Over 65 and Still Working? Are You Needlessly Paying CPP Contributions

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Retirement Income Planning, Calgary

What will happen if you have made the maximum CPP contributions are still working and decide to delay taking your CPP past age 65?

Your CPP benefit is based on how much you contributed to the plan for the 47 years between the ages of 18 - 65. The rules allow you to drop off 17% of your lowest earning years (8 years) and calculate your CPP based on your best 39 years of contributions. If you take CPP at age 60 then your benefit will be based on your best 35 years (42 years minus 17%).

When you get your Statement of Contributions from Service Canada you can see how much you contributed to CPP since you were 18 years old. The far-right column will have a "0" if you didn't earn enough that year to make a contribution. It will have a "B" if you earned below the maximum and it will have an "M" if you earn the maximum. Very few Canadians qualify for the maximum CPP (In 2019 the maximum benefit would be $1154.58/month).

Let's say Fred has 39 years of maximum contributions and he is age 65 and still working. If Fred delays taking CPP will he get more? The short answer is yes. For each month that Fred delays taking his CPP past age 65, his benefit will increase by .7% per month. You should only delay to age 70; after that, there is no bonus for delaying. At 70 years old, with 39 years of maximum contributions, deciding to take CPP at age 70 in 2018, Fred would receive $1639.51 per month. (42% more than what he would have got at age 65).

Here's the bad news.

If an individual already has 39 years of maximum contributions at age 65 and they do not opt to take their CPP at age 65 and are still working, they are also required to keep making contributions up to age 70. Those contributions will not add a single cent to their benefit. If they were earning at least $57,400 they would be paying in $2748.90 in CPP contributions, as would their employer, but with no additional benefit. A self-employed person would be paying both employer and employee parts ($5497.80).

Now let's muddy the water a bit more. Let's imagine another individual. Let's call him Bill and Bill decides to take his CPP at age 65 and he has 39 years of maximum contributions so he gets the maximum of $1154.58 per month. But, Bill is still working from the age of 65 to 70 and he opts to keep contributing to CPP. Bill will receive what is called Post Retirement Benefits.
Read more about these PBR's. So, let's just say that Bill earns more than $57,400, which is the YMPE (Year Maximum Pensionable Earnings) each year from age 65-70. Here's what his CPP cheque will look like.

Age 65: $1154.58/month or $13,854.96/year
Age 66: $1183.66/month or $14,203.97/year
Age 67: $1212.52/month or $14,550.29/year
Age 68: $1241.38/month or $14,896.61/year
Age 69: $1270.02/month or $15,240.24/year
Age 70: $1298.88/month or $15,586.56/year

Total Received by age 70: $88,332.63

It will take until age 93.5 for Fred and Bill to have received the same benefit from their CPP. ($462,000) The difference is, Bill had his money at a much younger age to enjoy. Statistically, only one of them will reach age 94.

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