Commencing receipt of the Canada Pension Plan (CPP) isn’t an easy decision for pensioners. Most ask which is a more valid strategy, starting payments at age 60 or at 65? Some in excellent health will even delay it for another five years to receive higher payouts. Still, it would be best to make a few assumptions to reduce the chances of running out of money in retirement.
I want like to think the CPP pegs the standard age at 65 because it’s the optimal time to apply for the pension. The yearly average amount is $8,270.04 (as of October 2020) if you’re 65 and starting the payments today. Thus, you can expect to receive $689.17 per month. A CPP user who has contributed “enough” for 39 years can qualify to receive the maximum benefit of $1,203.75 per month or $14,445 annually.
Since the Old Age Security (OAS) kicks in at 65, the core retirement income bumps up if you claim both simultaneously. For the first quarter of 2021, the maximum monthly OAS benefit is $615.37. Therefore, you would get an annual guaranteed income of $15,654.48 for life.
Reduced payment It’s a good thing that the CPP is flexible, and you can draw the benefit as early as 60. While this option attracts soon-to-be retirees with health concerns or urgent financial needs, the stipend is lower. You risk losing up to 36% of your pension permanently as the amount reduces by 0.6% per month before 65. The annual amount becomes $5,292.83 instead of $8,270.04.However, if you start payments at 60, you will collect five years longer than someone claiming at 65. The break-even point here is around 106.7 months. A 65-year-old claimant pulls ahead or gets higher pension overall after 74 years old. Unfortunately, either option leaves a wide income gap.