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I'm a CPP expert. Any questions?

353K views 850 replies 175 participants last post by  jlunfirst 
#1 ·
I worked for CPP for more than 32 years, and have recently retired.

I'd like to share my knowledge if you have any questions, especially around the calculation of CPP benefits.
 
#2 ·
Sounds good thanks.

Question I retired at 56 and had maximum contributions for most of my working life so from age 18.
The year I turned 56 was also a full year of contributing.
Between 57 and 65 I don't have any contributions.

I'm trying to decide when to start CPP.
 
#7 · (Edited)
I will be turning 54 in May and plan to retire from my P/T position in December 2014 at age 55 & 7 months. My most recent statement (Feb 07, 2013 says I would collect $938.43 at 65)
22 of my 35 working years on the the statement (1977-2011)were at MPE, 3 had no contributions(self employed) and 10 yrs at various levels probably averaging 60%, and a little higher % for the years 2012-14.

I would like to know what benefits would be at ages 60 through 65 as I'm not sure the government calculator factors in leaving work earlier than when benefits would be available. (I'm not expecting $938.43 at 65)

TIA
 
#9 ·
RBull - Your calculations are a little more complicated than Daniel's. Since you have less than 39 years of max contributions, although you'll get a higher % each year that you wait, your actual "calculated retirement benefit" decreases because of the extra year of zero earnings. I could still do precise calculations if you wanted to email me @ DRpensions@shaw.ca, but for now I can give you the following estimates, based on the equivalent of 30.4 yrs of max contributions (22 @ max, 10 @ 60% and 3 @ 80%):

At age 60, you could receive $586.29 (66.4% of $882.96); at age 61 $622.33 (72.16% of $862.43); at age 62 $660.78 (78.4% of $842.83); at age 63 $705.43 (85.6% of $824.10); at age 64 $748.14 (92.8% of $806.18) and at age 65 $789.23 (100% of $789.23).

Using the ages of 60 and 65 to compare, your breakeven calculation changes a bit from Daniel's. You could choose $586.29 at age 60 or delay until age 65 and receive $789.23. You would be passing up $35,177.40 ($586.29 x 60 mths) to receive $202.94 ($789.23 - $586.29) more monthly. It would take you approx 173.3 mths (14.4 yrs) to make up this amount, so your breakeven age would be 79.4 yrs old.
 
#12 ·
Dogger 1953

I'm not looking for exact calculations just idea whether early CPP or waiting to age 65 is better.

Some details -
Wife is aged 60 & not planning to work any longer.
She has 8+ years of no CPP contributions due to me being transferred around in my employment (so about 13 non contributory years at 65)
Based on family history she could easily be drawing CPP for 20 years +

I'm mainly not sure how taking a reduced CPP is offset by the affect of not contributing to CPP age 60 to age 65, especially when there are non-contributory years earlier in workig career.

Thanks
 
#17 ·
Red - Assuming there were no children and the child-rearing dropout (CRDO) isn't a factor, your wife's situation would be very comparable to RBull above. Even if the actual amounts are different, the percentages would be similar, and the breakeven calculation would therefore be similar. From a CPP perspective only, your wife would therefore be ahead of the game by applying at age 60 IF she dies before age 79.4, and she would be better of waiting until age 65 if she lives past age 79.4.
 
#13 ·
I had a pleasant surprise from Canada Pension last year. My husband, who was 16 years older than I, died in 2003. He had been receiving a CPP pension for 11 years at the time of his death and I received a survivor's benefit. A few years later, I retired and started taking my own CPP which brought me close to the maximum so my survivor's benefit was reduced to only a few dollars. Then just last year (2012) I received a letter from Canada Pension informing me that my husband's pension amount had been miscalculated and enclosing a cheque for about $3800 payable to his estate. A separate letter came addressed to me personally explaining that an error had been made calculating my husband's pension, so therefore my survivor's benefit had also been miscalculated. I received an extra amount of about $1100. Obviously I was pleased to receive a completely unexpected amount of over $5000, but I was very surprised that it had taken them nine years to discover the error, and I couldn't help but wonder what would have happened if the error hadn't been in my favour. Would I have been expected to repay them after all that time?
 
#16 ·
That's an unusual situation that you describe. I can't imagine how it would happen in reverse, but I don't think there would have been any significant effort to recover the overpayment of your husband's retirement pension from you. They would likely however, attempt recovery of any survivor's overpayment directly to you.
 
#14 ·
Another question came to mind. I am not sure if it was asked or addressed. If a person takes CPP at 60, with the reduced amount as opposed to age 65, do they also have to factor in 5 years of 0 earnings and CPP contributions (years between age 60 and 65). Assuming they are retired by or before age 60.
 
#18 ·
Hey Dogger, welcome to the forum!

If I, as a canadian citizen, work in Canada from age 25 to 35, then never hold employment again, will I still qualify for 10/40 years of the max CPP payment, or will the 30 non-earning years reduce or eliminate my entitilement? What if I spend some years between 35 to 65 as a non-resident out of the country? What if I spend ALL years between 35-65 out of the country? Will this affect my pension entitlement at 65?
 
