Q&A: Contributing to the CPP

Here, a reader wonders if it’s a good idea to earn the new Post Retirement Benefit after age 65.

 

Q – I will be 66 this fall and have been collecting my CPP since I turned 60. I retired from my full time job when I turned 60 and one year later I started working part time (6 months/year). Because I was receiving my CPP I was not required to pay into the plan.

When I was 64 the law changed and I was forced to begin paying into the plan again.  When I turned 65 I was informed that I had the option to quit contributing but to date I have not done so. My Post Retirement Benefit (PRB) after contributing for three months in 2012 was $14.80 per month. In 2013 my contribution to the plan was $1,556.00. My question: Is it beneficial for me to continue paying into the CPP? – Henry D.

 

A – This is not a simple question to answer. It involves making several assumptions including one that is unknowable – how long you will live. Last year, I asked Human Resources and Skills Development Canada (HRSDC) to provide a specific illustration for a column I wrote in Zoomer magazine. It was based on a woman who turned 65 on January 1, 2013, was drawing CPP, and continued to work. Her gross annual income was assumed to be $57,000 and she intended to work until her 70th birthday. HRSDC also assumed her maximum pensionable earnings (the maximum amount of earnings used to calculate contributions to the CPP) would grow by 2% a year. Based on this, these are the voluntary contributions this person would make each year.

2013 (age 65) – $2,356.20

2014 (66) – $2,406.79

2015 (67) – $2,458.39

2016 (68) – $2,511.02

2017 (69) – $2,564.71

Total: $12,297.11 (matched by employer)

Now here are the annual PRB payments she would receive, based on those voluntary contributions.

Age 66 – $337.15

67 – $709.14

68 – $1,117.16

69 – $1,561.26

70 and on – $2,042.72

Using those numbers, here are the total payments that this person can expect, depending on how long she lives. I have not included indexing as that is not predictable.

If she dies on her 75th birthday, PRB received totals $13,938.31

If she dies on her 80th birthday, PRB received totals $24,151.91

If she dies on her 85th birthday, PRB received totals $34,365.51

So the math tells us that this lady would have to live to age 74 years and 10 months just to recover the personal contributions she made to the PRB. This assumes she has an employer who also contributes. If she is self-employed, her total voluntary contributions will double to $24,594.22. In that case, she won’t recover all of her money until a couple of months after her 80th birthday.

Given the uncertainty, my personal decision would be to stop making PRB contributions as soon as it is legal to do so. – G.P.

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