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How the Post Retirement Benefit affects when you should take your CPP benefits Thumbnail

How the Post Retirement Benefit affects when you should take your CPP benefits

With increasing life expectancy and rapid inflation, Canadians are working longer than before, often past the age of 65. This leaves many near-retirees wondering when they should start taking their Canadian Pension Plan (CPP).

Should I take my CPP only when I retire?

Should I collect CPP while I’m still working?

If this decision wasn’t complex enough, the Post Retirement Benefit (PRB) further complicates the matter – especially if you’re considering working past age 65.

To help you understand how the PRB will affect your retirement planning, and whether you need to adjust your plan to take it into account, we’re going to cover what the PRB is, how it’s calculated, and answer some frequently asked questions.

A quick overview of the Post Retirement Benefit

The Federal Government introduced the PRB in 2012 when the laws around CPP retirement benefits changed.

Essentially, the PRB increases the available retirement income from federal benefits for those who continue to work and contribute to CPP beyond age 60 to age 70.

The PRB was designed for Canadians who are:

  • 60 to 70 years of age
  • working and contributing to the CPP
  • receiving a retirement pension from the CPP

Before the PRB, Canadians would stop paying into CPP as soon as they chose to receive their CPP retirement benefits. So, even if a near-retiree was still working and chose to receive their CPP benefits early, at age 62, they would stop paying into CPP.

This made taking CPP benefits early twice as tempting, as retirees could not only bring in more each month, but they would also pay less to the government.

However, that’s all changed with the rules around the PRB. 

The major changes include:

  • All Canadians between 60 and 65 years of age must contribute to the CPP, whether they are receiving benefits or not.
  • Those between 65 and 70 years of age who are receiving CPP benefits while working can choose whether they want to contribute.

So, while many retirees are now paying into CPP for longer, they are also receiving more retirement income through the PRB.

Understanding the numbers behind the PRB

The calculations for the PRB can get quite complicated. But summed up, your yearly PRB benefits are equal to 1/40 of your yearly CPP benefits. 

That means your PRB benefits depend on:

  • How much you earn – The amount of PRB benefits you receive is directly based on your CPP benefits. Your CPP benefits are based on your average earnings throughout your working life and your contributions to the CPP.
  • Your age when you start receiving benefits – Just like CPP, PRB benefits are adjusted based on when you take them. If you take them early, before 65, they are adjusted downwards for each year before 65. If you take them later, after 65, they are adjusted upward for each year after 65. 

Also, like CPP benefits, the PRB is indexed to the cost of living.

If you want to better understand how this calculation will work for you, you can crunch the numbers with the Canadian Retirement Income Calculator.

What does this mean for you?

The addition of the PRB means it’s more lucrative than ever before to continue to contribute to CPP.

For those who plan to retire later, but are worried about living past their retirement savings, the PRB adds more guaranteed cushioning to retirement plans. However, for those who are confident in their savings, contributing to CPP past 65 may not make sense.

Post Retirement Benefit FAQ

Am I eligible for PRB?

All Canadians from age 60-70, who have paid and are paying into CPP, are eligible for PRB.

How do I get the PRB?

You will receive the PRB automatically, as long as you are eligible for it. However, don’t expect payment immediately. Because the government needs information from your employer, including how much you’ve earned and what you’ve paid in CPP contributions, your first PRB payment won’t come until after the current tax season. That first payment will include retroactive payments dated back to January of that year.

After that, the PRB will be included in your CPP benefit payments going forward.

Can I get the PRB if I’m self-employed?

As long as you make CPP payments, you will get PRB too.

However, if you’re self-employed, you must pay both the employee and the employer portions of the CPP contributions. Otherwise, you will not be eligible for the PRB.

How do I stop contributing to the CPP?

Everyone under the age of 65 must contribute to CPP. However, those aged 65 to 70 can choose whether or not they want to keep contributing.

To stop contributing to CPP, you must fill out the CPT30 Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election. If you decide to stop paying into CPP, you can always change your mind and restart contributions, which requires you to fill out section D of the same form. 

Keep in mind you can only change your mind once per year.

What if I’m already receiving the maximum CPP?

Even if you’re receiving the maximum CPP benefits, the PRB will be added onto your CPP benefits, which will enable you to increase your post-retirement benefits above the maximum.

How much does the PRB change depending on when I choose to take it?

Just like the CPP benefit, the PRB is adjusted down if you take it before the age of 65, and adjusted up if you take it after the age of 65. 

Below age 65, benefits from both CPP and PRB are adjusted downward by 7.2 per cent per year (or 0.6 per cent per month). That means if you take your PRB a year early, you’ll reduce your benefit by 7.2 per cent. If, however, you take it after 65, the benefit is adjusted upward by 8.4 per cent per year (or 0.7 per cent calculated monthly). 

So, for example, if you take your PRB at age 66, you’ll earn 8.4 per cent more, but if you take it at age 67, you’ll earn 16.8 per cent more.

Make the right decision for you

Before you make your decision, be sure to explore how the PRB will affect your retirement income with the Canadian Retirement Income Calculator. Then, make sure that number fits into your retirement plan.

If you need help drafting your plan, talk to your financial advisor to help clarify your situation.