The Canadian Pension Plan (CPP) has had changes made to it in recent years to give Canadians more flexibility. But with this, has come more complexity. Today I would like to add some clarity to help you better understand how the program works.
From the age of 18 to 65, working Canadians are required to make CPP contributions.
Once an individual turns 65, they can continue to make contributions to CPP until they are 70. But they also have the option to opt out and cease making CPP contributions.
These contributions will be made to your post-retirement benefit (PRB) that will be paid monthly for the remainder of your life.
NOTE: The decision to continue or stop contributions is not set in stone. You can easily change your mind by submitting CPT30 Election to Stop Contributing or by completing section D of the same form to resume contributions.
At the age of 70, you cannot make additional contributions to your CPP.
Receiving Post Retirement Benefits
Because of the added flexibility, CPP benefit payments are not automatic. You must apply to start receiving them.
Most Canadians begin receiving their payments when they turn 65 but you have the option to start receiving payments anytime from 60 to 70 years old.
The amount you receive is based on …
- Your average working income throughout your life
- CPP contributions by you and your employer
- The age you begin receiving your benefit
Contribution and Benefit Payment Overlap
You may have noticed while reading through this information that there’s a potential 5 to 10 year overlap where you can receive benefit payments from CPP while also making contributions.
If you choose to start withdrawing your CPP while you continue to work and contribute to CPP, your CPP benefit payment will be automatically calculated by the government. They will update you with any increases in your benefit for each benefit year.
Whether or not you should continue contributing/start receiving benefits should be based on a cost benefit analysis.
You will need to consider …
- How much money you are earning
- Your level of expenses
- Whether your working full-time or part-time
- Whether you are an employee or self-employed
Ultimately the decision about when to start collecting your benefit, when to stop contributing and whether you should contribute while receiving benefits between 65 and 70 will be based on your unique situation.
For more information on CPP and to discuss the right plan of action for your situation, contact us today.