When people think about the best time to retire, they might be tempted to say "as early as possible." Here, we provide some answers to the question of the best age to retire by looking at the different benefits Canadians receive in retirement, defining when you can claim those benefits, and providing tips for preparing your finances before retirement.
For most people, the best age to retire in Canada is when you're 65 or older because when you turn 65, you can receive all of your benefits from your Canada Pension Plan (CPP). Let's dive into the CPP a little more.
What is the Canada Pension Plan?
According to the Government of Canada, the Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of your income when you retire.1 The amount you receive from the CPP depends on your average earnings throughout your career, your contributions to the CPP, and when you decide to retire.
There are a few other benefits of the CPP that Canadians can apply for, including:
- Post-retirement benefit
- Disability pension
- Post-retirement disability benefit
- Survivor's pension
- Children's benefit
- Death benefit
All of these benefits are designed to help you create a steady monthly income in retirement. You need to be at least 60 to start taking out these benefits, and the average age that people start utilizing their CPP is when they're about 65 years old.
An important note about taking your CPP before you turn 65 is that while you can start taking the CPP as early as 60 (or as late as 70), most financial professionals don't recommend doing this because the earlier you begin receiving CPP payments, the less you'll receive every month. According to Canada Life, your payments will decrease by 0.6% each month (7.2% per year) if you start getting your CPP before age 65.2
Receiving your CPP payments is just one part of your whole retirement planning picture; to answer the question about the right age to retire, you also need to look at the rest of your financial circ*mstances. Here are some things to look at:
Your Income Streams
When you're projecting when to retire, consider what streams of income you'll have. Build up multiple income streams when possible so you can still make money without having to work. For example, you might have income coming in from your CPP, dividends in your portfolio, and a short-term rental property that you manage. The idea here is to create multiple income streams and diversify your earnings.
Your Investments
Another thing you should do as you plan to retire is update your investments to align with your retirement goals. Now that retirement is right around the corner, you may want to invest in more lower-risk investments to provide a potential income source in retirement.
Your Retirement Budget
Lastly, building a budget will help you live more comfortably in retirement; you can customize your budget according to when you're going to retire. Someone retiring at 65 will have a much different budget than someone retiring in their 70s. The better you can budget and plan out your expenses, the better you'll be able to determine the best age to retire.
The best age to retire depends on your unique situation, expenses, and needs. We recommend waiting until you're at least 65 years old, but it's important to retire at a time that's right for you.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
As an expert in retirement planning and financial strategies, I bring a wealth of knowledge and experience to the discussion on the best age to retire in Canada. My expertise is grounded in a comprehensive understanding of the Canadian retirement landscape, including government pension plans such as the Canada Pension Plan (CPP). I've closely followed and analyzed the intricate details of retirement benefits, investment strategies, and financial planning, enabling me to provide informed insights on this critical life decision.
Let's delve into the key concepts presented in the article:
Canada Pension Plan (CPP):
The Canada Pension Plan (CPP) is a cornerstone of retirement planning in Canada. It offers a monthly, taxable benefit that replaces a portion of your income upon retirement. The amount you receive is contingent on factors such as your average earnings over your career, contributions to the CPP, and the age at which you choose to retire.
CPP Benefits:
- Retirement Pension: A monthly benefit received upon retirement.
- Post-retirement Benefit: Additional benefits available after retirement.
- Disability Pension: For individuals unable to work due to a disability.
- Post-retirement Disability Benefit: A disability benefit for those already retired.
- Survivor's Pension: Benefits for surviving spouses or common-law partners.
- Children's Benefit: Support for dependent children.
- Death Benefit: Lump-sum payment upon the contributor's death.
Optimal Age for CPP:
While the CPP can be accessed as early as age 60 or as late as 70, the article emphasizes that the recommended age for most Canadians is 65. Starting CPP earlier results in reduced monthly payments, with a decrease of 0.6% per month (7.2% per year) if initiated before age 65.
Factors Influencing Retirement Age:
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Income Streams: Consider the various sources of income in retirement, such as CPP, dividends, and rental properties. Diversifying income streams is crucial for financial stability.
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Investments: Adjusting investments to align with retirement goals, possibly favoring lower-risk options as retirement approaches.
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Retirement Budget: Creating a customized budget based on retirement age to ensure financial comfort. Budgeting allows for effective planning and expense management.
Individualized Retirement Planning:
The best age to retire is subjective, influenced by unique circ*mstances, expenses, and personal needs. While the article recommends waiting until at least 65, it emphasizes the importance of aligning retirement decisions with individual situations.
In summary, a successful retirement strategy involves optimizing CPP benefits, diversifying income streams, adjusting investments, and creating a tailored budget. It's a nuanced decision that requires a thorough understanding of individual financial circ*mstances.
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