Choose Your Own Retirement Adventure

Choose Your Own Retirement Adventure: When Should You Claim CPP?

If you loved those “Choose Your Own Adventure” books, you know how a single choice could plunge you into thrilling twists and turns. Retirement, believe it or not, has its own share of suspense—especially when it comes to choosing when to start taking Canada Pension Plan (CPP) benefits.

I know, I know, this isn’t the most exciting topic for an adventure, but it’s something on the minds of most retirees as they approach their 60s. To help set the stage, here’s a quick Coles Notes version of what CPP is (source: Government of Canada, 2024):

What is CPP?

• A government-run program providing retirement income, as well as disability and survivor benefits, funded by contributions from workers and employers.

Who Contributes?

• Anyone aged 18–69 earning a salary above $3,500 annually.
• Both employees and employers contribute (2024 rate: 5.95% each of pensionable earnings).

How It Works for Retirement:

• Start benefits as early as age 60 (reduced by 0.6% for every month before 65).
• Wait until age 70 for a higher payout (increased by 0.7% for every month after 65).

Monthly Benefit (2024):

• Maximum at age 65: $1,364.60, but most receive less, based on their contribution history.
• Payments continue until you die, and a portion is left to your spouse (if they are not at the max) until they die.

Indexed to Inflation:

• Payments increase annually to keep pace with the cost of living.

Other Considerations:

• Other items such as dropout years, new enhancements, and how the benefit is adjusted yearly is beyond the scope of this article.

To help us understand the implications of CPP and when to start taking it, let’s approach the topic through the lens of a Choose Your Own Ending story. 

The Plot

Meet Jane (60 years old) and Alan (60 years old), a newly retired couple ready to embark on the next chapter of their lives. But like characters on the brink of a big decision, they’re standing at a financial crossroads. Alan is itching to claim CPP now—after all, what if he misses out on it later? But Jane, eyeing the long road ahead, feels they should hold off and secure a larger payout. Each choice has consequences, and each one is a gamble.

Now it’s your turn. Will Jane and Alan claim early or wait it out? Choose wisely—their future could take a surprising turn! Pick between the 3 options.

Scenario #1: Jane and Alan Claim at Age 60 – “Enjoy Now, Worry Later?”

Jane and Alan jump at the chance to claim their CPP as soon as possible. They see those monthly payments as a ticket to live life now, with more freedom and fewer limitations. The dream of “freedom 60” is finally here—immediate money to spend on travel, hobbies, and, as they jokingly call it, “the good life.”

But as the years pass, reality creeps in. Those vibrant plans for retirement start to dim when they realize that their monthly CPP payments are set for life—and inflation waits for no one.

Pros:

• Immediate, steady income they can use to live the life they want, right now.
• More financial flexibility in their younger years to travel, dine out, and spend on hobbies they love.
• If Jane or Alan were to die prematurely, the surviving spouse would get some of their benefit so it would not be “wasted”.

Cons:

• Smaller monthly payments mean they’ll have less income later, and as healthcare costs rise, their budget starts to feel strained.
• A shadow of worry lingers—if they live well into their 80s or 90s, will this income be enough to cover unexpected expenses?

Possible Ending: The thrill of early retirement feels great at first, but by their late 70s, Jane and Alan find themselves stretching every dollar to make ends meet. The freedom they enjoyed at 60 now feels like a costly trade-off as they face the challenge of funding their longer-than-expected lives.

Scenario #2: Alan Claims at 60, Jane Waits Until 70 – “The Balanced Act”

In this version of their story, Alan decides to take CPP at 60, giving them some extra cash flow to cover everyday expenses. But Jane, ever the cautious one, holds out until she turns 70. It’s a compromise: they can enjoy a little more now, but still feel secure about their future.

Pros:

• A balanced approach: Alan’s payments start immediately, easing some pressure on their savings, while Jane’s delayed CPP creates a powerful safety net for the future.
• Jane’s larger payments add peace of mind as they age, providing more income security and options for later-life expenses.

Cons:

• Jane’s wait means they’re more reliant on Alan’s income and savings for the next decade, which may feel a little tight.
• They have to tread carefully with their spending, as Jane’s decision to delay means resisting the urge to dip too deeply into their nest egg.

Possible Ending: Jane and Alan find themselves feeling grateful for Jane’s patience. While the first few years were a little tighter than expected, Jane’s higher payments at 70 help them relax about healthcare costs and unplanned expenses. The wait pays off, though they look back on their earlier years and wonder if they missed out on any of the fun.

Scenario #3: Both Delay Until Age 70 – “The Long Game”

Jane and Alan decide to wait until 70, banking on the promise of significantly higher CPP payments. They’re betting on their health, their savings, and their patience. The early years of retirement are a little quieter—less travel, more “staycations,” and careful budgeting—but they hold strong, eyeing that future income.

As the months roll by, they keep wondering, “Are we making the right choice?” It’s not always easy to watch friends their age living it up while they’re keeping things modest. But they tell themselves the peace of mind at 70 will be worth it. They are also remembering that there is a 25% probability that they will live until age 96 (Jane) and 94 (Alan).

Pros:

• Delaying until 70 guarantees 42% higher CPP benefits, giving them lifelong income that adjusts with inflation.
• With larger monthly payments, they’re well-prepared for the later years when healthcare and personal care costs could rise.
• By drawing down their RRSPs, they are able to reduce their overall tax and bill throughout retirement and upon their death.

Cons:

• For the first decade, they live a little leaner than they might like, relying on savings to bridge the gap.
• The “will we make it?” anxiety is real, especially in their early 60s, when it’s hard not to wish for more spending freedom.
• If they both die before 70, they and their family would not see anything from CPP – something that paid into for so many years!

Possible Ending: Jane and Alan finally hit 70, and the relief is real. The boosted income lets them breathe easy, knowing they’ll be able to handle unexpected expenses without stress, and without relying on positive market returns. But every now and then, when they look back at photos of younger friends living their best lives, they feel a twinge of regret. Did they sacrifice a little too much? Or was the peace of mind worth it?

Reflection: Choosing the Path That Fits Your Future

Each scenario has a dose of drama and a unique “ending.” Like every good adventure, there’s no single “right” choice—it’s about finding what fits your priorities. For some, it’s maximizing early enjoyment, while for others, it’s about securing a lifelong safety net. And, just like in the Choose your own Adventure books, once you pick a path, there’s no going back (well, unless you change your mind within 6 months)!

In the end, deciding when to claim CPP relies on many factors. Whether you choose to claim early or wait, remember that the adventure lies in crafting a retirement that feels fulfilling, secure, and aligned with your goals.

So, which adventure would you choose?

Reach out and chat with us today! We will help you strike the balance for your situation.