Working While Collecting Your CPP at 60
If you decide to start your Canada Pension Plan (CPP) retirement pension at age 60, you are legally permitted to continue working. There is no rule that prevents you from combining your pension with an employment income. However, there are specific regulations regarding your continued contributions to the plan, depending on your age.
Mandatory Contributions for Ages 60 to 65
For anyone between the ages of 60 and 65 who starts collecting their CPP and remains employed, contributions to the plan are mandatory. This means that both you and your employer will continue to pay into the CPP from your income. The good news is that these contributions are not lost. Instead, they are used to fund a Post-Retirement Benefit (PRB), which is a lifetime monthly benefit that will be added to your regular CPP payments.
Optional Contributions for Ages 65 to 70
Once you turn 65, the rules change. If you continue working, contributing to the CPP becomes optional. You can choose to continue contributing to earn more PRBs, or you can opt out.
To stop contributing between ages 65 and 70, you must:
- Complete Canada Revenue Agency (CRA) Form CPT30, 'Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election'.
- Provide a copy of the completed form to your employer.
- Send the original form to the CRA.
Understanding the Post-Retirement Benefit (PRB)
The Post-Retirement Benefit (PRB) is the key component for those who work while collecting their CPP early. It's a lifetime benefit that increases your overall retirement income.
- How it is earned: For each year you work and contribute to the CPP (after starting to receive your pension), you earn a new PRB.
- Automatic payment: You do not need to apply for the PRB. It is automatically calculated and paid to you the year after you make contributions.
- Benefit calculation: The amount of each annual PRB is based on your contributions for that year and your age. Each PRB is also adjusted based on your age when it begins, just like the regular CPP pension. For example, a PRB earned at 62 will be permanently reduced, while one earned at 66 will be permanently increased.
The Impact of Collecting CPP at 60
While combining work and CPP is possible, there are significant financial implications to consider, most notably a permanent reduction of your benefit.
The Permanent 36% Reduction
Taking your CPP early means accepting a smaller monthly payment for the rest of your life. The monthly reduction is 0.6% for each month before your 65th birthday. If you begin collecting at age 60, this amounts to a total permanent reduction of 36%.
How Working Offsets the Reduction
By continuing to work and contribute, you earn PRBs that partially counteract this reduction. Each PRB is a small, but permanent, addition to your monthly pension. This can be a compelling strategy for those who want to transition into retirement gradually, maintaining some income while boosting their eventual full pension amount.
Decision-Making: Age 60 vs. Waiting
Choosing when to start your CPP is a complex decision with no single right answer. It depends heavily on your personal financial situation, health, and life expectancy.
Comparison of CPP Starting Ages
| Feature | Starting at Age 60 | Starting at Age 65 | Starting at Age 70 |
|---|---|---|---|
| Monthly Benefit | Permanently reduced by up to 36% | Full benefit amount | Permanently increased by up to 42% |
| Contributions (60-65) | Mandatory if working | Not applicable | Not applicable |
| Contributions (65-70) | Optional if working | Optional if working | Contributions stop at 70 |
| PRB Earned | Yes, if you continue working and contributing | Yes, if you work and contribute (65-70) | No, as contributions stop at 70 |
| Break-Even Age | ~74 compared to age 65 start | ~82 compared to age 70 start | Not applicable |
| Primary Motivation | Need for immediate income or poor health | Traditional retirement age | Longevity and maximization of lifetime income |
Longevity and Break-Even Points
As the table illustrates, a key factor is your life expectancy. If you anticipate a longer lifespan based on health and family history, delaying your CPP until age 65 or 70 will result in a higher cumulative lifetime benefit, despite giving up years of payments. The break-even age is when the total benefits from a delayed start surpass the total from an early start.
Other Factors to Consider
- Need for income: Do you need the money now to supplement a reduced work schedule or to pay down debt? If so, an early CPP might be necessary.
- Health status: If you face health challenges or a shorter life expectancy, taking the reduced pension earlier may be a more beneficial option.
- Other retirement income: Your decision should be part of a comprehensive retirement plan that considers all your income sources, such as employer pensions, RRSPs, and personal savings.
- Tax implications: CPP payments are taxable income. Higher total income from working and collecting CPP could push you into a higher tax bracket or trigger an Old Age Security (OAS) clawback if your income is high enough.
For more official details on the program, you can visit the Government of Canada's website on when to start your CPP.
Conclusion
It is entirely possible to collect CPP at 60 and still work, but it’s a decision that requires careful thought. By doing so, you accept a smaller, permanently reduced pension but can mitigate this through a Post-Retirement Benefit earned from your continued contributions. The right choice for you depends on your individual financial needs, health, and long-term retirement goals. Understanding the trade-offs is crucial for making the most informed decision possible for your financial future.
