While it’s mandatory for everyone employed under the age of 65 to pay into Canada Pension Plan, there are a few choices related to when you begin collecting and stop contributing to CPP.
The standard age to begin collecting CPP benefits is 65. However, you can choose to begin receiving payments as early as age 60 or as late as 70 --even if you are still working. In other words, if you’re still working between the ages of 60 and 65, you must contribute to CPP but you may also begin collecting it.
When you collect CPP while still paying into the program, these contributions will increase your post-retirement benefits. This accumulation allows you to receive more than the maximum CPP benefit. After each year you pay into the post-retirement benefit, it adds to your current CPP monthly income.
If you are still working when you hit age 65, you may choose to contribute to CPP or not.
There is never any harm in stopping CPP contributions after 65, other than your current CPP income will no longer grow. Before deciding if you should pay into the Canada Pension Plan post-retirement benefit or stop paying into CPP after age 65, consider these four factors:
1. Cash Flow.
Do you currently require the cash flow that you have been contributing to CPP payments?
2. Your Health.
What is your current health situation? If you feel you may have a shortened life expectancy, it might be best to save the money on your own with the flexibility of having it when you need it.
3. Post-Retirement Benefits.
Would adding to your post-retirement benefits affect your Old Age Security, Guaranteed Income Supplement, or other possible programs? If you contribute more to your post-retirement CPP, your retirement income will be higher which may negatively impact other programs.
How would extra post-retirement benefits affect your overall tax situation? The more income you have, the more tax you’ll pay.
As you plan for retirement, it’s important to examine all decisions for their potential impacts on quality of life now and in the future.