Taking CPP early: The new breakeven points

By far, the most popular question I get on CPP is whether it makes sense to take CPP early.  Let’s start by reviewing the rules.

Although the normal age of benefit for CPP is 65, you can take CPP as early as age 60 but if you take it early, you will receive a reduced amount.

A change in reduction amounts

Prior to 2012, the reduction was 0.5% for every month prior to your 65th birthday.  Taking CPP at age 60 meant a 30% reduction in benefit (60 months times 0.5% = 30%).  Under the new rules, the reduction rate will increase to 0.6% over the next 5 years:

  • In 2012, the reduction is 0.52% for every month prior to your 65th birthday.
  • In 2013, the reduction is 0.54% for every month prior to your 65th birthday.
  • In 2014, the reduction is 0.56% for every month prior to your 65th birthday.
  • In 2015, the reduction is 0.58% for every month prior to your 65th birthday.
  • In 2016, the reduction is 0.60% for every month prior to your 65th birthday.

Those turning 60 in the next 5 years, need to pay attention because they have a big decision to make.  They can apply to collect CPP even if they are still working.  Many people can use the money in the short term and even it they don’t need it, they can invest it for the future.

If they choose not to take CPP income early, every year they delay up to age 65 will mean a bigger reduction because the rate of reduction is increasing accordingly.

Should you take CPP early?

For me, the starting point to answering the question is looking at the mathematical breakeven point.  Here’s the chart for 2012

AS you can see from the data, taking income at age 60 this year (assuming you qualify for the maximum CPP at age 65) would give you $676.83 per month.  By the time you turn 65, you will have collected $40,729.74 of income over the 5 years.

Alternatively, if you waited until 65 to collect a higher amount, you are foregoing the $40,729.74 to get more money in the future.  It takes until age 76 to make up the $40,729.74 that you left on the table.

In other words, the mathematical breakeven point is age 76 this year.  If you live past age 76, the one could argue the math says take CPP later.  If you don’t live to 76, then you should have taken the money early.  Unfortunately, no one knows when they are going to die.

Here’s the charts for 2013, 2014, 2015 and 2016 as CPP phases in a bigger reduction.

For more information on this topic, visit my Online Guide for CPP and OAS.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, Financial Expert and a syndicated columnist. He is a sought after financial speaker on wealth, retirement and personal finance. He currently specializes in helping employers implement Group RRSP and Pension plans along with his Financial Education in the Workplace program. For more information you can visit www.retirehappy.ca. You can also follow him on TWITTER @jimyih.

48 Responses to Taking CPP early: The new breakeven points

  1. Jim,
    thanks for preparing these calculations for your readers. It is a good visual for those of us contemplating what we should do now that the rules have changed.

  2. I would take CPP as early as possible, as you never know when you will die. If you can afford it, then it would be a good idea. You don’t want to have too much money left over, unless you are planning to give it to loved ones or donate it to a worthy charity.

  3. Jim,

    Thanks so much for the CPP Breakeven Point charts. This is important information to have in hand, if you are considering taking CPP early and before age 65.

    Three Questions:

    1) Does it make sense to take early CPP and continue working from a tax prospective?

    2) How does taking early CPP impact on a person choosing to continue working if they are in a low, medium or high income job?

    3) Based on the Canadian/USA actual life expectancy figures, who is better off taking early CPP – men or women?

  4. Jim:
    Great charts. Can you prepare one showing the breakeven points for someone who chooses to take CPP late (ie ages 66-70)?
    Thanks.

    • I have factored in my calculations both the present vlaue of CPP Payments and the fact that CPP increases over time. Under the old rules it would be difficult to convieve of a situation where one would not be better off taking CPP as early as you could. I suspect this is true under the new scenarios also however one greatly increased cost is the fact that if you keep working and draw a salary you and your employer continue to be responsible for CPP – and while this augments your payments it is a losing proposition on any time value basis.

      • The new rules bring the breakeven point earlier but also gives more people access to early CPP because you no longer have to stop working to get CPP

  5. Shouldn’t the breakeven age increase for taking CPP early as you go through the charts for 2013 to 2016? Since the reductions are higher each year it seems that it would take more time to make up the difference.

