If you take CPP at age 60, you will lose 36% of your benefits — but there are 8 instances where claiming early actually makes a lot of sense. How many apply to you?

CPP benefits are reduced when you take them early

For every month you take CPP early, you permanently lose 0.6% of the benefit, up to 36% if you take CPP at age 60. For every month you wait after age 60, you increase your benefit amount by 0.7%. If you wait until age 70, this works out to an increase of 42%.

If you qualify to receive $1,000 at age 65, you’ll receive $640 if you take your benefits at age 60 and $1,420 if you wait until age 70 (although this would likely be more, since the benefits are indexed to increase with the cost of living).

Given these numbers, it seems surprising that anyone would opt to take CPP at age 60, but many people do. According to figures from the Government of Canada, in 2023, 29% of new CPP recipients opted to start their benefits at age 60 and another 24% started later than 60 but before 65. About a third (32%) took CPP at 65, while only 6% waited until 70. So why take a reduced benefit?

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8 reasons why people may take CPP early

1. You don’t like your job, you want to retire immediately and need CPP to fund this

2. You’re ready to retire at 60 and already have many low or no-earnings years

When calculating your base CPP amount, the government will exclude up to eight of your lowest-income years. If you retire at 60 and add more low-income years before you take your benefits, you could risk reducing your benefits.

3. You have health issues that will shorten your life span

4. You want to eliminate or reduce the amount that is clawed back from your Old Age Security (OAS) payments

OAS is another pillar of the Canadian social retirement system. It’s available to Canadian citizens and legal residents 65 or older who have resided in Canada for at least 10 years since the age of 18, regardless of whether they’ve ever worked or not. For October to December 2024, the maximum monthly OAS payment amount is $727.67 for people 65 to 74 and $800.44 for people 75 and over (it’s reviewed four times per year to adjust for the cost of living). But OAS is clawed back as your income increases from the minimum income recovery threshold of $90,997 in 2024. So, if you’re already going to have a significant retirement income, you may want to minimize your CPP payment to lower your income and maximize your OAS payment.

5. You have a low income and may qualify for the Guaranteed Income Supplement (GIS) in addition to OAS

In this case, you might want to minimize your CPP payment to maximize your GIS. It’s a good idea to engage a financial advisor when using OAS or GIS reasons to determine when to take CPP, as these are complicated calculations that can have lifelong implications. An advisor will have software that can help model these decisions.

6. You don’t trust the government

Some people may be worried about the viability of these government programs, but it’s worth noting that CPP is kept separate from the government’s general accounts — and the government can’t access the money. Additionally, a 2021 report by the Chief Actuary of Canada found that the CPP will remain sustainable for at least 75 years.

7. You think you can make more by investing the money yourself

While this isn’t impossible, you’ll need to beat an annual guaranteed increase of 7.2% per year until age 65, then 8.4% from there to age 70, plus increases to adjust for the cost of living.

8. You’re retiring when there’s been a major market selloff and want to take CPP to reduce the need to withdraw from your portfolio so your investments can recover

Generally, it’s not advisable to take CPP early. But there are circumstances where it could make sense. If you’re trying to decide if it’s right for you, it’s a good idea to consult a financial advisor.

Sources

1. Canada.ca: CPP Retirement pension: How much you could receive

2. Statistics Canada: Income Explorer, 2021 Census

3. Canada.ca: Canada Pension Plan: Pensions and benefits monthly amounts

4. Canada.ca: CPP Retirement pension: When to start your retirement pension

5. Canada.ca: Canada Pension Plan (CPP) - Number of New Retirement Pension by Age, Gender and by Calendar Year - Canada Pension Plan (CPP) - Number of New Retirement Pension by Age, Gender and by Calendar Year

6. Canada.ca: How we calculate your CPP payment

7. Canada.ca: Old Age Security

8. Canada.ca: Old Age Security: How much you could receive

9. Canada.ca: Old Age Security pension recovery tax

10. Canada.ca: Guaranteed Income Supplement

11. CPPInvestments.com: Sustainability of the CPP