So, you are thinking about working in your retirement. Maybe you crave a new sense of purpose or maybe you want the money. Whatever your reason for working, you should be aware of the impact that working in retirement has on your Canada Pension Plan (CPP).
If you already collect a CPP pension, your age determines whether you have to keep contributing to the plan while working. From ages 60 to 64, you must contribute to the CPP. From age 65 to 69, you can choose whether to contribute. Once you reach 70, you will stop making CPP contributions.
If you continue to contribute to CPP, you’ll earn a Post Retirement Benefit (PRB). The PRB will be added to your monthly CPP pension. This happens even if you already receive the maximum CPP pension amount. This PRB will continue to be paid for life and is indexed to inflation each year, just like your CPP pension.
Also, for each year that you work while collecting CPP and contributing to CPP, you will earn a new PRB. This new PRB is added to any PRB you already earned. This can add up, as we’ll demonstrate.
For example, if you are 65, your monthly PRB can be as high as $392 for 2023, depending on your earnings. This may not sound like a lot of money. Let’s say, though, that you work another four years and earn the same $392 PRB each year. After five years of contributing, your annual PRB can now total up to $1,960. This amount will be indexed to inflation and paid out each year for the rest of your life. This can result in a high return on your investment in some cases.
You will be paid the PRB automatically the year after your contributions are made.
Speak to a financial advisor to see if continuing to contribute to CPP makes sense for you.
Maybe you are considering slowing down and working less hours. If you haven’t already started to take your CPP pension, could several years of lower earnings reduce the pension you worked so long to grow? The answer is – it depends.
The CPP pension calculation will automatically remove your lowest earnings years from your earnings history. For example, if you wait until age 65 to take your pension, up to eight years of your lowest earnings would be excluded from the calculation. So, if you have had zero, or few, years where you didn’t make the maximum CPP earnings, working reduced hours may not affect your CPP pension. On the other hand, if you had many years of low-to-zero income, your CPP pension could be reduced.
As well, CPP has a relieving provision for months you were disabled or for months you were at home caring for your children under the age of 7.
Speak to a financial advisor to see if working reduced hours could reduce your CPP pension.
Information contained in this article is provided for information purposes only. Its not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.