  6. These calculations don’t take into consideration the tax consequences. Not taking the CPP and drawing down RRSP at a lower tax rate prior to taking the CPP and possibly bumping your tax bracket is worth calculating.

    • Hi Peter, you are correct. It is important for people to take this information and make it personal. Everyone must apply the math using their personal situtation.

      The math I present is universal information. No matter what your CPP benefit is, the breakeven point will be the same for everyone. Tax rates are different for everyone. Some people retire to a higher tax bracket. Most to a lower bracket and some to the same bracket.

      Jim

  7. How does the pension picture change if a person is at the 40% marginal tax bracket from age 60 to 65, but will be at the lowest tax bracket after age 65?

  8. This is timely for me. I have started to receive CPP-D (disability) (age 54) due to MS complications thus having to access CPP earlier than I would have planned. Do these charts still apply? The only thing that I was told was that at age 65 this would roll over into a regular CPP payment. Is CPP-D handled somewhat differently?

  9. In regards to collecting CPP early (age 60) and continuing to work. You would not be drawing down your RRSP in this case as you are still working and bringing in income.

    A better option would be to take the early CPP payment and put it into your RRSP. This compounds the benefit of taking CPP early.

  10. How do you think the numbers would change if someone decided to take early CPP at age 60 and instead of spending the money reinvested it. If it was in a vehicle yielding 4-5% then the advanced income figure raises considerably and I think the break even age also. Just wondering as we will be retiring soon and debating options. Thanks for a very informative column.

  11. If you take the CPP early and continue working what effect does continuing to contribute to the CPP have? For example, say you take it 9 months before you reach 65 and you work 9 months after you reach 65 ( and contribute) do things even out?

    Thanks,

    philip

  12. philip, I have the same question, if you take the CPP early and continue working, under the new rules you still continue to contribute. Because you continue to contribute to CPP, this should affect the CPP amount you are receiving annually-I would be interested in knowing what this might be.

  13. I have a pension that is bridged till 65 where they will take off $489 they said when I retired based on the CP calculations at time I retired.

    Does that bridging change as I further contribute to CP unrelated to my post retired from position.
    Now I have still worked off and on and contributed to my CP . Right now based on my contributions to CP @ 65 I would get anywhere from 80 – 82 percent of the max based on the years I put in and amount levels contributed.

    From what I see is that taking CP early would even out or slightly ahead the deduction of the bridge at 65 but would be be ahead in $ gained till 74.

  14. Taking the CPP at age 65 entitles you to an increase each year by the increase in COLA (Cost of Living Adjustment). There is no decrease to your CPP if COLA falls.

    Taking the CPP BEFORE age 65 disallows for life any COLA (Cost of Living Adjustment)to your CPP. Hmm…

    Food for thought? Worth factoring in?

    • Correction – cost of living adjustments are calculated for CPP regardless if taken early, at 65 or later. I have checked with several trained professionals and a later post also confirms cost of living is always given with CPP.

  15. The time value of money is an important factor here. Also the marginal tax bracket that you are in at 60 and the tax bracket you will likely be in at 65. Another factor is whether you will actually be retiring at 60 or whether you intend to keep working.
    I believe that the right answer for a particular person is very fact specific. For instance if you have a non-employed spouse and you can split the CPP with them then waiting might be better because they will have a higher split amount and they may live longer than you will. It is important to think about all of the factors that are specific to your situation before making a decision. I think if you are in the top tax bracket now and will continue working until 65 when you will be in the low bracket (due to pension splitting withe your spouse) and you are don’t have a good track record with investing then you may want to wait. Another bit of information that might be relevant is life expectancy. This is dependant on how old you are now.

  16. Shouldn’t the ADVANCE INCOME AMOUNTS in the chart, be the full pension LESS the reduction NOT THE FULL PENSION AMOUNTS X 5 years.

