The Decision That Can Cost You $100,000
When to begin collecting Canada Pension Plan (CPP) benefits is one of the most financially significant decisions a Canadian retiree makes — yet most people make it based on incomplete information or outdated conventional wisdom.
The standard advice has long been: "Take CPP as soon as you can." But for many Canadians, particularly those in good health with other income sources, delaying CPP to age 70 can add $100,000 to $200,000 in lifetime benefits compared to taking it at 60.
Understanding the mechanics, the break-even analysis, and the interaction with other income sources is essential to making the right decision for your specific situation.
How CPP Works: The Adjustment Formula
CPP benefits are calculated based on your contributions over your working life, with the maximum monthly benefit in 2025 set at $1,433.00 (for those who contributed at the maximum rate for 39+ years). Most Canadians receive less than the maximum.
The critical variable is when you start collecting:
| Start Age | Monthly Adjustment | Effect on $1,000 Base Benefit |
| 60 | -0.6% per month early | $640/month (36% reduction) |
| 61 | -0.6% per month early | $712/month (28.8% reduction) |
| 62 | -0.6% per month early | $784/month (21.6% reduction) |
| 63 | -0.6% per month early | $856/month (14.4% reduction) |
| 64 | -0.6% per month early | $928/month (7.2% reduction) |
| 65 | No adjustment | $1,000/month (base) |
| 66 | +0.7% per month late | $1,084/month (8.4% increase) |
| 67 | +0.7% per month late | $1,168/month (16.8% increase) |
| 68 | +0.7% per month late | $1,252/month (25.2% increase) |
| 69 | +0.7% per month late | $1,336/month (33.6% increase) |
| 70 | +0.7% per month late | $1,420/month (42% increase) |
The Break-Even Analysis
The break-even point is the age at which the cumulative benefits from a later start date exceed the cumulative benefits from an earlier start date.
Break-even between age 60 and 65: Approximately age 74 Break-even between age 65 and 70: Approximately age 82–83This means:
Given that a 65-year-old Canadian has a life expectancy of approximately 86 years (men) to 88 years (women), the break-even analysis favours delaying CPP for most people in good health.
The Tax Dimension: Why High Earners Should Almost Always Delay
For high-income retirees, the tax implications of CPP timing are as important as the break-even analysis.
CPP benefits are fully taxable as ordinary income. If you are still working or have significant other income at age 60–65, taking CPP early means paying tax at your highest marginal rate — potentially 40–50% in higher-income provinces.
By contrast, delaying CPP to 70 and drawing down RRSP/RRIF assets in the interim can result in:
1. Lower tax on RRSP withdrawals — if you retire at 60 with reduced income, RRSP withdrawals may be taxed at 25–33% rather than 40–50%
2. Higher CPP benefits taxed at lower rates — by age 70, many retirees have depleted their RRSP/RRIF to manageable levels, meaning CPP income is taxed at lower marginal rates 3. Reduced OAS clawback risk — a larger CPP benefit combined with smaller RRIF withdrawals may actually reduce total income and OAS clawback exposureThe OAS Interaction
Old Age Security (OAS) begins at age 65 (or can be deferred to 70 for a 36% increase). The interaction between CPP and OAS timing is complex but important.
The OAS clawback threshold in 2025 is $90,997. If your combined income from CPP, OAS, RRIF withdrawals, and other sources exceeds this threshold, you begin repaying OAS at 15 cents per dollar.
For a retiree with a large RRIF, taking CPP early at 60 and OAS at 65 may push total income above the clawback threshold during the years when RRIF withdrawals are also high. Delaying CPP and coordinating with RRSP meltdown strategies can keep income below the clawback threshold throughout retirement.
Case Study: Three Retirement Scenarios
Consider a 60-year-old professional retiring with:
The difference between Scenario A and Scenario C is $99,792 in lifetime CPP benefits — before accounting for the tax advantages of delaying.
When Early CPP Makes Sense
Despite the general advantage of delaying, there are situations where taking CPP early is the right decision:
Health considerations: If you have a serious health condition that significantly reduces life expectancy, taking CPP early maximizes total lifetime benefits. The break-even analysis assumes average life expectancy; if you expect to live to 75 rather than 87, taking CPP at 60 may be optimal. Immediate income need: If you have retired early and have no other income sources, CPP at 60 may be necessary to meet living expenses while preserving RRSP assets. Low RRSP balance: If your RRSP balance is modest and you do not face OAS clawback risk, the tax optimization arguments for delaying are less compelling. Spousal considerations: If your spouse is in poor health or has a significantly shorter life expectancy, the household income optimization may favour taking CPP earlier.The CPP Enhancement: Post-2019 Contributions
Since 2019, the CPP has been enhanced, with higher contribution rates and higher maximum benefits. Workers who contributed to the enhanced CPP between 2019 and their retirement date will receive a higher "CPP2" benefit in addition to the base CPP.
The CPP2 benefit is calculated separately and subject to the same age adjustment rules. For younger workers (currently in their 40s and 50s), the enhanced CPP will represent a more significant portion of retirement income than it does for current retirees.
Making the Decision: A Framework
The optimal CPP timing decision depends on five key factors:
1. Health status and family longevity — the most important factor. If you have a family history of longevity and are in good health, delay strongly favoured.
2. Other income sources — the more income you have from other sources (RRIF, pension, investment income), the stronger the case for delaying CPP to avoid OAS clawback.
3. RRSP/RRIF balance — a large RRSP balance argues for taking CPP later (to allow RRSP meltdown at lower tax rates) or earlier (if RRIF withdrawals will already push income above clawback thresholds).
4. Spousal situation — income splitting, survivor benefits, and coordinated CPP timing can significantly affect household optimization.
5. Risk tolerance — CPP is a guaranteed, inflation-indexed benefit. Delaying CPP is essentially "buying" more guaranteed income at the cost of drawing down other assets. For risk-averse retirees, this trade-off is often attractive.
The Bottom Line
For most Canadians in good health with other income sources, delaying CPP to 70 is the optimal strategy. The combination of higher guaranteed income, inflation protection, and tax efficiency makes the delay worthwhile for those who can afford to wait.
However, the "right" answer depends entirely on your individual circumstances. A comprehensive retirement income plan — one that models CPP timing in conjunction with RRSP meltdown, OAS deferral, and tax bracket management — is the only way to determine the truly optimal strategy for your situation.