Given the current economic situation, many people are continuing to work or returning to work in their 60’s.
Additionally, some of these folks may have already started their CPP.
Question is, how does it work when someone is working, receiving CPP and contributing to CPP?
Here is a summary of the process:
If a person is under the age of 65, they will be paying CPP premiums. These additional CPP premiums will provide what is called “Post Retirement Benefits”. These benefits are added automatically to the following year’s CPP income.
Let’s look at an example:
- Consider a person, age 62 making the maximum CPP contribution each year
- Each year they do this, they will earn a Post Retirement Benefit equal to 1/40th of the maximum CPP benefit at the time
- If the maximum CPP benefit is $14,000 annually, the client will earn a Post Retirement Benefit of $352.20, which will be added to the following year’s CPP benefit
- If we assume no cost of living or inflation factors, this client will continue to increase their CPP by $352.20 each year
- If they kept working until they were 70, they would have increased their CPP by 9 x $352.20 = $3,169.80 per year.
- Obviously, this amount will be greater when cost of living adjustments and CPI increases are included in the calculation
It’s not exactly having your cake and eating it too, but CPP is for life and can also provide a survivor’s benefit for your partner if something happens to you. So, maximizing it may make sense.
If the Post Retirement Benefit is not needed, this extra income could be saved in a person’s TFSA or maybe used to help their grandchildren financially.
You can read more articles on CPP here: CPP Articles