When should I take my CPP benefits?

Like most Canadians, you’ve probably contributed to the Canadian Pension Plan (CPP) for your whole working life. And now that you’re getting closer to retirement age (whatever that means for you) and planning for your future, you want to make sure you’re making the best decisions with that investment.

CPP calculations are complex, taking into account a lot of variables. While each plays its part in defining your benefits, one of the most important variables for you to consider is when to take your benefits.

In this article, we’ll cover the variables that dictate your CPP benefits and how they can affect when you should choose to take your benefits.

How are CPP benefits calculated?

Through the years, your salary has grown, inflation has changed the whole monetary landscape and life has upended your career plans. As a result, your contributions have probably varied widely throughout your working life. 

To compress all those numbers and factors into one simple payment, the government has come up with an equation that includes:

Your contribution period

The basis for CPP benefits is simple. It’s based on how much you’ve contributed over your working years, known as your contributory period.

Inflation

In 1970, the average income for a Canadian family was $9,600. In 2024, it’s almost 7 times as high at $63,013. So, of course, the CPP program can’t directly compare 1970s wages and contributions with today’s. 

Instead, the program updates past earnings using the Yearly Maximum Pensionable Earnings (YMPE). Essentially, each year CPP has a limit on the maximum amount of earnings it covers (for 2024, it’s $68,500 and in 1970, it was $5,300). The program then calculates your earnings as a percentage of the YMPE, instead of focusing on the actual amount made. This allows it to correct for inflation.

Time off to raise kids (or because of disability)

The child-rearing drop-out provision allows you to exclude from the calculation the years you choose to make less (or stay at home) to focus on raising your kids. It also includes a provision to exclude any years when you were receiving a CPP disability pension.

The inevitable ups and downs of careers

The CPP calculation automatically excludes up to 17% of the lowest paying months in your working life (up to 8 years depending on when you choose to take your benefits).

The result: the average monthly benefit

If you’ve contributed the maximum amount across your career after all of the above variables, you’ll receive the maximum payout. That changes year to year, but in 2024 it’s set at $1,364.60 if you take it at 65. 

With early career wages and life’s consistent unpredictability, few will take home the maximum, even with exclusions. The average monthly benefit, for those who take their CPP at 65 in 2024, works out to $831.92.

When should you take your CPP benefits?

While all the above calculations take your past decisions into account, one of the few you can affect at retirement is when you choose to take your benefits.

You can choose to take your benefits at any age between 60 and 70. But, it changes how much you’ll receive.

If you take your benefits before age 65, your monthly benefits will decrease. But, because you started taking them early, you could receive more if you have a shorter lifespan.

If you hold off until 70, your monthly benefits will increase. But, you have to have a long lifespan to make up for the decade when you didn’t take your benefits.

To help you better understand the consequences of your choice, we’ll run you through some calculations below using 2024’s average CPP benefit (if taken at 65) as a baseline. 

Once again, that number is $831.92

How much less you’ll get if you take your CPP benefits early

If you choose to take your CPP benefits early, your benefit will decrease by 0.6% each month (or 7.2% each year). If you start as early as possible (at 60) that’s a decrease of 36%. 

So, if you take your CPP benefits as early as possible, you’re monthly payment will decrease by $299.49 to $532.43/month. That’s the bad part.

The good part is that you’ll get CPP payments for an extra five years. Over the course of those first five years, when you would otherwise get nothing, you’ll receive $31,945.80 in CPP payouts.

So, you have to ask yourself ‘Is it better for me to sacrifice my long-term earning potential in favour of short-term earning?’ For some, that short-term thinking will make more sense. For others, it won’t.

Why you may consider taking CPP benefits earlier

• Forced retirement that leaves you with a gap in your monthly income
• You believe you may have a shorter life span due to illness or genetics

How much more you’ll get if you take your CPP benefits later

If, however, you choose to take your CPP benefits later, your benefit will increase by 0.7% each month (or 8.4% per year). If you start as late as possible (at 70) that is an increase of 42%, giving you a monthly benefit of $1,181.33.

But, you’ll miss out on $49,915.20 in payments you would have received if you had started at 65, or $63,891.60 if you had started at 60.

Why you may consider taking CPP benefits later

• Because CPP benefits are taxable, you will want to delay taking them while you’re still in the workforce.

Mind the gap

Keep in mind that if you retire at 60, and decide not to take your CPP benefits until 70, you’re adding ten years of low income to the calculations. Up to 8 years of that may be taken up by the 17% of your working life that is automatically dropped. But that means 2 years of 0 income are included in your CPP benefit calculations and the early years of your career (when you probably weren’t making a high wage) will also be included.

That will decrease the amount you receive from the CPP.

How much would your CPP benefits be if you took them now?

The calculations for CPP benefits span up to 50 years and can become quite complex, so it’s hard to even get a ballpark number for what you’ll receive by doing the math on your own. The good news is that you can get an estimate directly from the government through your My Service Canada Account by requesting a statement of contributions.