Is it better to take CPP at 60 or 65 years age?
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- Updated On:02-Dec-2022
- Replies:1
Short Answer
In general, it is better to apply for CPP benefits when you turn age 65. However, there are some circumstances where it is better to apply for CPP at age 60. Continue reading to know what they are.
Detailed Answer
Applying for CPP benefit
The contributors to Canada Pension Plan or CPP will not automatically start receiving age pension, whereas, they have a free hand to apply for CPP entitlements once they turn age 60. They can elect to apply for CPP benefits anytime between age 60 and age 70.
The statistical average retirement age of Canadians is 64.5. Hence, there is always a debate if it is ideal to start taking CPP benefits from age 60 or age 65. Let’s find out.
Is it better to take CPP at 60 or 65 years age?
As of 2022, the average statistical life expectancy of Canadians is 82.81 years.
Let’s assume X is expected to live up to age 83 and he is entitled to a CPP benefit of $1,000 per month or $12,000 per annum when he turns 65. This means that if he starts his CPP benefit drawdown at age 60 he will receive 64% of the benefit which is $640 per month or $7,680 per annum.
The total benefit X will get if he starts drawing down at age 60 is $7,680*23 years (Age 83 – Age 60). This equals $176,640.
The total benefit X will get if he starts drawing down at age 65 is $12,000*18 years (Age 83 – Age 65). This equals $216,000.
Thus, in general applying for CPP at age 65 is ideal. However, it depends on various other circumstances.
When is it better to take CPP at 60 years age?
Here we have listed a few reasons and circumstances, where it is better to take CPP benefits from age 60.
- If you do not have enough cash flow and you are in need of money.
- If you have stopped working.
- If you have poor health and if you feel you would not live beyond a certain age.
- If you haven’t contributed to CPP for a while. Imagine you stopped working and contributing when you turned 50 years of age and you had worked for 30 years starting from age 20. Your CPP benefit is based on your average earnings. Let’s imagine you received $50,000 every year.
Case 1
Your total earnings from the period 20 to 65 is $50,000*30 years = $1,500,000
Your average earnings at age 65 = $1,500,000/45 (65-18) = $31,914.89
Case 2
Your total earnings from the period 20 to 50 is $50,000*30 years = $1,500,000
Your average earnings at age 60 = $1,500,000/42 (60-18) = $35,714.29
Your CPP benefit basically intends to replace at least 25% of your average earnings. In this scenario, where you haven’t contributed or worked for a long time, it is better that you take out CPP benefits at age 60.
Apply for CPP at age 65 or age 60
Thus, the ideal age to apply for CPP benefit depends on various circumstances and it differs from person to person. So, do analyze the pros and cons of applying for your CPP benefits at a particular age.
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Discussion (0)
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