Please, read the beginning of the article in our previous post.
Starting your CPP early means a CPP reduction of 0.6 per cent for every month before you turn age 65, or a 36 per cent reduction if you start CPP at age 60.
The question becomes: If you take a reduced CPP pension, will the additional PRB make up for a reduced CPP? For most people, the answer is no. The PRB will not make up the cost of a reduced CPP by starting it early. However, there are a couple of things to think about.
The same two guiding principles used to decide when to start your CPP are also used to judge the value of PRB benefits. Those two principles are anticipated life expectancy and expected investment returns, both of which you have no control over, making decisions around CPP confusing.
If you have an anticipated short life expectancy, starting CPP early and collecting the PRB likely makes sense. The longer the anticipated life expectancy, the stronger the case for delaying CPP.
As for investment returns, if you’re able to save and invest the after-tax PRB in a tax-free savings account, and if you can earn seven to eight per cent on your investments, then taking CPP early and collecting the PRB may make sense, but those are two pretty big ifs.
Fareet, my guess is you will be better off not starting your CPP early, which means you will still be contributing $6,999.60 to CPP and not getting much back for it.
But perhaps there is a better solution for the self-employed. I don’t know your full situation, but have you thought about incorporating your business? There are costs to incorporating, but once incorporated, you can pay yourself a dividend rather than a salary, and a dividend-only strategy is a way to opt out of CPP contributions at any age.
Having a corporation may also lead to some interesting tax planning, such as when to convert to a registered retirement income fund, paying dividends to a life partner once you turn age 65 and tax-efficient income-layering strategies.
It’s worth having a conversation about incorporating with your advisers. If incorporating doesn’t make sense and starting CPP early to earn the PRB doesn’t make sense, then you’re likely going to find yourself making CPP contributions with very little benefit to you.
Author of the article: Julie Cazzin Published Jan 13, 2023
By Julie Cazzin with Allan Norman
Martin Pelletier: Investment risks in 2023
*The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this text accepts any contractual, tortious, or any other form of liability for its contents.
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