Can’t See The Rationale

Mar 16th, 2009 – 2 Comments

Lou, I am self employed and am thinking of taking my CPP at 60. I plan to put the $ in an RRSP. After the CPP starts I can return to work at full pay 1 month after my pension starts. The pension will be about $200 per month less. Do you think this is […]


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Lou,

I am self employed and am thinking of taking my CPP at 60. I plan to put the $ in an RRSP. After the CPP starts I can return to work at full pay 1 month after my pension starts. The pension will be about $200 per month
less. Do you think this is a good idea?

Dale

Hi Dale,

I honestly don’t see the rationale for taking these steps. By taking your CPP before age 65 you will knock down the payment stream over the course of the rest of your life. I assume that is what you meant by getting $200 per month less.

The idea of going back to work while collecting your pension will subject the new money to your current tax rate further reducing the disposable income from the pension. Then taking the after tax dollars and contributing to a RRSP will generate a tax rebate for the contribution but you will start paying tax on the money when you start taking the money out.

I would say a better route to take over the next five years would be continue workingand  collect your CPP at age 65 when you get the highest payout. If you want to make RRSP contributions do so out of free cash flow if you want to reduce your current tax bill. Another thing to consider is using a Tax Free Savings Account. You can contribute $5,000 a year and all the income and growth from your assets in the account come out tax free.

Happy Capitalism!

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