Understanding the Canada Pension Plan (CPP)
The Canada Pension Plan (CPP) is a government-managed program designed to provide Canadians with a source of retirement income. As long as you’ve made contributions through your working years, you can receive a monthly pension once you retire. The amount you receive depends on how much and how long you’ve contributed.
When Can You Start Receiving CPP?
The standard age to start collecting CPP is 65. However, you have the flexibility to begin as early as age 60 or delay it until age 70. The timing of your decision can significantly impact your monthly payment:
- Early Retirement at 60: If you choose to start your CPP at age 60, your payments will be reduced by 7.2% per year (0.6% per month) for each year before your 65th birthday. This means if you start at 60, you’ll receive 36% less than if you had waited until 65.
- Deferring Until Age 70: On the other hand, if you wait until age 70, your payments will increase by 8.4% per year (0.7% per month) after your 65th birthday. By delaying until age 70, you could increase your monthly pension by up to 42%.
Can You Work While Collecting CPP?
Yes, you can work while receiving your CPP retirement pension without reducing the pension amount. In fact, continuing to work can even boost your future retirement income through the CPP Post-Retirement Benefit (PRB).
Here’s how it works:
- Under Age 70: If you work while receiving CPP and are under age 70, you are required to continue making CPP contributions. Each year that you contribute will add to your CPP post-retirement benefit, which will increase your monthly pension amount for the rest of your life. This benefit is automatically added to your payments the following year.
- Aged 65 to 70: Once you reach 65, you have the option to stop making CPP contributions if you wish. However, continuing to contribute can enhance your retirement benefits further. If you’re still working after age 70, your CPP contributions will stop automatically.
The Benefits of the CPP Post-Retirement Benefit (PRB)
The CPP post-retirement benefit is an excellent way to boost your retirement income. Every year you continue to contribute to the CPP while receiving your pension adds a new PRB, which will be paid to you for life starting the following year. This can be especially beneficial if you are still working and earning a good income.
Things to Consider When Deciding
If you’re considering working while on the CPP pension, it’s important to understand how additional income and contributions can impact your retirement plan. Balancing the desire for more income with the benefits of a relaxed retirement can be challenging. That’s where comprehensive planning comes into play.
To make informed decisions that align with your financial goals, I invite you to book a call with me. Together, we can craft a strategy that maximizes your retirement income while ensuring you enjoy the lifestyle you’ve envisioned.
For a deeper dive into retirement strategies, check out my book, “The Art of Retirement”, which guides you through making the best choices to achieve financial freedom in your retirement years.
