I come out even by starting CPP at 60

I was unemployed for several months in mid-2010 before I started my own business, so I applied to receive a reduced Canada Pension beginning at age 60.

My reasoning  was that not only would I receive about $7,881 a year between ages 60 and 65, but since I was already collecting a CPP pension, once my business was up and running I could avoid having to make both the employer and employee contributions (up to $4,500 per year).

Changes to the CPP coming into effect at the beginning of 2012 mean that in spite of the fact that I am receiving a pension, I have to start contributing again on any income I earn until age 65. As I contemplated this prospect, I couldn’t help wonder whether or not taking CPP early had been a huge mistake.

I did some some basic calculations to compare whether I would have been better off waiting until age 65 to start receiving my CPP pension. I assumed that I will continue to work and pay into CPP until I am age 65, and I used Service Canada’s Canada Pension Plan Post-Retirement Benefit (PRB) web page which includes tables by year of birth get a rough idea as to the additional benefit I will accumulate beginning in 2012 if I continue to work and contribute.

It turns out that if I live to age 80 the CPP I collect net of contributions from January 2012 to June 2015 will be around $158,112, (Scenario 1) or 12,312 more than the $145,800 I would have received had I waited until age 65 to collect a full CPP pension (Scenario 2).

However, by age 85 the total net CPP collected in Scenario 1 ($201,132)  and Scenario 2 ($201,900) is virtually identical. And if I live to age 90, I would be better off by almost $14,000 to have paid in until age 65 and collected a full CPP pension.

Based on a Canadian Business life expectancy calculator I can expect to live until close to age 87. So it appears that by starting my reduced CPP pension at age 60 I will receive about the same net amount as if I had waited until age 65 to begin collecting a full pension.

But it’s still going to hurt to fork over almost 10 per cent of my income to CPP again beginning in January, even though it will mean a slightly higher monthly benefit beginning in 2013.

If you are thinking about collecting a reduced pension at age 60 but continuing to work or you are already doing so, do your own calculations to better understand the financial implications of your decision under the new system. 

However, keep in mind that If you are already receiving your CPP retirement pension, the additional contributions you make to the CPP beginning in 2012 will go toward your PRB, but these PRB contributions will not make you eligible for or increase the amount of other CPP benefits like lump sum death benefits, spousal benefits or disability benefits. Your contributions to the PRB are also not subject to credit splitting or pension sharing.

Also read: Roseman: When should you apply for CPP? and Roseman: January CPP changes may affect you.


Sheryl Smolkin is a Toronto lawyer, writer and editor. She can be contacted through her website or you can follow her on Twitter @SherylSmolkin.