#20 ·
PeterK - If those 10 years of employment were all at the max contribution rate (ie., your earnings were at or above the YMPE in those years), then YES, you will qualify for 10/40ths of the max CPP payout at age 65. And if that occurs in 2014 or later, you actually get a raise to 10/39ths, as the general dropout increases to 17%, and you can then drop out your lowest 8 years of earnings. It doesn't matter why you don't contribute those other years, or where you're living or whether you remain a Canadian citizen or not. Some of those factors would affect if and how much Old Age Security you qualify for however, although I'd need a bit more detail to fully answer that for you.
 
#19 ·
Thanks Dogger 1953

You have given me something to think about I may contact you likely will as what I receive could cost me more without your help.

Something else folks can consider.

My wife turns 60 this month and has five years to go before retiring.
She has decided to apply for her CPP now and put the money to her RRSP as she does have plenty of room.
The net effect is it won't change her income but she can build her RRSP with the money she receives .

Given that she has five more years of work it will adjust her CPP pension at 65.
 
#21 ·
Daniel - I'm glad if my free advice helps you at all, but I'd love to have you as a paying customer also!!

One comment on your wife's situation. I'm not exactly sure how CPP will treat her 2013 earnings and contributions, as this is quite a new situation, and there is really no process for them to identify what earnings were earned before/after she starts receiving her CPP, within the 2013 calendar year. What is certain is how her contributions for 2014 and later will be considered. They will NOT increase her CPP retirement pension that she's taking at age 60. That is fixed at the reduced age-60 amount, subject only to the annual inflation of increases in the CPI. What they WILL DO, is create new post-retirement benefits (PRBs). For each year that she contributes after starting her CPP retirement, she will generate a new PRB which is payable monthly starting in January of the following year, and is payable for life. The amount of the PRB is approximately equal to how the additional year of contribution would have affected her CPP pension if she hadn't applied for it at age 60, but I thought I should make that distinction for you anyway.
I hope this makes a bit of sense, but I realize the PRB is a totally new and somewhat complex benefit. I'm looking forward to receiving my first PRB next year!
 
#26 ·
Dogger -- this may be outside your area of expertise (but you still may have an opinion).

I am 42 and currently employed in a regular job but trying to think through the options on starting my own company, including whether or not I pay myself a salary and make CPP contributions, or just go with dividends.

How would you recommend I try and weigh whether or not additional contributions would be worth it?

My current CPP status is as follows:

If you were 65 today, • you could receive a monthly retirement pension of: $680.51
If you apply at the age of 60, • you could receive a monthly retirement pension of: $435.53
If you apply at the age of 70, • you could receive a monthly retirement pension of: $966.32

Thanks for any guidance.
 
#27 ·
Rainey - That's a really good question, and some of the answers are outside of my area of expertise, but I suspect others on this forum will have some thoughts for you.

Strictly from a CPP perspective, you should be aware that the retirement pension estimates from the Service Canada site assume that the next 23 years of your working will be identical to what you've earned between age 18 and now, as compared to the YMPE for each year. If you don't contribute any more to the CPP, your actual benefits at age 60, 65 and 70 would likely decrease by about 50%, since you're 24 years into your contributory period and you've got 23 years left until age 65. I could do some actual calculations for you if you emailed your CPP statement of contributions to me at DRpensions@shaw.ca, but I charge $25 for each accurate calculation.

On the other hand, what your current contributions will "buy" you in 23 years is probably irrelevant to your current decision. A quick way of looking at payback on CPP contributions for a self-employed person (9.9%) versus the retirement benefit value (approx 0.64% per year of contribution, at age 65). This would give you a breakeven period of approx 15.5 yrs after you become eligible for an age-65 retirement benefit.

It's flawed to look at CPP "value" just on the basis of retirement pension payback though, as the CPP also covers you for disability and survivor benefits. Disability benefits require that you've made contributions in at least 4 of the last 6 years prior to becoming disabled. That means that if you decide not to contribute to CPP, you may want to take out your own private disability coverage, just in case.

I don't know if any of this helps, but good luck in whatever option you choose.
 
#33 ·
"Strictly from a CPP perspective, you should be aware that the retirement pension estimates from the Service Canada site assume that the next 23 years of your working will be identical to what you've earned between age 18 and now, as compared to the YMPE for each year. If you don't contribute any more to the CPP, your actual benefits at age 60, 65 and 70 would likely decrease by about 50%, since you're 24 years into your contributory period and you've got 23 years left until age 65. I could do some actual calculations for you if you emailed your CPP statement of contributions to me at DRpensions@shaw.ca, but I charge $25 for each accurate calculation."

Dogger -- thanks for your response (and Moneygal, thanks goes without saying). This little tidbit about the assumptions of the calculator never occured to me and is very valuable indeed (even if my CPP won't be!). It strike me there could well be healthy market for such specialized advice. Best of luck with the consulting, and may well be in touch when I take the plunge.
 
