Why So Many Canadians Take CPP Early Even When They Shouldn’t
Every financial planner has been there.
You’re sitting across from a perfectly healthy 64-year-old who has more than enough saved, no debt, a paid-off home, a reasonable spending plan, and a strong likelihood of living well into their 80s or 90s. They have zero financial need to turn on CPP today.
And yet, as predictably as sunrise, they say, “I’m just going to start CPP at 65. Why wait?”
Or sometimes it’s the healthy 60-year-old who retired a bit early: “I can take CPP now, right? I’ve paid into it my whole life and I want to start getting something back.”
This is one of the most consistent behavioural puzzles in retirement. More than 90 percent of Canadians claim CPP at 65 or earlier, and fewer than 5 percent delay to age 70. All this despite the fact that delaying from 60 to 70 increases CPP benefits by 122 percent for life. Indexed, guaranteed, for as long as you live.
Bonnie-Jeanne MacDonald from the National Institute on Ageing has shown repeatedly that the average Canadian who claims CPP at 60 instead of 70 leaves more than $100,000 of secure, inflation-protected income on the table.
She calls delaying CPP the best retirement deal in Canada. And yet most people walk right past it.
Let’s unpack why.
The Boring but Important Math
CPP can start anytime between ages 60 and 70.
Start early and you get hit with a reduction of 0.6 percent per month before 65. That’s a permanent 36 percent cut at age 60.
Start late and you get a boost of 0.7 percent per month after 65. That’s a permanent 42 percent increase at age 70.
Those two adjustments together create the 122 percent difference between a pension taken at 60 and the same pension taken at 70.
All of this is indexed to inflation.
Add in the fact that a healthy 65-year-old in Canada today can expect roughly 20 more years of life, and delaying looks less like a gamble and more like prudent insurance. The real financial risk for most Canadians isn’t dying early. It’s living a long time without enough guaranteed income.
When Taking CPP Early Does Make Sense
There are absolutely cases where starting CPP early is rational.
- Serious health concerns
- Strong family history of dying young
- No savings and a need to cover essential spending
- High-interest debt that needs to be eliminated
- Complex survivor income situations
This article is not about those cases.
This is about the many Canadians who absolutely can delay CPP, with almost no trade-offs, but simply don’t.
The Maddening Middle: People Who Could Delay, But Won’t
These are the regular Canadians I see all the time. They are healthy, financially secure, carry no debt, and have more than enough invested to support their spending in their 60s. Their retirement plans work beautifully without CPP. They could delay to 70 with confidence.
And yet they do not.
Here are the five most common objections I hear, and the responses that actually move people.
- “I want my money back.”
This is the ownership instinct. They see CPP as a personal account they paid into, not as a pension.
What I say:
CPP is not a bank account. It is insurance against outliving your savings. Delaying CPP is equivalent to increasing the value of that insurance policy dramatically and permanently. If you are healthy, the value of delaying is far higher than the value of grabbing small cheques early. The math is not even close.
- “What if I die early”
This is always rooted in fear. Maybe a parent died young. Maybe someone close to them never saw retirement.
What I say:
If someone had a serious diagnosis or a genuine reason to expect a shortened life, I would encourage them to take CPP early. But for a healthy 60- or 65-year-old in Canada today, the statistics heavily favour living a long time. The true financial danger is not dying young. It is living into your 80s or 90s without enough guaranteed income.
There is no financial tragedy in dying at 72 with money left over. But living to 92 and running short is a real risk.
- “The government will probably change the rules”
This is one of the most common anxieties and one of the least grounded in reality.
What I say:
CPP is jointly governed by the federal government and the provinces. It cannot be changed on a whim. Every reform in the last 25 years has been gradual and aimed at strengthening the plan, not weakening it.
And if someone genuinely fears future cuts, that actually strengthens the argument for delaying. Governments want people to delay. Weakening that incentive would undermine the system.
- “I’ll take CPP at 60 and invest it myself”
This usually comes from confident DIY investors.
What I say:
Delaying CPP is equivalent to earning a guaranteed 8.4 percent return each year from 65 to 70, plus inflation. There is no way to match that in a real-world portfolio without taking on substantial risk (and for markets to cooperate). And those risks get magnified if markets decline early in retirement.
Earning 8 to 10 percent per year after fees and taxes, for five straight years, without volatility or sequence risk, is extremely difficult even for skilled investors. CPP is offering a risk-free version of that.
- “I like having all my income taps turned on”
This is more common than you’d think. People like the psychological comfort of multiple income streams flowing in at once.
What I say:
Think of CPP as your late-life raise. Your own portfolio can easily cover your early retirement years while you leave CPP in the oven to bake a while longer.
At age 70, a much larger, inflation-protected benefit kicks in at exactly the stage of life when cognitive ability starts to decline and you crave simplicity and automation. A larger, guaranteed, paid-for-life CPP payment landing in your chequing account every month sounds like a win.
And if psychological comfort is the goal, we can always carve out a cash wedge to support spending in your 60s while CPP keeps growing.
A Simple Rule of Thumb
If you are in decent health, have enough savings to support your 60s, and your retirement plan works with a starting withdrawal rate of around 4 to 5 percent while you wait, delaying CPP to 70 is usually the better option.
This is not about winning a break-even spreadsheet comparison. It is about giving your future self a larger, safer, inflation-indexed pension at the very time of life when guaranteed income matters most.
Delaying CPP remains the simplest, highest-value, least risky way to strengthen a Canadian’s retirement income.
And it still amazes me how few people take advantage of it.
Fantastic article as it describes me perfectly. I just turned 60 and solid financially, I am in the ‘What if I die early’ category. Concern I have is that CPP money is gone when I die. It cannot be given to a survivor so take it while you can. Healthy today can quickly change.
