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Can I work Part time and Retire with a Full Pension

Updated: Aug 8, 2023

Everyone asks this question!


We all want to work part time but collect a full pension. Unfortunately it doesn't work that way!


What is the definition of a Full Pension anyway?

Does it mean that everyone receives the same amount regardless of how many years they worked and regardless of whether they worked full time or part time?


I'm not saying that everyone should work full time. In fact, for most of us, it just doesn't work for our family and work-life balance to work full time.

My goal is just to clarify some numbers for those who are interested in knowing.



First Things First:

Are you actually enrolled in LAPP? I had someone tell me that they just discovered that there was a clerical error and they were not enrolled in LAPP after already working 5 years. So PLEASE check your paystub under deductions to ensure that you see an Employee deduction from LAPP and that you also see an Employer Deduction for LAPP.


Eligibility:


Next:

If you work full time that equals a full year of pensionable service earned.


If you work part time, that equals a portion/percentage of a pensionable service year earned. Therefore it will take you more years working part time to earn a full time pension amount.


There is a special formula to calculate how much Pension you will receive if you only work part time or work part time majority of your career.



This is an example of working a 0.50 position.


I'm going to mainly work off a part time 0.50 position example to show the difference in pension amounts so that you can make a fully informed decision about what kind of FTE, you would like to work.


All of my examples are based off the LAPP website. So please check out their website for your individual Pension Estimate Calculator.


First you take a 0.50 FTE position and calculate the annual amount paid to a person working a 0.50 FTE. You divide that by 0.50 which calculates what your salary would have been if you had worked full time instead.




Next you take the average of the top five years of a full time person's pay.

Next is the tricky calculation of how much you will be paid at the average YMPE and how much you will be paid based on your pay above the YMPE and based on years of full time service. In this example, the person has worked 0.50 for 25 years so that works out to 12.5 years of pensionable service.





What is: Year's Maximum Pensionable Earnings (YMPE) A figure, set each year by the Canadian government, that specifies the earnings amount that can be used in calculating contributions to the Canada Pension Plan (CPP) and can be used in calculating contributions to registered pension plans, such as LAPP for each year.




$1,808/month of pension payment doesn't seem too bad but what about compared to someone who worked full time?




The maximum amount of pensionable service a member can earn in LAPP is 35 years. So you could have a higher Pension Salary if you worked longer which would look like this:




65 years old is the normal age to start collecting an unreduced pension. However you can start collecting as early as age 55.


Unreduced is based on number of pensionable years that you worked adding up to the 85 factor (Age + Years of Pensionable Service).

Working part time until you receive your 85 factor doesn't mean that you end up receiving the same amount per month or yearly pension as someone who worked full time up to their 85 factor.

You both reached reached your 85 factor but the Full Time employee will have more years of pensionable service therefore more money earned towards their pension.

Unreduced only means that you have reached the 85 factor.






If you decide to start collecting your pension before you reach your 85 factor and after age 55, you will receive a reduced pension income.


Reduced Pension Example:

If someone wanted to retire at age 58 years old after 17 years of pensionable service...

The Reduction is calculated this way.


(https://www.lapp.ca/page/when-can-i-retire)


(https://www.lapp.ca/page/when-can-i-retire)


So if we took the example of the 58 year old retiring after 17 years of working, if they had waited until their 85 factor (which means when they turned 63 years old and had 23 years of pensionable service), then they would have received $3,327/month for the rest of their life.


However they will now receive the reduced amount at $2,628.33/month instead.



Which doesn't seem like a big deal until you add it up over the rest of your potential retirement lifetime of let's say the next 30 years.

In the long run, by not waiting for their 85 factor to receive an unreduced pension, this person would lose out on $250,521 over the next 30 years!!



Again, I'm not saying that you have to wait until your 85 factor to retire or that you should. Each individual situation is different.

Personal Finance is Personal!

I just want everyone to make sure that they make an informed decision.


How Late Can I Wait to Start My Pension? You must begin your LAPP pension no later than December 31 of the year in which you turn 71.

This does not mean you have to stop working for your LAPP employer if you want to continue working. What it does mean, is that you have to begin your pension payments.


I hope this guides you a little bit with you with some of your retirement planning.


You can always talk to LAPP yourself to do some planning and you can always get a second opinion through a Advice Only Planner or professional who has their Financial Planner designation.


For more information on your LAPP Pension Plan, check out,



Now Go and Be Intentional with your Retirement Planning!




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