The decision of when to start taking your Canada Pension Plan (CPP) is a significant one for many Canadians. While the average Canadian typically begins collecting CPP benefits at around age 65, a substantial number choose to start as early as age 60, and a smaller percentage wait until age 70 to maximize their benefits. Understanding the implications of each choice can help you make an informed decision that aligns with your financial goals and retirement plans.
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The Benefits of Waiting Until Age 70
Opting to delay your CPP benefits until age 70 can have a substantial impact on your retirement income. For every year you postpone receiving CPP benefits past age 65, your payments increase by 8.4%. By waiting until age 70, you could potentially receive up to 42% more in monthly benefits compared to starting at age 65. This boost can be particularly advantageous in managing living expenses, especially with rising healthcare costs and other necessities as you age.
Longevity and Financial Security
With Canadians living longer, delaying CPP can provide larger payments for a more extended period, which is beneficial if you live well into your 80s or 90s. The higher monthly amount not only acts as a hedge against inflation but also offers a financial cushion for unexpected expenses in later life. For those in good health with other income sources, waiting until 70 can be a prudent strategy to maximize retirement savings and ensure a more stable income.
When to Consider Early CPP Withdrawal
Taking CPP early at age 60 can be a practical choice for various reasons. While starting benefits before age 65 results in reduced monthly payments—about 7.2% less for each year before 65—this option might be necessary or beneficial in certain situations.
Immediate Financial Needs
If you need income sooner due to early retirement or health concerns, starting CPP at age 60 can help bridge the gap. This early access can be crucial if you’re no longer working and need to supplement your income. Additionally, if you anticipate a shorter lifespan or want to enjoy more active retirement years while still healthy, early CPP benefits can provide the financial support needed for travel and exploration.
Limited Savings or Pensions
For those with limited savings or pensions, starting CPP early might make sense to improve immediate cash flow. Even though delaying benefits increases your monthly payments, the reduction from early withdrawal is manageable if you have other income sources, such as investments or part-time work. Early CPP can also help if you plan to gradually reduce your workload, allowing you to use CPP benefits to supplement your income without depleting your savings too quickly.
How Investing Can Help Bridge the Gap
Investing wisely can be a valuable strategy to complement your CPP benefits and ensure a comfortable retirement. With rising living costs, focusing on low-volatility investments can offer stability and growth potential. One such option is the BMO Low Volatility Canadian Equity ETF (TSX).
Benefits of Low-Volatility Investments
The ZLB ETF targets Canadian companies with lower volatility, meaning these stocks are less affected by market fluctuations. This stability is particularly beneficial for retirees or individuals seeking to protect their capital while still achieving growth over time. The ETF provides exposure to consistently strong-performing companies, allowing for both capital appreciation and protection during uncertain market conditions.
Investing in low-volatility options like the ZLB ETF can help offset the gap that CPP benefits might not fully cover. By combining a strategic investment approach with your CPP benefits, you can enhance your financial security and enjoy peace of mind throughout your retirement years.
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Deciding when to start taking your CPP benefits depends on your financial situation, health, and retirement goals. Waiting until age 70 can offer significant increases in monthly payments, providing long-term security and a buffer against inflation. However, taking CPP earlier at age 60 may be more suitable for those needing immediate income or with shorter life expectancies. By carefully evaluating your personal circumstances and considering investment options like the BMO Low Volatility Canadian Equity ETF, you can make a decision that best supports your retirement planning.