Is taking CPP at age 60 the best option for a lower income earner?

Q: Is taking CPP at age 60 the best option for a lower-income working person? Is it really leaving money on the table to wait until age 65 to start taking it? I have a yearly income of about $47,000 now and a company defined contribution pension plan worth about $200,000 with my employer. What’s the bests strategy to maximize my income in retirement?
–Lisa

A: Lisa, no, taking CPP at age 60 is not the best option for a healthy person, with a normal life expectancy, wanting to maximize their guaranteed lifetime income. You’re not leaving money on the table if you wait until age 65. The challenge you’ve got Lisa is having enough in savings to get you through to age 65 or even 70 before you start taking the CPP.

You are not alone in your thinking. Most people that ask me about this assume it’s best to start your CPP at age 60.  With the old CPP rules, pre-2016, it often was the thing to do and I think that’s a big reason why so many people continue to start their CPP at age 60.

Here is a quick refresher on the CPP: the CPP is reduced by 0.6% for each month before you turn age 65 (7.2%/ year or 36% if you take it at age 60).

Conversely, the CPP increases by 0.7% each month you wait after age 65 (8.4%/yr and a 42% increase by waiting to age 70).

For example, a CPP of $11,500 at age 65 would be reduced to $7,360 if taken at age 60 or increased to $16,330 if taken at age 70—and remember, the CPP is indexed.

I know some people will suggest taking it early and investing that money.  You could, but remember the CPP is taxable income so you won’t have the full amount to invest unless it goes to an RRSP.  If you leave the CPP until age 65, you’re making 7.2% guaranteed. What do you anticipate your investments will earn over the next 5 years?

Other legitimate reasons people suggest taking CPP at age 60 are:

• Shortened life expectancy
• Extra income while in early retirement
• Income planning around OAS
• CPP survivor benefits if spouses are receiving the maximum CPP

These are all good reasons that are unique to each person.

The big advantage of waiting to take your CPP is a larger guaranteed lifetime income.  The challenge is having enough of your own money so you can wait until age 65 or 70.

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Allan Norman is a Certified Financial Planner (CFP) with Atlantis Financial Inc. as well as an investment advisor (CIM) with Aligned Capital Partners Inc. in Barrie, Ont.

(This commentary is provided as a general source of information and is intended for Canadian residents only. Allan offers financial planning and insurance services through Atlantis Financial Inc. and securities-related investment advice through Aligned Capital Partners (ACPI). The views and opinions expressed are those of the author and may not reflect those of (ACPI).

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