When and how to start receiving your CPP (Canada Pension Plan) benefits.

One must be at least 60 years old and have made at least one valid contribution (payment) to Canada Pension Plan in order to receive CPP benefits. The amount you receive from CPP is based on how much you contributed and for how long.

Keep in mind that because CPP is a contributory plan, all benefits are paid for by the money that employees and employers pay into the program. The Contributory Pension Plan is supported solely by the contributions of participants. That is to say, the return you receive is directly proportional to your investment.

You become eligible for the standard retirement amount once you reach the age of 65, but the payment of this benefit does not begin automatically. An application is required. You should submit your pension application to Service Canada at least six months before you want your CPP to start, as per their recommendations. You must apply for CPP even if you plan to start receiving benefits before you turn 65.

Why do you have to stop what you're doing

In the past, you had to stop working to start collecting CPP early. In 2012, this shifted.

There are a lot of Canadians who, despite being over 60 years old, are still actively employed thanks to CPP. Everyone in this group can now start collecting CPP at age 60, even if they are still actively employed. You'll have to keep making CPP payments for as long as you work, but doing so will boost your retirement security.

In general, if you are earning a wage and are a U.S. citizen, you are eligible to apply for You'll still have to pay into the CPP, but doing so will increase your eventual payout.

How much will the CPP cut costs?

Before 2012, there was no decrease at all. An additional 5% for each month before your 65th birthday The reduction in CPP benefits of 30% (60 months multiplied by 0) for those who started collecting at age 60 is well known. 5% = 30%)

When deciding whether or not to begin receiving CPP benefits early under the old rules, it was necessary to determine the point at which early payments would be profitable. The cutoff age before 2012 was 77. Every Canadian must be proficient in mathematics in light of the new regulations.

We are currently at a reduction rate of 0 At the rate of 6% per month up until age 65 CPP benefits are currently reduced by 36% if you claim them at age 60. (Sixty Months * 0) 6% = 36%) As of right now, that age is 74.

Calculating Your CPP Benefits is a Related Article.

Is it a good idea to cash in your CPP benefits early? The point at which expenses no longer outweigh income

A break-even analysis is where I would begin if I were tasked with answering this question. Beth and Janet, who are also twins, are a good example.

Both Janet and Beth are a set of identical twins. Assume they both receive $1,000 per month from the CPP once they reach age 65. Let's further assume that Beth chooses to take her reduced CPP benefit now at age 60, while Janet opts to wait until she is 65 in order to maximize her income.

When Beth turns 60, she will begin receiving income from the Canada Pension Plan with a reduction factor of 0. An additional 6% for every month she spends under 65 There will be a 36% cut to Beth's benefit of 0 6% x 60 Months) for a Monthly Income of 0 Beginning on her 60th Birthday

A mere five years have passed. Janet and Beth both turned 65 recently. Beth's income over the past five years is $38,400, or 0 per month. So Beth has earned $38,400 before Janet has received any CPP payments. So, from now on, Janet will receive $1000 from CPP every month, while Beth will receive 0.

How many months would it take for Janet to earn more from her pension than Beth in order to catch up to Beth's $38,400 lead? With a monthly payment of $360, it will take Janet 106 months to make up the $38,400. To rephrase, Beth is superior to Janet before age 74, while Janet outshines Beth afterward.

Making the right choice would be simple if Beth or Janet just gave their date of death. This could also be asked as, "What is your life expectancy?" ”

The breakeven diagram is provided below for your reference.

Age 60 Age 61 Age 62 Age 63 Age 64 Age 65 CPP Income Received Each Month 0 2 4 6 8 $1000 Discount for enrolling in CPP before the minimum age $360 $288 $216 $144 $0 As a whole, money that was advanced $38,400 $34,176 $28,224 $20,544 $11,136 $0 Profitability in months 106.7 118.7 130.7 142.7 154.7 Payoff (in years) 73.9 74.9 75.9 76.9 77.9

One could make the mathematical case that delaying CPP withdrawal until age 80 makes sense if they live past age 74. You should have cashed out earlier if you don't make it to 74. Regrettably, nobody can predict their own death.

When do you anticipate spending the cash?

Aside from the obvious concern of when you will die, when will you get the most use out of the money? Either before or after the age of 74. Even though the break-even point is reached three years earlier, the early years of retirement are often the most enjoyable for most people. These are the 'go-go' years, if you will.

Related article: the three retirement stages

Many people favor cashing in their CPP early so that they can have it in the beginning of their retirement, and if they don't end up spending it, they can always put it in the bank for later.

The rising price of health care has led some to argue that it is preferable to have a higher income later in life. Whatever you think is going to happen, prepare for it. One way to gauge the true level of spending is to observe the habits of people in their 70s, 80s, and 90s in your immediate vicinity. How much of their retirement income are they spending compared to what they did when they were working?

Why do we risk losing money by not taking advantage of every opportunity?

Let's revisit Beth, the 60-year-old who stands to gain 0. Let's pretend she has second thoughts and decides to put off collecting CPP until she's 62 instead of 61. Simply put, she "left money on the table." To rephrase: "She could have withdrawn ,680 from her CPP (0 x 12 months) but she decided against it so that she could have access to more funds in the future. As long as she lives long enough to recover the funds she left behind, that's fine with me.

This is mathematical in nature once more. To recoup the money she lost by not taking Social Security when she was eligible to, she must live an extra year after retirement. To recover the ,680 she lost by postponing CPP by a year, she would need to live until she was 76 years old. A delay of two years in receiving CPP benefits would require her to live until age 76.

Since the math favors taking it early, what's stopping you? The main reason is that as you get older, you anticipate living longer and having greater financial needs. Having one bird in hand is preferable to having two in the bush.

Different Point of View

Some people's reasoning for delaying their CPP withdrawals can be found in simple mathematics. If you are 60 years old and put off collecting CPP for a year, you will see a 7 percent increase in your monthly benefit. 2% (0 times 12 months (6% With the current state of interest rates, the current state of the markets, and the current state of investment returns, most people would agree it is difficult to guarantee a 7 the current rate of return is 2%

After reaching age 65, there is no longer any benefit to delaying CPP. At the rate of 7% per month, or 8% annually, An Annual Rate of 4 Percent Delaying CPP is seen by many as a wise financial move (assuming one lives long enough). It is clear that there are two mathematical perspectives on the same problem.

And if you're still slaving away at work, then what?

Keep in mind that if you continue working while collecting CPP between the ages of 60 and 65, you will still be required to make regular CPP contributions; however, these contributions will accrue interest over time, increasing your eventual CPP payment.

The CPP Retirement Benefit: A Guide for Retirees is a related article.

When and how to apply for an early start on CPP

If you are over 60 years old, applying for CPP early is as easy as filling out an application. To contact Service Canada, go to their website or find a local office.

Here's what I think

My position on taking CPP early has been mischaracterized by many people. Truthfully, it makes no difference what I personally think. Don't forget that this is your own money and choice. My intention is to provide you with as much relevant data as possible so that you can make an informed choice.

In every choice, there is an element of logic or mathematics. That's where the numbers stop losing money for me. However, in practice, most people choose more on the basis of lifestyle concerns than on mathematical considerations. Many people, as you can see from the numbers, will start using it right away.

Everyone in Canada must make this choice. Good luck

Check out my CPP and OAS Online Guide for additional resources on this subject.