Still Working at 60? What Happens If You Start Your CPP Early

During a recent meeting, a client asked me a question I hear often: “What happens if I start my Canada Pension Plan (CPP) but keep working?”

It’s a smart question. The decision isn't as simple as it seems. While the idea of a "paycheque" from the government while you’re still earning a salary is appealing, it introduces new considerations that could impact your financial picture today and for decades to come.

If you’re in this phase of life—still active in your career but eyeing the horizon—understanding these rules is crucial. Let’s break down what you need to think about.

It’s Not Just About the Cheque You Get Today

Most people know that starting CPP before age 65 means receiving a permanently reduced monthly amount. But many don’t realize that continuing to work can actually help increase that amount over time.

Here’s how: as long as you’re working and making contributions, you’re building what’s called a Post-Retirement Benefit (PRB). Each year of new contributions adds a small, lifelong, inflation-adjusted increase to your CPP, which is paid out the following year. Think of it as continuing to build your pension, even after you’ve started collecting it.

This is a powerful feature for those who plan a gradual transition into retirement, as it can help offset the initial reduction from taking CPP early.

The Tax Surprise Many Don't See Coming

This is often the most overlooked part of the equation. When you work and draw CPP, you have two sources of income. This can sometimes push you into a higher tax bracket than you expect.

The key question to ask yourself is: Are you paying more tax on this money today than you would if you waited?

Often, your working years are your highest earning—and highest tax—years. Adding CPP income on top of that means a significant portion of that new cheque could go to taxes. For some, it may be more tax-efficient to delay CPP until your employment income stops or reduces.

A Strategy Beyond the Obvious

So, when does starting CPP early while working make sense? It’s not a one-size-fits-all answer, but it can be a smart move for specific strategies.

For instance, if you don’t need the CPP income for daily living expenses, you could redirect it directly into a tax-advantaged savings account. This can be a disciplined way to boost your retirement savings while potentially managing your tax bill more effectively. The goal is to align this income with your overall plan, not just your immediate cash flow.

How to Think About Your Own Decision

This isn’t a decision to make based on a gut feeling. It requires a clear view of your entire financial landscape:

• What do your future earnings look like?
• How will this combined income affect your tax situation?
• What are your goals for this income—immediate spending or long-term saving?

The rules themselves are fixed, but how they apply to you is deeply personal. A seemingly small choice now can have a large impact on your reliable, lifelong income in retirement. Feeling unsure about the right path for you? This is exactly the kind of complex, long-term planning we help our clients navigate. We cut through the confusion to build a strategy that fits your life.

On our website, you can find more articles about financial planning and other financial topics. If you have questions about this article or would like a conversation about how these ideas apply to your unique situation, call us at 403-290-0940.