Should you collect CPP and OAS while working in your 60s?


Collecting CPP and OAS while working in your 60s

You can begin your Canada Pension Plan (CPP) pension as early as age 60 or as late as age 70, Simon. At age 65, you generally need 39 years of maximum contributions to receive the maximum CPP retirement pension. Given you have only 24 years of contributions, there may be a benefit to continuing to contribute and delaying the start of your CPP.

What are the maximum pensionable earnings for CPP in 2022?

Your $78,000 salary exceeds the maximum pensionable earnings of $64,900 for 2022, so you will contribute the maximum of $3,500 in CPP contributions this year. Your employer will contribute the same.

This will entitle you to about 1/39th more CPP retirement pension, or about $386 per year in today’s dollars, because the best 19 years of your contributions are used to calculate your pension at 65.

As a 65-year-old man, you have a 50% chance of living to age 89. If, instead of contributing to CPP, you invested $3,500 at a 5% rate of return, and withdrew $386 per year (indexed to inflation, like CPP), that same $3,500 would be depleted within 11 years. That would be well before your life expectancy.  

Contributing to CPP while working in your 60s: Does it make sense?

So, Simon, it’s probably advantageous to continue to contribute to CPP and delay the start of your pension. Because you are 65, you can opt out of contributing, but you will benefit in your case since you have not made the maximum contributions and your employer matches your contribution amount.

If you were already at the maximum CPP amount, Simon, there could be a benefit to opting out of further contributions or beginning your pension so that your future contributions are eligible for a post-retirement benefit.

Collecting OAS while working

To qualify for the maximum Old Age Security (OAS) pension, you generally need to have lived in Canada for 40 years since the age of 18. You have only 24 years of Canadian residency, so will not qualify for the maximum OAS. You can start your OAS pension as early as age 65 or as late age 70.

What is the OAS clawback threshold for 2022?

OAS is subject to an earnings threshold. In 2022, if your income (including OAS) exceeds $81,761, your pension is reduced by $0.15 on the dollar. Given you have a $78,000 salary, if you started your OAS pension, it would be partially clawed back. Your OAS would effectively be taxed at 43% to 53%, including the clawback, depending on the province you live in, Simon.

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