Ask MoneySense: Early CPP

By MoneySense Staff on March 29, 2012
Estimated reading time: 1 minute

There is a penalty for taking the CPP early so it's best to know the rules in advance.

Is there a straightforward formula I can use to determine whether, in the long run, it would be best to start collecting CPP at age 60 or 65—or even 70?

— Jeff Gifford, Grimsby, Ont.

Sorry, there isn’t an easy way to make an optimal decision about when to take CPP. In fact, with the new rules that come into effect this year, it’s even more difficult, says David Trahair, a chartered accountant and author. The first problem is the penalty for taking CPP early. This was 6% annually prior to 2012, but is gradually increasing to 7.2% (0.6% a month) by 2016. “So the current 30% penalty for taking CPP at age 60 will rise to 36%,” Trahair says.

If your RRSP is relatively small, Trahair says it might make sense to take CPP at age 60, even with the significant penalty. “This will take the pressure off your RRSP and leave more time for the funds to grow,” he says. The opposite is true if your nest egg is very large, however. In that case, it might make sense to start drawing down your RRSP early to avoid large forced withdrawals that begin at age 71. If you go that route, it makes little sense to take early CPP as well.

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