Canadians who have retired can start receiving their Canada Pension Plan as early as age 60. If you return to work, the payments continue and you can start contributing again to earn a second CPP benefit when you re-retire!
Most Canadians start their CPP between 60 and 65. Very few postpone their CPP to age 70, which is the year beyond which there is no more increase in the monthly benefit by deferring.
For example if you turn 60 this year and retire this year you can apply for your CPP to start this year. Assuming you have contributed the annual maximum over the last 39 years your pension will be $722/mo. That amount is 60% of what a 65 year old also retiring this year with the same years of work would receive.
However if you defer the payments to your age 70, the benefit would then start at $1709/mo., 42% more than someone who is 65 this year.
Note: CPP payments adjust every January based on the CPI for the preceding year so the actual payments at deferral and in each succeeding year when someone has started the CPP pension increase accordingly. Payments are up 2.3% this year compared with 2020 for example.
How to Decide
Here are some useful questions you should consider in making your decision.
. Do I need the money now? Look at your expected monthly financial outlays. Some costs will decline (eg: commuting, other costs involved with going to work). Others might be new: travel for example.
.If you don't need the CPP monthly payments now, what are your sources of income? Are they stable and continue to meet your needs until the CPP starts?
. Will you need to draw down on other savings or investments to maintain your lifestyle? If so, what are the effects on your future monthly cash flow? Can you meet your cash flow needs tax-effectively and still have adequate cash flow in later years?
.Because the CPP is indexed it preserves its value over the years that payments are made so it is a stable source of inflation-protected income.
.Since your income tax rate is most likely to be lower in retirement you can make up the required cash flow over the next several years by withdrawing from your RRSP. If you have a pension plan at work you will likely start the payments now and they will most likely be reduced by an amount equal to your CPP payment at your age 65.
.If you have a reduced life expectancy due to health issues then you will likely start your CPP now. For healthy Canadians at age 60, the life expectancy varies from 26 years (males) -29 years (females) so postponement of your CPP is attractive given the probability of receiving payments for more than 20 years.
As you can see there are some questions that need answers to get to a point where you can make the best decision that fits your circumstances. What is clear is that those who postpone receiving their CPP benefit will receive payments over time that will be much larger than those who start their CPP pension earlier. A good rule of thumb in thinking about retirement cash flow is to add up your basic costs in retirement and see if these costs will be covered by stable and continuing income. Peace of mind is your reward when the goal is achieved.