  17. By 2016, a newly retired 65 year old will be receiving more than $986.67 (~2%/yr CPI over 5 years = $100 if my math is correct). Plus, as EI states above, by taking CPP early one disallows future CPI increases for life! Now do the math for twins who both live to 90 years old, one who takes CPP early and the other at 65, with a predicted CPI of 2%/yr (keeping in mind inflation is predicted to increase after 2008/9 fiasco).

    Taking CPP early allows a retiree who dies early to pass more on through their will – assuming one has an estate remaining!

    To decide whether 60,65,70+ is the best start date, ‘personalize’ your situation weighing CPI predictions, your tax rates over years to come, your need, your life expectancy and inheritance plans.

  18. I qualify for my magic 80 at 57yr plus service. I don not pklan on working once I retire. Want to take my CPP at 60 what % of loss am I looking at. What would my monthly CPP be.

  19. I am wondering if some one could clarify that if you take your CPP at age 60 you will not get any yearly cost of living adjustments, I am looking at EI’S comment I have looked on the official web site and can’t find this anywhere?

  20. I’m confused how this works. You take your CPP early at age 60 and continue working… but you must still contribute to CPP ?

  21. I agree with above comments. Thank you, Jim, for this practical info. I obtained my est, monthly CPP benefits (@ 60, 65, 70) from Service Canada. Since my post-55/pre-60 retirement in 2010, my income has dropped dramatically. For example, my 2011 earnings were classified as “B”. As self-employed in 2012, I expect this will become “S”. Basically, my CPP contributions since my retirement 3 years ago would be much lower than the previous decades. How does this affect the calculation of my CPP benefit? Will my benefit be reduced due to some averaging, factoring my low years? If so I defer receiving CPP benefits, will my payout be reduced due to low CPP contributions in my retirement years? Or is my CPP benefit fixed? Or is my CPP benefit based on the average of my hightest 5 years of contributions? Thank you.

  22. Hi Jim
    I have just had a leave of absence from work for 3 months. I am planning on buying back that time to my municipal pension plan. can I buy back CPP time as well?

  23. Jim, question….if you start taking your CPP at age 60 in December 2013, do you use the 2013 breakeven chart or the 2014?

  24. Hi, I’m 50 years old and I’m wondering if the early retirement is still going to be available to me, when I turn 60, if not when is the cut off for early retirement ?

  25. I am looking at these charts does the breakeven take into account the money drawn out early could be invested , and if your rate of return on say, stock is 6% the breakeven point would increase in all instances

  26. What bothers me about this approach is that it only looks at gross pension income – it ignores the fact that CPP is taxable. To consider whether one should draw the CPP early, or at age 65, or even defer it, we should be looking at how much cash in hand we would after tax.

    CPP is taxable so will be taxed at your highest rate when you take it. For a person who is still working and may make around $100,000 before the pension, then the CPP will be taxed at roughly 40%. If a person in this tax bracket took the CPP early at age 60 it would first cost the 30% penalty for taking it 5 years early, and then the person would be taxed at 40% on that 70% balance (=28%). Assuming a CPP pension might be $600 at age 65, then a person on a 40% tax bracket who takes the pension at age 60 would get a taxable pension of $420 ($600 -30%) and then pay tax of $168, and be left with only $252 cash in hand. In this case, if the person would retire at age 65 with no other income, it seems their smart move would be not to take the CPP until they actually retire. And in the case of a person who might work after 65 or have some other income past then, there would be a good argument for delaying the CPP beyond 65 and letting it grow bigger by .7% a month.

    • Jason
      That is exactly what you have to think ,every person is different so a financial advisor may
      Or may not be the answer . But I just list the pros and cons then make a decision.

  27. When calculating the 17% of years to drop out, what base # of years is used … 18 to 65? or 18 to when you start collecting CPP? That makes a significant difference i.e. if you start collecting later, a smaller portion of your 0/low income years can be dropped out if the latter is true.

  28. There are always questions as to which is best for you
    1. There is always tax on money , all depends on your income when you take it
    2. We don ‘t know what the government is going to do in the next 5 years
    3. Income splitting is done with CPP that May or may not help
    4. Will I die in the next few years, don’t know but if I do I have the money, but if I don ‘t take it and die they will not give my estate pay for all the years I contributed except $2500 to bury me.

