Advertisement
In Canada, paying into CPP if you work—at whatever age—is mandatory
Q: I am 55, paid into CPP for the last 37 years, most of them at the maximum, I am now working part time as a self-employed contractor. Is there any advantage to me continuing to pay into the CPP for the next five years until I plan to start drawing CPP? I make around $100,000 per year as a contractor.
—Lawrence, Spruce Grove, Alta.
A: Lawrence, contributing consistently to CPP for 37 years positions you for about 95% of the maximum entitlement. You’re almost there! In fact, very few pensioners are collecting the maximum, so you’re doing well!
During your working years between ages 18 and 65, you are allowed to drop eight of your lowest earning years out of the calculation. Those eight years are ahead of you with only 10 years left to age 65. You will have no trouble reaching the maximum with another 2 years of income at over $55,300 (Yearly Maximum Pensionable Earnings).
Your reasoning to stop contributing to CPP is sound BUT you simply do not have that choice. CPP is a mandatory contribution program. All employment AND net self-employment earnings call for contributions to CPP until age 65. It looks as though you will be contributing for a few years without an added benefit.
You stated the intention to elect to start CPP at age 60 but didn’t actually say you are done with contracting. I ask as CPP is taxable income on top of the contracting taxable income should you work into your 60’s. A better choice is to wait until your earnings end and then start CPP.
The CPP benefit is based on an age 65 pension starting point. You can choose to receive it as early as age 60 but at a 36% reduction and continuously reduced for the rest of your life.
Age 60 Age 65
$8,557 $13,370
Live beyond age 74 and your patience will be rewarded. The unreduced age 65 benefits will catch up to the reduced age 60 benefits even with the 5-year head start.
Tom Feigs is a Certified Financial Planner at Money Coaches Canada
MORE FROM A RETIREMENT EXPERT:
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Practical advice on how to build your retirement savings for employees at mid-career, the self-employed, single parents and more.
Here’s how Canada’s Old Age Security pension works, who’s eligible for OAS, when you can start receiving OAS, and...
Here’s how Canada’s retirement pension plan works, who’s eligible for CPP, when you can start receiving CPP, and CPP...
While not guaranteed like an annuity, MyRetirementIncome is a flexible and simple financial product for those needing to convert...
A Certified Financial Planner provides perspective on the TFSA vs. RRSP question for a couple in their late 50s...
In retirement, some income is not subject to withholding tax, and you may potentially owe tax after filing each...
From legislative changes to economic trends and consumer behaviours, here are 25 financial highlights that defined the last two...
With a mix of pension benefits, registered accounts and other assets, it’s entirely possible to build a comfortable retirement.
Do Canadians need to consolidate RRSP accounts before converting to RRIFs? Find out this and more.
How much money do you need to retire in Canada, and what sources of income can you rely on...
I,m 68 and I,d like to know if I can claim my ccp for the last 3 years
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
My wife turns 60 in July, she worked a few yrs. but mostly stayed home to raise 3 children.
Her CPP will be only $53 a month, however she can apply for a child rearing provision.
Any idea of how much the child rearing provision would add to her CPP?
They say you have to apply for your CPP first and then they let you know your child rearing amount. Thanks Sidd
“Your reasoning to stop contributing to CPP is sound BUT you simply do not have that choice. CPP is a mandatory contribution program. All employment AND net self-employment earnings call for contributions to CPP until age 65. It looks as though you will be contributing for a few years without an added benefit.”
Sure he has a choice. He can incorporate and pay himself in ineligible dividends. With his high income level its probably a very viable option for him taxwise as well.
Can you elect to stop paying Into CPP after age 65 if you have not yet claimed CPP benefits?
Hello J, thanks for your question.
Due
to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected],
where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.