When planning for retirement, one of the biggest financial decisions Canadians face is when to start collecting Canada Pension Plan (CPP) benefits. While you’re eligible to begin receiving CPP as early as age 60, doing so comes at a cost a permanent reduction of 36% in your monthly benefit if you start right away instead of waiting until age 65. This reduction can be significant, especially over the course of a long retirement.
On the surface, it might seem like an obvious choice to delay. After all, who wants to lose more than a third of their pension income? But real-life retirement planning is rarely that simple. There are times when taking CPP early even with the penalty is not only justifiable but may actually be the smarter financial move in the long run.
Let’s explore three scenarios where taking CPP at 60 could make good sense despite the 36% cut.
1. If You Have a Shorter Life Expectancy
Health is perhaps the most important factor when deciding when to take CPP. If you’re in poor health or have a family history of illness that suggests you may not live into your late 70s or 80s, taking CPP at 60 could maximize your total benefits over your lifetime.
The break-even point for starting CPP early versus delaying it typically falls somewhere between ages 74 and 76. If you don’t expect to live that long, receiving smaller payments sooner could lead to a larger total payout over time. Waiting in hopes of collecting higher monthly payments later might not be worth it if you won’t be around to enjoy them.
In this context, the peace of mind that comes with having a steady income early in retirement and the ability to use it for medical expenses or to enhance your quality of life while you’re still relatively active can outweigh the downside of reduced payments.
2. If You’re No Longer Working and Need the Income
Not everyone retires on their own timeline. Some are pushed out of the workforce earlier than expected due to layoffs, health issues, or age discrimination. If you’re 60 and find yourself out of work with no substantial savings or pension to fall back on, taking CPP might be a financial necessity rather than a strategic choice.
Using CPP early in this situation can help bridge the gap between retirement and other sources of income, such as Old Age Security (OAS) or private pensions that don’t begin until 65 or later. Yes, you’ll be locking in a reduced benefit, but you’ll also avoid having to dip deeper into your savings or take on debt to cover living expenses.
It’s worth noting that if you’re not working, you also won’t be contributing to CPP anymore so delaying your payments may not result in significantly higher benefits, especially if your prime earning years are behind you.
3. If You Want to Invest or Use the Money Strategically
For financially savvy retirees, taking CPP early can be a deliberate tactic. If you don’t need the income immediately for expenses, you might choose to invest it. Even with the 36% reduction, if you can generate strong returns by investing that money wisely for example, in a tax-free savings account (TFSA) or conservative dividend-paying stocks you could potentially come out ahead.
Others may want to use early CPP payments to support lifestyle goals like travel or helping their children buy a home, while they’re still young and energetic enough to enjoy those experiences. The utility of money isn’t just about quantity; it’s also about timing. A dollar in your early 60s might bring more happiness and freedom than a larger dollar in your 80s.
This approach carries some risk, of course, especially if your investments underperform or your health changes unexpectedly. But for confident planners who value flexibility and control over their finances, this could be a powerful reason to take CPP early.
Final Thoughts:
The 36% reduction in CPP benefits for starting at age 60 is real, and it shouldn’t be taken lightly. For many Canadians, delaying CPP is the optimal financial move. However, the “right” decision depends heavily on your health, income needs, employment status, life goals, and overall financial picture.
There’s no one-size-fits-all answer. What matters most is making an informed choice that reflects your unique situation and not just focusing on the numbers alone. CPP is only one part of your retirement income puzzle, but when timed correctly, it can help bring that puzzle into clearer focus.