Thursday, November 1, 2007

Canada Pension Plan - Be Aware of $0 Contribution Years

I just found out something new about CPP, something that is important for anyone considering retirement before age 60.

For each year one retires early, that is prior to age 60, one accumulates a $0 CPP contribution year. Your not working so you don't contribute to the CPP and you qualify for a smaller Canada Pension Plan.

Depending upon your work history this fact can have the effect of reducing the CPP that you will receive. In my case, dumb luck saved me once again, and although I retired a few years ago, at age 60 I will still qualify for just a hair under the maximum amount. However, if I delay taking it past age 60 - the $0 contribution years continue to accumulate and I start to get further away from the maximum I might otherwise have qualified for.

It occurred to me that anyone who plans on retiring really early such as at age 45 should be aware of this fact.

1 comment:

George W. said...

Another often-overlooked fact is that the calculation of CPP benefits ignores the 15% of years when the person had the lowest salary from age 18 to age 60 (or older if the person delays applying for CPP until past age 60).

For people that work right up until age 60, the 15% usually covers the early years when they were in school or in a lower-paying job. If you retire in your 40s, it'll partly encompass the zero-earning years after you retire but before you apply for CPP.

This is definitely something to factor in when you're figuring out how much your retirement income will be.