Are you curious about how CPP works as part of your overall retirement planning? This article discusses when to start your CPP and highlights a great new website to support this decision.
First, some basics
CPP provides you with income in retirement that replaces a portion of your average work earnings, up to limits based on the annual average wage in Canada. The amount you will receive from CPP depends on how much and for how long you contributed, and the age that you choose to start collecting. In simple terms, you could expect to receive a CPP pension in retirement of up to one-quarter of your average work earnings before 2019 and one-third of your average work earnings for 2019 and beyond. To estimate your CPP pension, you can contact Service Canada or log into your My Service Canada Account.
Not everyone will receive a maximum CPP pension, generally because of late entry to the workforce, career gaps, earning less than the average wage and/or starting a CPP pension early. CPP is based on contributory earnings from age 18 to 65, so it takes a full career to reach the maximum pension, even with allowances for periods of child-rearing, disability and low earnings. To put this in context, the average monthly amount paid for a new retirement pension (at age 65) in October 2023 was about $758, which is less than 60% of the maximum. On a positive note, CPP pensions provide stable lifetime income and are indexed annually to keep pace with increases in the cost of living.
When to start your CPP
Your decision on when to start your CPP pension can have a big impact on how much you will receive. Starting before age 65 will result in a permanent reduction of up to 36%, while delaying your start date after age 65 can result in a higher CPP pension.
This choice is separate from your decision to stop working. It is also separate from your decisions on when to start drawing from your other retirement income, such as a HOOPP pension, personal savings or registered retirement income fund (RRIF).
For example, HOOPP offers generous early retirement benefits that support retirement with no reduction at age 60, or with 30 years of eligibility service, whichever comes first. This is very different from CPP.
More and more retirement experts are talking about the merits of delaying CPP benefits as a way for working Canadians to increase the amount of secure, indexed income they will receive throughout their lifetime.
This is particularly relevant for women, who tend to have lower levels of total retirement income and are at greater risk of outliving their savings, especially if they do not participate in a workplace pension plan. This approach recognizes that it may be beneficial to draw income from personal savings in the initial stages of retirement, which can help you to delay (and increase) your government pensions.
The new Retirement Hub, sponsored by the Government of Canada, is a great resource to learn more about this strategy and the public pension benefits available to you. It offers some rules of thumb to help you decide when to start your CPP and Old Age Security (OAS) pensions and provides informative and realistic examples with dollar amounts.
Key takeaways
As you plan for retirement, you should think about all your income sources and how they will work together. They don’t all have to start at the same time. By learning about the main features of your government benefits, as well as your workplace plans and personal savings, you will be better positioned to make smart decisions. There are excellent resources to help!
Read more: Are Canadians getting the most out of their CPP in retirement?.