When 90% of people are claiming it early it is time to change the age. Obviously there is an underlying issue with the program.
This article ignores the lost CPP benefit amount for 5-10 years. A simple calculation sheet assuming a 5% return on your investments and 3% inflation rate shows a breakeven age of 84. If you are single there is no survivor benefit either.
This is an excellent point. Does this “break even” change direction if you make it to age 90? But what percent of people make it to over 85? And what about wanting to spend more money in the early “go go” retirement years.
I think it’s simplistic to think everyone will live over 80 and will spend the same on lifestyle if they do
I did the math as well and I’d have to live into my 80s to break even with delaying to 70. You’re not guaranteed anything, so I say take it when you can and invest it if you don’t need it!
From Fred Vettese: “In the case of a couple who are both aged 65, the husband has a 40-per-cent chance of living until 90, while his wife has a 50-per-cent chance of doing the same. The chances that at least one of them will live until 90 is higher again, at 70 per cent.”
Also, no one is saying to delay living your best life until 70. Just get the money from somewhere else if you can, like your RRSP. It’s more tax efficient over your lifetime and leads to more lifetime income.
Now try with -5% annual return on your investment. Also possible.
I am not a fan of this type of calculation. Its comparing apples and oranges. Stock returns are not guaranteed. Buy a bond, account for tax and your real return is in the red.
Yes Correct. Most people must start at 65.
I do not regret taking CPP early-ish (62.5). It helps a bit with the OAS clawback…
Also, our historical investment returns did pretty OK, making up much of what was given away from not waiting 7 years for CPP.
It all worked out and I would do it again (probably), but yes, you make excellent points, thanks.
My calculation is for delaying from 65 to 70.
As the article says…if you NEED it take it.
If you don’t, you’re an IDIOT not to wait.
It takes 7 yrs to recoup the difference if you wait.
Great article. I’ve delayed CPP until 70 because of reading articles like this. Looking forward to receiving the steady income in a few months.
“ Delaying CPP is equivalent to earning a guaranteed 8.4 percent return each year from 65 to 70, plus inflation. ”
Not really. Increase in annual payments is not how you define “return”. Actual return is going to be subject to longevity and isn’t guaranteed.
Comparing to buying an annuity would be accurate. And its a very good deal you can’t get on the market. Someone who has a large DB pension or a massive portfolio might not need it but many people do.
I started CPP at 63. I look at it as a very mild misstep, now that I am 73. But not really too much ;-).
I am one of the less than 5% who waited until 70. I also took advantage of Ed Rempel’s 8-year GIS strategy, although not for 8 years. With that strategy, one should normally delay CPP.
Every year of delay = purchase of an inflation-protected annuity with survivor benefits. These are not available in Canada and the cost is low when comparing to inferior annuities which are available. So, every year of delay is a good thing – unless you have strong reasons to suspect short life expectancy, already have lots of DB income or are desperate for cash today
What about somewhere in between? Does it make sense to delay until 67? Or is it only waiting until 70 that makes sense?
If found it helpful to model out the CPP receipts including indexing and inflation for different periods. Modeling it out to ages 75 and 80 identified a “sweet spot” at roughly age 66. From there the cumulative amount received start to decline to target end date. Modeling to age 85 showed a later date was appropriate. My model did not account for PV or expected earning rates net of tax. Models trump rule of thumb.
Let’s flip it for a second – you’re in your low 60s and have some illness that comes with a shortened life expectancy. You’re probably going to want to take CPP early. But if you also have a healthy spouse, could taking CPP early have a negative effect on them? Is there ever a case where a someone with a terminal diagnosis shouldn’t immediately apply for CPP (let’s say CPP-Disability was already applied for but not approved, so it’s off the table).
I delayed CPP after reading all three editions of Frederick Vettesse’s great book, Retirement Income for Life. It took me some convincing, but the real reason for me doing this is because CPP is guaranteed, unlike the returns on my RRIF. If there is some financial crisis, I’ll be getting a solid reliable income from CPP.
We have elected to delay cpp until 70 as we simply don’t need it now but speaking to a few people at our club and it was eye opening that a lot of them took it early simply because they believed that the Liberals will run the country into the ground and cpp will cease to exist.
My wife and I delayed our CPP enrollment until almost, though not quite to, age 70.
I “console” myself, with respect to the “what if we die early” argument, with the recognition that what we wouldn’t get (by dying early) will instead go to benefit those who might otherwise have less through living longer — in one sense we’d be “paying it forward”. Once we are dead and don’t need it, why shouldn’t someone else (or even the CPP Investment Board itself indirectly) actuarially benefit.
That applies even though both of us are at the point where, should one of us die early, little if any of the deceased’s CPP would go to improve the CPP payments of the survivor.
We took our CPP at 60. Both healthy then but my wife died at 68. There are no guarantees that you will survive long enough to enjoy the higher pay out.
You left out one example of when taking CPP at 65 might make sense: if you continue to work after 65, particularly if you are self employed. As long as you are working and not taking CPP you are required to continue contributing to CPP. Self employed workers contribute both the employee and employer portions – that adds up and changes the cost benefit calculation of waiting to take CPP.
My considerations for taking CPP at 60 were three-fold:
1. I had used up my maximum allowable lower income exemption years with schooling. Leaving employment at 58, with absolutely no interest in any additional work options, meant 7 more zero income years in the calculation.
2. Considering our overall household income – since an individual may only receive one maximum CPP amount, in the event of my wife’s death, her full amount would be lost if I delayed for the larger CPP payment.
3. I had no need for the elevated CPP at a late-stage of my life when my RRIF income would be sustantial and OAS claw-back, a likely event.
This, along with increased investment income returns remaining sheltered in my RRSPs, made the decision a reasonable one for our household.