Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management in Toronto.Adriano Valentini/The Globe and Mail
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This is the latest article in an ongoing series, Planning for the CPP, in which Globe Advisor explores the decisions behind the timing of when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.
As part of this ongoing series, we invited readers to ask questions about their Canada Pension Plan (CPP) benefits that we can pose to experts to answer. This week, we asked Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth in Toronto, to answer three related questions:
If I am still working at age 65, should I opt out of paying further CPP contributions?
The answer depends on whether you’re currently collecting your CPP benefits. If you’re not, you don’t have a choice to opt out – you must continue contributing. The opt-out provision is only available for those already collecting their CPP benefits. If you’re already collecting the CPP, you can be eligible for a post-retirement benefit (PRB). The maximum one can receive as a PRB is 1/40th, or 2.5 per cent of the CPP maximum. So, potentially $3,867.50 of contributions for 2024, to get another $40.25 a month, or $483 a year, indexed at the same CPP rate of increase, for life.
Is it worth it? That depends on your life expectancy, cash flow needs now versus later, and whether you can generate equivalent or better returns than the CPP.
One word of caution: If you’re not yet collecting CPP (because you want to defer to age 70 to get a higher amount) and you’re still contributing to CPP, this will not result in any PRB. And, if you’ve already qualified for the maximum CPP, you’re essentially contributing and getting no real benefit in return. Here’s an article you might like to read on the topic.
If you have a workplace pension, is it still better to wait until 70 to take your CPP? Does having a workplace pension change the CPP calculus in any way?
The consensus is if you’re in relatively good health and don’t need the funds, it’s generally best to defer your CPP benefits to age 70 to get a larger amount for life. Each month of deferral results in 0.7 per cent more CPP benefits, so delaying 60 months means 42 per cent more. The definitive report on this was published a few years ago by the Canadian Institute of Actuaries.
The fact you have a work pension may mean you aren’t relying as much on the CPP income from age 65 to 70 to meet your daily living expenses, so if you don’t need the cash, it’s likely best to defer to age 70, assuming, again, you’re in relatively good health.
I’m delaying taking CPP until 70, but there’s one thing I always wonder about. I still contribute the maximum on my earnings every year to CPP, but I think, because of my work history, that I was already at the maximum possible CPP back when I was 65. So, is the money I’ve paid into CPP since then just some kind of extra tax that I will never get back? Is there no mechanism for me to stop paying it just because I’m already at my max?
As stated above, the only way to stop paying into the CPP, for which you will receive no benefit if you’ve already maxed out on the CPP, is to begin collecting CPP. Otherwise, as you state, you are paying into the plan needlessly for no additional benefit.
If you have any CPP story suggestions or feedback on this series, Planning for the CPP, please leave a comment in the stories or e-mail us at: globecpp@gmail.com. We can’t respond to every e-mail or question, but we’ll do our best. The answers will appear on Tuesdays.
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