When should you start collecting CPP?

23/08/2022 | Financial Planning

One of the most important cornerstones of every Canadian’s retirement plan is their entitlement to Canada Pension Plan (CPP).  Every Canadian that has made at least one CPP contribution in their lifetime is entitled to some amount of pension.  In 2022, the average pensioner is receiving $727.61/month while the maximum tops out at $1,253/month for those that start collecting at age 65.

Since the CPP is guaranteed for life by the federal government and indexed to inflation annually, it is one of the best protections for your standard-of-living, particularly if you live well into your 80s or 90s.  However, it also comes with a difficult choice – “When should I start collecting?”.

Take it at age 65!

You can start collecting as early as age 60 or as late as age 70.  If you take it early, your benefit is about 36% lower – but you collect it for more years.  If you wait until 70 your benefit will be about 42% higher but you will have lost out on those 10 years of payments.   While every situation is different, most Canadians will maximize their CPP if they start collecting at age 65.  If we assume average life expectancy, this optimizes the pension amount with the number of years you expect to collect.

“Maximizing” your CPP means not only examining total payments you receive in your lifetime, but also the fact that each payment received at an earlier age is worth more than the same amount received at a later age.  In other words, $1.00 received today is worth more than $1.00 received 5 years from now.

Try our CPP Calculator below to understand how the choice of age can impact the total CPP you receive in your lifetime.  You have the flexibility to change the assumed rate of inflation, or if you plan to invest your CPP payments, you can alter the expected rate of return.

(PRO TIP:  If you don’t plan to invest your CPP, set the rate of return to 2%.  This will automatically calculate the difference in spending power from payments that are received earlier)

CPP Calculator

Are there exceptions to the rule?

As with everything in life, there are exceptions to consider when making this important financial decision.   It’s always best to consult a financial planner before making this important choice, but here are a few factors that could make age 65 a sub-optimal choice for you:

  • You’ve retired earlier than 65 and require these funds to sustain your standard-of-living
  • Your life expectancy is not “average”. While none of us knows the date of our death, you may have a medical condition that leads to a shorter time-horizon, or longevity in your family that could see you relying on this pension in to your mid 90s.
  • You are still working at 65. You don’t need the income and may benefit from higher payments when you do retire.

There are also more complicated exceptions that relate to managing your income-taxes and a requirement to give back some of your other government pension (Old Age Security) if your income in retirement is too high.  This is where a detailed financial plan can solve for the optimum age – particularly when managing different ages and horizons for spouses.

We are here to help!

This article along with the calculator above has been designed to give you a starting point in your decision process.  Ultimately, a CAPCORP Financial Advisor can help you decide the best plan of action for collecting your CPP based on your unique situation, goals, and financial needs. We’re here to guide you in planning the next chapter of your life. Contact us today!


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