When should I start my Canada Pension Plan retirement pension?

By ATB Wealth 6 February 2024 5 min read

After years of working, you are now approaching retirement and will have many decisions to make with respect to your retirement. One of these decisions is when to start receiving payments from your Canada Pension Plan (CPP) retirement pension.

You can apply for your CPP retirement pension as early as age 60 or as late as age 70, with the standard age being age 65. As discussed in our article, Canada Pension Plan - Understanding the basics, your retirement pension will be reduced if you start your CPP retirement pension before age 65 and your retirement pension will be increased if you start your pension after age 65.

There are a few things to consider in order to figure out the best time to begin your CPP retirement pension:

1. Have you stopped working or partially retired?
Low-income years will become part of your contributory years and may reduce your benefit. This may occur if you have retired from full-time employment prior to age 65 and are no longer working, or are continuing to work on a part-time basis, with annual income less than the year’s maximum pensionable earnings (YMPE). If this is the case, you may wish to take CPP early. Although you will still have to contribute to CPP until age 65, these contributions will be applied to CPP’s Post-Retirement Benefit.

2. Do you need CPP income to pay for your lifestyle needs?
If you need to replace your earned income to pay for your basic lifestyle expenses, taking CPP early may be a necessity. Before doing so, consider all sources available to you, such as other pensions, RRSPs, TFSAs and savings. If you have sufficient other sources available for your lifestyle needs, waiting to collect CPP will increase your future monthly benefit.

3. Can you invest the income and generate a return higher than the reduction in the benefit?
If the income is not needed, can you take the proceeds and invest them into a tax- sheltered environment, such as a TFSA? Keep in mind, however, that when CPP is drawn prior to age 65, the annual reduction in benefits is 7.2% per year. Can you generate a higher rate of return than this to offset the loss?

4. Taxation on benefits?
CPP income is fully taxable. If you are still working (or have other significant sources of taxable income), your CPP retirement pension could be subject to tax at a high rate. CPP pension sharing with your spouse or common-law partner may provide an “at source” income splitting opportunity. The portion of your pension that can be shared is based on the period that you and your spouse or common-law partner lived together during your joint contributory period.

5. What is your life expectancy?
This is perhaps the most important factor in determining when to take CPP. This may also be the hardest question to answer. The chart below illustrates the impact of taking CPP at various ages and the impact it has on the total level of income you receive from the program.

For illustrative purposes, we have assumed an annual benefit of $9,099.84 receivable by a 65-year-old today. Based on the average pensioner payment as of October 2023, we assume benefits will increase 2% per year once commenced, to reflect indexation of CPP benefits to CPI. Therefore, totals are expressed in future dollars.

CPP start age

Annual CPP benefit

Total received at age 75

Total received at age 80

Total received at age 85

Total received at age 90

60 $5,824 $108,553 $150,159 $196,096 $246,814
61 $6,479 $112,046 $157,425 $207,527 $262,844
62 $7,134 $113,962 $162,951 $217,038 $276,754
63 $7,789 $114,352 $166,790 $224,687 $288,609
64 $8,445 $113,260 $168,995 $230,530 $298,470
65 $9,100 $110,733 $169,615 $234,624 $306,400
66 $9,864 $108,011 $170,586 $239,675 $315,954
67 $10,629 $103,678 $169,781 $242,763 $323,342
68 $11,393 $97,786 $167,253 $243,950 $328,631
69 $12,157 $90,381 $163,056 $243,294 $331,884
70 $12,922 $81,512 $157,241 $240,853 $333,166

The highlighted fields indicate the maximum accumulated CPP benefit for each life expectancy assuming an individual is eligible for the average benefit at age 65.

Canada Pension Plan post-retirement benefit (PRB)

If you are receiving your CPP retirement pension, between the ages of 60 and 70 and are still working, the CPP post-retirement benefit (PRB) can provide you with additional retirement income, even if you are already receiving the maximum CPP retirement pension. The PRB is a separate benefit that increases retirement income beginning in the year following a PRB contribution. If you are 60 to 65, PRB contributions are mandatory. PRB contributions are voluntary, however, if you are 65 to 70. The contribution rate is the same as for the basic CPP program. Contributions do not count toward eligibility or increase the amount of any other CPP benefits payable. As with the CPP retirement pension, the PRB you receive will depend on the amount you earn. The maximum PRB that can be earned each year is equal to 1/40th of the maximum CPP retirement pension, and depending on when received will be adjusted by the same factor that applies to early or late election of the CPP retirement pension.

How to maximize your retirement income

Keep in mind, maximizing your CPP retirement pension is not synonymous with maximizing your retirement income. It's just one piece of the puzzle. The decision of when to take your CPP retirement pension cannot be looked at in isolation. Whether you should or shouldn't start CPP depends on many factors. Are you spending the income or saving the income? What proportion of your income is derived from your CPP and what other assets and income sources do you have? Will larger CPP payments trigger an OAS clawback?

To determine the optimal time to start your CPP retirement pension, it is recommended that you take into account the bigger picture and compare the various options available to you. An ATB Wealth advisor can work with you to create a personalized retirement plan that illustrates the most beneficial time to start your CPP retirement pension and ensures you are transitioning into your retirement with confidence.

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