Some "Taxes" Are Less Taxing Than Others

In doing my Income Tax return for 2009 over the past couple of days, I noticed that about 60% of what I owe for the year is actually Canada Pension Plan payment money (after having paid no income tax or CPP throughout the year). Federal tax makes up about 30% of what I'll be paying and provincial tax another 10%, leaving the lion's share as pension payments. (And lest anyone worry needlessly: each of those figures, for me in 2009, is in the hundreds of dollars.)

That prompted me to go reading up on how CPP payouts work, where I learned that they drop the leanest 15% of your annual contribution amounts when calculating how much you'll actually earn upon retirement. Over a 40-year career (ages 25 to 65, say), that would mean the 6 lowest annual contributions would be omitted from the formula. In my case, though, I'm looking at having had 23 high income years (1986 thru 2008), followed by the remainder featuring contributions below the annual maximum. For 2009, for example, I'll be putting a little more than 1/3 of the maximum in for CPP (based on my meager earnings). So early retirement will (not surprisingly) reduce how much government pension money I get later on. Good thing I wasn't counting on it to amount to much anyway!