As you approach retirement age, you may be thinking about when to start collecting your Canada Pension Plan (CPP) benefits. With rising costs of living affecting everything from groceries to housing, many are considering how to make ends meet once they stop working. While taking CPP retirement income early might seem like a way to ease financial pressures, the decision involves several factors that can affect your future finances and well-being. Here are some things to keep in mind when deciding whether to start your CPP benefits early or wait.

The Basics: When Can You Start Collecting CPP?

Most Canadians begin receiving their CPP benefits at age 65, but you can start as early as age 60. However, choosing to retire early and claim your CPP at 60 comes with financial drawbacks. While it may sound appealing to have extra money sooner, early CPP benefits will be smaller than what you would receive if you wait until age 65 or beyond. It’s essential to weigh these considerations before deciding to claim early.

What Does Deferring CPP Benefits Mean?

Deferring your CPP benefits means waiting longer before you start collecting them. While the typical retirement age in Canada is 65, you can opt to start collecting as late as age 70. Delaying your benefits past 65 increases your monthly payments—by 0.7% per month, or 8.4% per year, up to a maximum increase of 42% if you wait until age 70. After age 70, there are no further increases.

The Trade-Off: Starting Early vs. Delaying CPP

If you start receiving CPP at 60, your monthly payments will be reduced by 0.6% per month, or 7.2% per year, up to a maximum reduction of 36%. This means your benefits will be over a third lower than if you waited until 65 to start collecting. While receiving early benefits might give you more immediate income, it could leave you with less money to stretch over a longer retirement.

On the other hand, delaying your CPP benefits can significantly increase your monthly pension, which can be especially important if you live longer than expected. With increasing life expectancies, stretching your retirement income to cover your entire lifespan is a crucial consideration.

The Impact of Inflation on Your Benefits

While your CPP payments may be adjusted annually for inflation, it’s important to remember that inflation can erode the value of your benefits over time. Starting your CPP benefits early means you’ll be receiving less money that will need to last longer, while inflation makes those payments worth less. As the cost of living rises, it becomes harder to stretch your budget. This may lead to using debt to cover daily expenses or even considering options like reverse mortgages or lines of credit, which can have long-term financial consequences.

Know Your Sources of Income in Retirement

Before deciding when to start taking your CPP benefits, it’s essential to assess your other sources of retirement income. Your retirement budget should include a variety of income sources, such as:

• CPP/QPP retirement pension
• Old Age Security (OAS), and potentially the Guaranteed Income Supplement (GIS) for those with lower incomes
• Employment-related pension plans
• RRSPs and TFSAs
• Investments or earnings from part-time work

Understanding these sources of income will help you create a sustainable retirement plan and decide if taking CPP early fits into your overall strategy.

Evaluating the Timing Based on Your Financial Situation

If you’re facing significant debts or living paycheck to paycheck, waiting until age 70 to start collecting CPP may not be feasible. On the other hand, if you have other income sources, such as savings, pensions, or investments, you may have more flexibility in delaying your CPP payments to secure a higher monthly pension later on. If you are healthy and enjoy your work, working longer or part-time can provide a better financial cushion while increasing your post-retirement benefits.

Mental Health and Social Considerations

While early retirement sounds relaxing, it’s not right for everyone. Some individuals thrive on the structure and social interaction that work provides, and leaving the workforce at 60 can lead to feelings of isolation or even mental health struggles. The transition to retirement can be difficult, particularly if you’ve built strong social connections at work. For some, the lack of daily engagement can result in loneliness or depression.

It’s important to evaluate not just your financial situation, but also how retirement will impact your mental well-being. If staying socially active and engaged is important to you, delaying retirement might be a better option.

Your Support System Matters

Having a strong support system is essential as you navigate retirement. Research shows that older adults who maintain social connections and avoid isolation tend to have better overall health and longevity. Before making the decision to retire, consider whether you have a social network of family and friends who can provide emotional and social support during your retirement years.

Health Considerations and Retirement

Your physical health also plays a major role in when you should retire. If you’re in good health and enjoy your job, continuing to work past age 65 can help keep you active and engaged. Studies show that those who work beyond 65 are more likely to report good health and are less likely to suffer from chronic conditions. However, if you have health problems or a chronic condition, working longer could become too challenging, and the financial strain may outweigh the benefits of delaying your CPP.

Conclusion: Is Deferring CPP Right for You?

If you’re in good health, expect to live a long life, and have other income sources, deferring your CPP benefits could provide you with a larger pension to help sustain you through retirement. However, if you’re struggling with debt, health issues, or other challenges, taking your CPP benefits earlier may be the more practical choice. Carefully consider your financial health, mental well-being, and physical health to make the best decision for your retirement planning. Consulting with a financial advisor can help you navigate these decisions and create a comprehensive plan that aligns with your retirement goals.