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
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
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