# Working after 65: What to do about CPP?



## Russ (Mar 15, 2010)

I can't sort this out...

What is the best CPP strategy under the following circumstances? The situation is a combination of several individuals, one of whom is me.

Our subject is 60 years old. He has worked in a well-paying job since he was 21 years of age. He plans to work until he's 68. He will retire at 68 with, say, 70% of his current income. He currently spends about 60% of his take home pay, so his standard of living will not change much in retirement. Right now his marginal tax rate is 46%. 

Should he start collecting CPP at 60? Or maybe 65? Should he continue contributing until he retires? 

I think he should postpone collecting until he retires at 68, and he should continue to contribute until that time as well. Can someone comment on the variables that affect this decision?


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## RBull (Jan 20, 2013)

Sounds like he has a good government job and doesn't need the money. 

If he only spends 60% of what he now makes, in retirement at 70% of what he makes now his lifestyle will not change at all, unless inflation is not being factored in. Deductions like CPP, pension etc will be eliminated and if they haven't been considered will improve take home income. 

I would be leaning towards take CPP early. You might want to have dogger1953 run various CPP scenarios/break even points for the subject.

Factors I can think of are:

Is pension indexed? If not having more government pensions that are indexed may be desirable.
Will OAS at age 65 add to income or be fully/partially clawed back? How do the various CPP scenarios affect this?
Does he need to work to 68 to max his 70% pension, otherwise he may be working for very little net difference for a few years. 
What is the family longevity history?
Can the subject income split in retirement to lower taxes and impact the CPP choice/ potential OAS clawback?


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## Dogger1953 (Dec 14, 2012)

Russ said:


> I can't sort this out...
> 
> What is the best CPP strategy under the following circumstances? The situation is a combination of several individuals, one of whom is me.
> 
> ...


Russ - RBull has explained many of the variables to consider. From strictly the CPP numbers perspective, if this person has 39 years of max contributions from age 21 to 60, any subsequent contributions after age 60 won't increase the regular retirement calculation at all (he's already at max). I might lean towards applying for CPP at 60 and at least having those contributions earn additional post-retirement benefits (PRBs), rather than being "wasted". At age 65, it would then be a choice between 3 more years of PRBs or saving the contributions instead. I like the ROI on post-65 PRBs, but you might prefer saving the annual $2,425 contribution cost even more.


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## Russ (Mar 15, 2010)

Thanks for those responses.

I thought the benefit received at 60 was reduced to compensate for the extra 5 years of benefits, so assuming the recipient lives the expected number of years this is a wash. However, the benefits received from 60 to 65 would be heavily taxed while the recipient continued to work. This seems to me to tip the balance in favour of postponing in spite of the investment return available on the after tax amount between 60 and 65.

But then, as Dogger points out, the contributions between 60 and 65 are not earning PRBs so they are wasted. I hadn't factored this into my thinking and it has a big impact on the decision. 

If benefits are taken at 60, do the contributions from 60 to 65 earn PRBs at the same rate as from 65 to 68 (assuming contributions are continued after 65)? I believe the PRB for the period between 65 and 68 is based on 0.5% per month to a maximum of 30%. I don't know if this is still true (or ever was).


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## Dogger1953 (Dec 14, 2012)

Russ said:


> Thanks for those responses.
> 
> I thought the benefit received at 60 was reduced to compensate for the extra 5 years of benefits, so assuming the recipient lives the expected number of years this is a wash. However, the benefits received from 60 to 65 would be heavily taxed while the recipient continued to work. This seems to me to tip the balance in favour of postponing in spite of the investment return available on the after tax amount between 60 and 65.
> 
> ...


Russ - PRBs are higher each year as you age. They start out with the same basic calculation (1/40th of the max retirement benefit for each year of max earnings - approx. $26 per month for 2014), but they're then adjusted by the same age-adjustment factor that is used to adjust the regular pension, but based on your age as of January in the year following the earnings. Thus, if you take your regular CPP at age 60 (and let's say that you were born in December for simplicity), your earnings from age 60 to 61 would buy you a PRB of approx. $26, decreased by approx. 28.8% (4 years @ 7.2%) = $18.51. Earnings for the year of age 67 to 68 however, would buy you a PRB of $26 increased by approx. 25.2% (3 years @ 8.4%) = $32.55. But remember, you'll receive that age-61 PRB for 7 years longer than the age-68 PRB.


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## Russ (Mar 15, 2010)

Thanks Dogger. 

I think I was confusing PRB with the increased pension amount associated with postponing receipt of benefits. 

I now think the PRB is associated with continuing to contribute after either 1) receiving the pension after age 60 or 2) turning 65. You have very thoroughly explained how this amount is calculated, but it still hurts my head...

The early receipt or the postponement of the pension is a separate issue. I think the penalty or benefit may currently be 0.7% per month (not 0.5% as I previously thought) for 5 years on either side of age 65. I hope I now have this approximately correct. 

By the way, there are a whole bunch of very smart people on this forum! I find this all quite complicated.


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## Dogger1953 (Dec 14, 2012)

Russ said:


> Thanks Dogger.
> 
> I think I was confusing PRB with the increased pension amount associated with postponing receipt of benefits.
> 
> ...


Russ - It often hurts my head also, if that's any consolation. You are correct that the factor for delaying beyond age 65 is 0.7% per month, but the factor for taking it early is 0.56% for 2014, 0.58% for 2015 and 0.60% for 2016 and beyond.


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