When is the Best Time to Start Collecting CPP?

During your working years, you give the CPP/(Quebec Pension Plan (QPP) a share of your earnings with each paycheque. Your employer matches your contributions until you reach an annual limit.

Read more from our Government of Canada site here about CPP/QPP contributions.

If you’re self-employed, you have to pay the employer’s share as well as your own. Some of this money goes to those who are now getting a pension. 

This makes CPP a contributory plan: an earnings-based social program. It is designed to protect the contributor and their family against the loss of income associated with death, disability and retirement.

This makes our Canada Pension Plan/Quebec Pension Plan one of the major pillars of retirement income for Canadians.

In fact, we wrote a very comprehensive post about CPP already on our site. 

Please check that out: What is CPP? How does CPP work?

When to collect CPP? How much can you expect from CPP?

You can start collecting a reduced pension as early as your 60th birthday.  

But how much you can expect to receive through CPP/QPP payments will depend on multiple factors. Here are a couple for starters:

1. It will depend on how much you contributed to the Canada Pension Plan/Quebec Pension Plan and for how long. (Your contributory period begins on your 18th birthday and ends when you begin receiving retirement benefits, turn age 70, or pass away. It is not based on the months or years you actually contributed to the CPP/QPP.)
2. It will also depend on the enhanced CPP program as well. Beginning January 1, 2019, the Canada Pension Plan and Quebec Pension Plan started to be “enhanced” – with the goal to eventually replace one-third of a person’s average working income up to the maximum annual pensionable earnings set by the CPP/QPP.

As we well know, CPP/QPP is not designed to deliver a huge income stream in retirement. The reality is, many Canadians will need to consider contributing to RRSPs and TFSAs to help fund their retirement.

Please read on in these posts about RRSPs and TFSAs to help make the most from these accounts for your well-funded retirement!

• Everything you need to know about RRSPs is in this post here.
• Everything you need to know about TFSAs can be found here. 

Another factor (related to how much you can expect from CPP) includes the age at which you apply for benefits and any other provisions for which you may qualify, such as survivor benefits and child-rearing adjustments. For example, if you continue to work and make contributions to CPP after beginning to collect payments, you can qualify for post-retirement benefits (PRB), which will also increase your retirement income after age 70. Additionally, payment amounts are adjusted annually according to the consumer price index as the cost of living increases. We love this latter feature of CPP!

CPP/QPP benefits normally begin at age 65, specifically the month after your 65th birthday. However, benefits can be taken as early as age 60 and as late as age 70. Retirement benefits are fully taxable and again, are indexed to inflation every year in January.

Here are the key messages leading into our analysis for today’s post:

• CPP at age 60 – If you begin your CPP/QPP payments prior to age 65, you’ll incur a 0.6% reduction for each month you collect before your 65th birthday. This reduction works out to be 7.2% per year. If you begin collecting your pension at age 60, your total reduction will be 36% when compared to age 65.
• CPP at age 65 – this is the “standard” age to take CPP without reductions or penalties. 
• CPP at age 70 – If you don’t need the money, if you delay your CPP/QPP payments, you’ll receive an increase of 0.7% for each month you wait after your 65th birthday. This amounts to an increase of 8.4% per year and can be up to 42% if delayed until age 70.

When is the best time to start collecting CPP?

In working with many clients this year, we know this can be a contentious issue – a hard question to answer – because there are so many factors involved.

So, before you decide to take your CPP benefit we ask you to consider the following:

• Do you need the money to support living expenses? If not, might you invest some or all of this CPP money instead?
• Do you intend to work while receiving your CPP?
• What might your CPP benefits be? (re: How much you have contributed and how long you have been making contributions to the CPP/QPP?)
• What personal savings and/or company pension plan can you reasonably rely on?
• What will your retirement lifestyle look like? What spending patterns might you have?
• What is your tolerance for investment risk in retirement? How secure are your other income streams?
• How might you tackle inflation incurred during retirement?
• What is your current health, family health history or any disabilities to work through?
• What other sources of income might be available? 

To help Canadians plan more effectively for retirement, the government provides the average monthly pension amount, the maximum pension amount, and the cost of living increase annually.

The current average payment is found here: Government of Canada page.

At the time of this post:

“For 2021, the maximum monthly amount you could receive as a new recipient starting the pension at age 65 is $1,203.75. The average monthly amount in June 2021 is $619.68. Your situation will determine how much you’ll receive up to the maximum.”

You can get an estimate of your monthly CPP retirement pension payments by logging into your My Service Canada Account. If you don’t have an account, you can register for one. You’ll receive a personal access code to complete your registration.

CPP Calculators

Although it’s common to get the maximum OAS payment, most Canadians don’t get the maximum CPP/QPP – so keep that in mind when you make your decision.

That reason is primarily that workers have not earned enough or worked long enough to realize maximum benefit payments. We believe, as a rule of thumb, when you’re roughly estimating your retirement income, it may be more helpful to build around average CPP/QPP payments.  Here are some calculators that may help:

• You can also take advantage of this excellent, FREE CPP calculator, built by one of our blogger friends in this post here!
• There is also this Government of Canada CPP calculator as well.

When is the Best Time to Start Collecting CPP?

You may know how we feel by our article “Why you Should Take CPP at age 70“, but is there a better alternative?  What if you took CPP early and invested the difference, would that beat the 42% boost when taking CPP at age 70?

To help solve this, we used our retirement projections software tool (the same tool that we use for our clients) to see if investing early CPP proceeds is better than simply waiting to take CPP later.

For the scenarios below, we made the following assumptions:

• Ms. Retiree is 60 years old;
• CPP is not needed until 70 for spending, so CPP payouts at 60 and 65 are invested in a TFSA;
• CPP amount at 60: $4,893/year;
• If Ms. Retiree delays taking CPP until age 65, CPP amount increases to (including inflation): $8,870/year;
• If Ms. Retiree delays taking CPP until age 70, CPP amount increases to (including inflation): $14,759/year
• Full OAS starts at age 65;
• Both CPP and OAS increase with Inflation at 2%/year;
• Assume that TFSA is 100% invested in broad-based indexed equities with a rate of return of 6.5%;
• Lifespan age 100.

Using our projections tools, we calculated the maximum that Ms. Retiree can spend if she takes early CPP at 60 and invested the proceeds into a TFSA.  What would be the maximum spending be at age 70 when she needs the money? 

• TFSA balance at age 70: $71k
• CPP at 70 adjusted to inflation: $5,964/year
• OAS at 70 adjusted to inflation: $9,182/year
• Starting at age 70, maximum annual retirement spending from government benefits + TFSA (in today’s dollars): $15,993

Next, we used our projections tools to calculate the maximum that Ms. Retiree can spend if she takes CPP at 65 and invested the proceeds into a TFSA.  What would be the maximum spending be at age 70 when she needs the money?