Should I delay my CPP if I’m not contributing to it?

Ask MoneySense

Do all the advice articles about waiting to take CPP at age 70 take into account the calculation of your eligible amount if you stop working and contributing at, say 60 years old, and therefore have 10 years of no contributions? –Gary

An applicant can begin their Canada Pension Plan (CPP) retirement pension as early as age 60 or as late as age 70. The earlier you start your pension, the lower your payments. Deferring CPP will result in higher monthly pension payments, albeit for a shorter period of time—fewer total months of payments—over the rest of your life.

Retiring at 60 or earlier

If someone retires at age 60, Gary, their CPP contributory period that began when they turned 18 could be as much as 42 years. I say “as much as” because periods of disability or when your income was low because you were the primary caregiver for your children may be eligible to drop out from the CPP calculation. This contributory period is important because if you do not make the maximum contributions during this period, you will generally not receive the maximum CPP retirement pension.

What do most people receive from CPP?

Most people do not receive the maximum. In fact, the average monthly CPP retirement pension payment at age 65 as of January 2024 was only $831.92, well below the maximum of $1,364.60. That means the average applicant is receiving less than 61% of the maximum.

General dropout and zero-income years after 60

There is a general dropout period from the CPP calculation of 17% of the years in your contributory period, which would be about seven years at age 60 for someone with no periods of disability or child-rearing eligibility. Let us build on this example, Gary. If you are 60 and defer CPP to age 61 while not working, this may result in one more year of zero contributions and a contributory period (after the general dropout) that increases to 36 years. One divided by 36 equals about 2.78%. That could be the reduction in your CPP for deferring while having no income. However, deferring CPP results in a 0.6% monthly increase in your pension, or 7.2% per year. This is regardless of your contributory period. So, in our example, a year of deferring results in a 7.2% deferral increase but a 2.78% zero-income decrease. The net benefit is still a 4.42% increase in your pension plus the annual inflation adjustment. A year of no income for someone with less than the maximum required contributions between 60 and 65 does have a small negative impact on the benefit of deferring, Gary. But deferring still results in a higher pension in this example.

Deferring CPP after 65

If you defer CPP past age 65, you can drop up to five additional years from your contributory period for the years between 65 and 70. That means years with no earnings after age 65 will not impact your retirement pension when you defer after age 65. CPP deferral after age 65 will boost your pension by 0.7% per month or 8.4% per year plus an annual inflation adjustment. Statistics show few people defer CPP after age 65. Generally, in recent years, less than 5% have waited until age 70.Ultimately, CPP timing should be a somewhat personal decision based on contributory history, life expectancy, investment risk tolerance and, of course, income needs. Healthy seniors, especially women (who tend to live longer than men) and those with a lower investment risk tolerance, may benefit from deferring CPP.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.