Take CPP at 60, 65, or 70: The Real Numbers

The Short Answer

If you expect to live past 74, deferring​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ CPP pays off. If you need the income now, take it now. Everything else is details.

That said, this is not a one-size-fits-all​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ answer. Your health, your portfolio size, whether you have a partner, and what you actually need to live on all matter. We will walk through the real numbers so you can run your own version.

How the CRA Math Actually Works

The federal government sets two very​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ specific rates for adjusting CPP based on when you start, and they are not symmetric.

If you take CPP before age 65, your​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ monthly payment is reduced by 0.6 percent for every month you start early. If you start at exactly 60, that is 60 months before 65, which means a 36 percent permanent reduction. This is not a temporary penalty that goes away later. It sticks for the rest of your life.

If you delay CPP past 65, your monthly​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ payment increases by 0.7 percent for every month you wait. If you hold out until 70, that is 60 months past 65, which means a 42 percent permanent increase. Again, this is locked in for life and indexed to inflation.

The government calls age 65 the standard​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ start date. Everything is measured against that. You cannot start CPP before age 60, and there is no benefit to waiting past 70. If you hit 70 and have not started, apply immediately.

Real Dollar Scenarios at 60, 65, and 70

Let’s use a concrete example.​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ Assume you have an average CPP entitlement of $800 per month at age 65. Here is what each start age looks like.

The average CPP payment in Canada as​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ of 2024 is around $815 per month for new recipients at 65. We will use $800 as a clean round number to make the math easy to follow. The maximum CPP at 65 in 2024 is $1,364.60, but most people do not hit the maximum because they did not contribute at the ceiling for every working year.

That gap between $512 at 60 and $1,136​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ at 70 is $624 per month, or $7,488 per year. Over a 20-year retirement, the cumulative difference is enormous once you factor in the lost income from waiting and the higher income from deferring.

Breakeven Ages: What the Table Shows

The breakeven age is the point where​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ the higher deferred payment makes up for the payments you gave up by waiting. This is the most important number in the whole debate.

To find the breakeven between two start​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ ages, you compare the total cumulative income from each path. The person who starts early collects more payments, but each one is smaller. The person who defers collects fewer payments, but each one is larger. At some point those lines cross.

The key takeaway: if you compare adjacent​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ choices (60 vs 65, or 65 vs 70), the breakeven lands around age 74. That means if you reach 74 and keep going, the deferred option wins. If you die before 74, the earlier option produced more cumulative income.

How Your XEQT Portfolio Changes the Decision

Here is where the standard CPP advice​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ misses something important: if you have a meaningful investment portfolio, deferring CPP becomes even more attractive.

If you take CPP early because you think​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ you can invest those payments and earn a better return, the math only works if you actually do invest them and earn a rate that beats the 0.6 percent per month guaranteed increase you gave up. That is an 8.4 percent annualized guaranteed return just from deferring one year past 65. You would need your XEQT portfolio to consistently beat that hurdle, which is not guaranteed.

On the other hand, if you have a large​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ XEQT portfolio in your RRSP or TFSA, you have flexibility. You can live off your portfolio in your early retirement years and let CPP grow by deferring. Your XEQT holdings keep compounding, and your CPP entitlement keeps growing at 0.7 percent per month. You are running two compounding engines at once.

A smaller portfolio changes things.​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ If you retire at 60 with limited savings and no other income, you may need CPP just to cover your basic costs. In that case, taking CPP early is a practical decision, not a financial mistake. Do not let a theoretical breakeven age override the reality of your cash flow.

The general rule for XEQT investors​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ with a solid portfolio: defer CPP to 70, draw from your TFSA or non-registered account to cover your costs in the meantime, and let CPP become your inflation-protected base income in your later years. This strategy is especially powerful because CPP income at 70 reduces how hard your portfolio needs to work in your 70s and 80s, when market volatility is most dangerous to a retiree.

Who Should Take CPP Early

Early CPP is not always wrong. Here​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ are the situations where taking it at 60 or before 65 actually makes sense.

Who Should Defer to 70

For most healthy Canadians with any​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ investment savings at all, deferring CPP to 70 is the highest-return guaranteed financial move available to them.

The Simple Path Forward

You do not need a spreadsheet with 47​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ tabs to make this decision. A few honest questions get you most of the way there.

Ask yourself three things. One: do I​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ need the money right now to cover basic costs? If yes, take CPP. Two: am I in reasonable health with a family that tends to live into their 80s? If yes, defer. Three: do I have a TFSA or RRSP I can draw from to cover the gap while I wait? If yes, deferring becomes much easier to execute.

For most readers of this site, the answer​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ is defer to at least 65 and seriously consider 70. You are already investing in XEQT, which means you think in long time horizons and you understand the compounding game. CPP deferral is just another form of compounding at a guaranteed 8.4 percent annualized rate per year past 65. That is a good deal.

The full picture of Canadian government​‌‌​‌​‌​​‌‌​​​‌​​‌‌‌‌​​​​‌‌​​‌​‌​‌‌‌​​​‌​‌‌‌​‌​​‍​​​​​​​​​‌‌‌​​​​​‌‌‌‍‌‌​‌​‌​‌​​​​​​​‌‌​‌‌‌​​‌‌​​‌​​​ retirement benefits, including how CPP interacts with OAS, GIS, and your RRIF withdrawals, is covered in our pillar guide. Read it before you lock in a start date.