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

43 Responses to Taking CPP early: The new breakeven points

  1. Jim says:

    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. John A. Mangone says:

    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. Mike says:

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

  5. It would also be interesting to factor in the time value of money – a dollar today is worth more than a dollar tomorrow.

    • Dick says:

      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.

      • Jim Yih says:

        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

  6. Greg says:

    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.

  7. Peter says:

    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.

    • Jim Yih says:

      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

  8. Peter says:

    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?

  9. Mairi says:

    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?

  10. Rick says:

    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.

  11. sandy says:

    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.

  12. philip says:

    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

  13. len says:

    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.

  14. LLoyd says:

    If I take my CPP at 60 (2013)& continue contributing how do incresed benefits kick in & is thier a chart to outline any changes?

  15. Dave says:

    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.

  16. El says:

    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?

    • Anne says:

      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.

  17. Chris white says:

    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.

  18. Marilyn says:

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

  19. Anne says:

    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.

  20. Carol Luxton says:

    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.

  21. Martin says:

    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?

  22. Martin says:

    Thanks Jim,

    This is one of the best things I have ever signed up for it is very informative.

    Cheers Martin

  23. Bill says:

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

  24. wez says:

    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.

  25. Debbie says:

    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?

  26. Mike Young says:

    Why does the break even age increase in your charts, yet the advanced income by year decreases?

  27. Adnan says:

    Hi Jim,
    simply great article as usual. I was wondering how did you calculate breakeven months and age?

    Thanks

  28. Sharon Robb says:

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

  29. Dan says:

    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 ?

  30. clay kondo says:

    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

  31. Charles says:

    Hi Jim
    Thanks very much for making it so simple for us to understand. This certainly makes sense.

  32. Jason says:

    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.

    • TC says:

      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.

  33. Marion says:

    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.

  34. TC says:

    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.

  35. Lazaro Tamondong says:

    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!!!

  36. uwe says:

    I turn 60 next year and all the information was very well laid out

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