  29. Early retirement as early as 60 is a personal choice. You will know it by heart when you are ready. If you still owe a considerable amount of mortgage in the bank you would procrastinate retiring. Otherwise it is best to retire as early as you can as our life is unpredictable. You gamble by working until age 65 or 70. Plus getting a larger pension means more tax burden especially when you start withdrawing your RRSPs. The earlier you retire the longer you will live as stress we get from working will kill us. If you don’t have a debt then it is time to retire earlier than 65 years old. The percentage increase in CPP working until 70 years old is not worth the calmness and laidback lifestyle you will experience when you retire earlier. Enjoy your pension the earliest you can afford to retire…the younger you are the better it leads to a longer life, Retire while healthy!!!

    • This is very informative subject however, in my case I am currently under medications and the doctor advice me not to go to work full time and given only 3 hours to work to due to my medical conditions. I am only 58 years old and completed my ten years contributions on my CPP. Can I apply for early retirement of 59 due to medical conditions? Do you think this will be approved since I was medically unfit to work for a year and now just started to work for 3 hours only under doctor advice. Appreciate your reply if I can apply now for early retirement.?

      Looking forward to hear from you?

      Kind regards,

      Ronny

  30. I noticed that the break even point does not take the present and future value of money in to account…have you thought of this?…. not being critical just curious…
    thanks for the information… saved me a lot of time….

  31. Once you turn 65and take the reduction does your pension go back to original amount when all is paid back and how long does it take

  32. I am 61 in December and plan to continue working for another three years. My husband is on LTD and no longer works. If I take my CPP at age 61 I would get $747 but if I wait to 65 I would get $1033 – almost the maximum. I make a six figure salary and am in the 26% tax bracket and the increased CPP payment would not push me into a higher tax bracket according to the marginal 2014 tax table. Should I take my CPP early if I can? My plan would be to invest it.

  33. Sharon, the marginal tax table you looked at is only the federal tax – the provinces and territories charge income tax too. You will find the combined rates at http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html but roughly speaking your marginal rate in the 6 figure taxable income is around 40%.

    In my earlier post I made the case that in any consideration of the timing of CPP pension income that among other things we should consider the after tax cash in hand not the pre-tax amount. You didn’t mention in your post if you will have a other pension income when you finish work – or if you have substantial RSPs that need to be withdrawn – all these will have an impact on your decision.

    There are other variables too that can influence your decision. One is if you need the money right now which it sounds like you don’t. Another is your state of health and expected life span – if there is a likelihood you might die relatively young you would be inclined to take the CPP as soon as possible. Also Lazaro above gives examples of important quality of life factors that may influence your decision – these tend to be more of a personal nature and while very important are not easy to quantify.

    If your question is purely one of economics, i.e. which will net you the most money over your lifetime then post some more information and people will be able to give better informed answers. Others may jump in here, but I’d suggest:

    1. Estimate your life span
    2. Amount of other pension income on retirement
    3. Amount of RSP income that has to be withdrawn
    4. What province or territory you are in.
    5. What rate of interest you can get if you invest the CPP income

    These should enable people to do a present day cash flow analysis to calculate which is best for you.

    Having said that, Lazaro’s points about quality of life are really valid. You mention your husband is on LTD – Lazaro would make the case that if taking the CPP now would enable you and Brian to take a holiday or to do something that you might not otherwise be able to do, that you should do that. This is a quality of life benefit not an economic one, and can’t be measured – only you and Brian would know its value to you.

    The common theme through all the answers is that our circumstances are often different, and there is no automatic right answer. In my own case I have some rental property (but no pensions) so my income will not cease at a certain age but hopefully will carry on. I have no need of the CPP at present but no one knows what the future holds so I will only claim it before 71 if there is a problem with my rental property or if mortgage interest rates spike. For me then, the CPP is a form of insurance – a safety net I can call on if I need it, and until then I’ll let it grow. I just mention this to show we are all different.

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