you are essentially playing the “bird in the hand” scenario and will enjoy close to 20 years of CPP payments before the person who waits until 70 even catches up to your total career earnings.
Reinvestment power
If you don’t need the money from CPP to pay bills, you can take that money and invest it in your TFSA or other investment accounts. The earnings (interest or growth) you would collect on that money over 10 years can easily make up for the reduced government cheque you are receiving.
Instead of leaving that money in someone else’s hands, you’re taking it for yourself and watching it grow.
Debt reduction
Debt in retirement is a horrific feeling. If starting your pension at 60 allows you to completely pay off a credit card with high interest, your car payment, or even your mortgage completely, it may be worth taking the lower payment.
Starting your CPP at 60 allows you to drastically reduce your monthly burn rate. Enjoy spending down savings later in life when it doesn’t feel like your budget is handcuffed by bills.
Work flexibility
Retiring doesn’t mean you still can’t work. But taking your CPP starting at 60 allows you that flexibility. That extra pocket money may be all you need to transition into working part-time.
Maybe you can start your own consulting business on the side or pursue a passion project without the pressure of needing a full-time salary. Taking your CPP at 60 allows you to start designing your ideal semi-retirement.
RRSP erosion
Oftentimes, Canadians who wait to start their CPP find that they need to take out more of their RRSP or other personal savings to make up the difference. By starting your CPP at 60, you allow your private investments to sit for another few years.
Inflation protection
CPP payments will rise with inflation each year, but taking your CPP at 60 allows you to buy goods and services at today’s prices. We all know how expensive everything seems to get as the years go on.
For most people, their dollar is much stronger when they are younger. Spending that money now on a new roof for your house or a new car may be more efficient than waiting for a larger payment to try to catch up to the rising costs of living.
Stress reduction
Last but not least, you know you’ll have that CPP cheque coming in every month. For many people, taking CPP at 60 simply gives them peace of mind that they have a guaranteed amount of money hitting their bank account every month. It takes the stress out of market fluctuations and your personal savings.
Sources: Please see here for a complete listing of all sources that were consulted in the preparation of this article.