#34 ·
Hi Dogger..........welcome to the Forum

Regarding the CPP death benefit.

As I understand it, as executor for my dad who passed away September 2012, I have to file a final tax return for 2012 by April 30th...........but cannot enter the CPP death benefit on that return. I must file another return..........a T3 return?...........and put the death benefit on it?

He will have no income after his death, as everything else can be entered on the 2012 return.

Is this correct?
 
#35 ·
#36 · (Edited)
Thanks for the reply Dogger.

From the link you provided, and reading some other information, it appears that I have 2 choices.

Claim the CPP death benefit on my own taxes or file a T3 Trust tax return.

The T3 looks complicated......requiring a trust number and other things.........so I will probably take the easy route and simply claim the benefit on my own return and then bill the estate for the estimated 500 taxes on the 2500 benefit.

The only other option is to split the 2500 among the 5 beneficiaries...........but that is just too much work.

I was surprised to learn the CPP is taxable though. Any other death benefit can be entered on the deceased terminal tax report and be included in a 10,000 deduction, making it tax free.

I am sure there is a logical reason, but it seems odd to treat the CPP death benefit differently than all others.
 
#38 ·
Hi Dogger -

My question relates to CPP and mum's who spend their "prime" working years raising kids. Not sure, but I think that CPP does recognize these years in one way or another and pays some money in retirement for these periods.

Me: 52, Her: 50.
Our CPP payment history is logged below for the 2 of us -
Age 16-22 - both of us worked summer & seasonal work during university - some of those years (3) had maxed out contributions.
23-26 - Full contributions to CPP
26-29 - Partial Contribution (say 40%) during which we pursued further education.
Me: 32-52 (20 yrs) fill CPP contribution
My wife - since age 30 - no CPP contribution as she raised 2 kids.

How does CPP recognize those years when women are raising kids?
 
#39 ·
Dubmac - The CPP recognizes years where a parent raised children up to the age of 7, by allowing a "dropout" of those years, known as the Child Rearing Dropout (CRDO). CRDO can't create a benefit on its own if that parent never contributes to CPP, but it can increase both the eligibility for disability/survivor benefits, and in can increase the amount of all benefits. For example, in your wife's case, I calculate that she has the equivalent of 8.6 yrs of max contributions. Without the CRDO, her CPP retirement benefit at age 65 would be about $223.60/mth. With the CRDO, (assuming your 2 children were born 3 years apart), her benefit would increase to approx $283.80/mth, by dropping out the 10 years while at least one of them was under age 7.
 
#40 ·
awesome -thnaks for this Dogger.
one other question -

Could I make contributions (max is around $2200) to my wife's CPP! Is there any advantage (other than the obvious - getting income in retirement) in doing so? Would the payments that I make to my spouses plan be taxed favousrably? seems like a longshot - but thought I'd ask anyway.
 
#41 ·
Dubmac - Contributions are mandatory if she has any earnings from employment or self-employment, but there is no way to make "voluntary" contributions aside from that. Once you are both at the point of being eligible for CPP retirement pensions however, you can apply for an "assignment of benefits", which will basically share your CPP retirement pensions equally, and thereby give her a larger pension and presumably result in a net tax savings.
 
#42 ·
very helpful information Dogger! thanks again. I know I'll be loooking for this thread in 12-14 yrs as a get more serious about retirement!

I am curious however - Do many people "hire" their spouses (as staff or on a contract) and have their spouse pay CPP deductions in their salaries/fees? Seem like a perfectly legal way for a couple/family to maximize CPP if this kind of hiring arrangement can be made.
 
#44 ·
Dogger found this thread very helpful,
My situation is very similar to Daniel. I was going to delay (60 this year) as really not needing the cash now and feel it is back-up or money in the bank.
From your experience do most delay beyond 60 years.
CPP seems either black or white with most adamant "Take it as soon as you can or.................

We Canadians are blessed with such a plan, wonder how it compares to other countries?
 
#45 ·
Islenska - In my experience, more people take their CPP sooner rather than later (including myself). That is starting to shift a bit though, with the increased penalty for taking it early, and the increased incentive for taking it later. All that I can suggest is to make sure that you know your numbers for both choices, so that you make your decision on facts rather than following any trend.

I agree that the combination of CPP and OAS is a pretty solid foundation for government-sponsored retirement programs, and compares very favourably with most other countries.
 
#47 ·
Don't forget that spousal CPP benefits only go up to the maximum benefit for 1 person.

So, if both wait and are collecting maximum or more........and one passes away, they are not entitled to any spousal benefit.

This information is what decided it for us.

We both took it early.............so we get the 120 extra payments from 60-65.

If we both live long enough that we would have been better off waiting to receive our benefits until we were 65........then we are both alive and still collecting CPP, OAS, and our pensions, so lower CPP benefits due to taking it early may be irritating but not crucial to our finances at that time.

If one of us passes away...........it doesn't matter anyways, as we will be topped up to the maximum for 1 person.
 
#56 ·
Sags - I hate to tell you, but you've been given some wrong information about how combined (retirement & survivor) benefits work. The "maximum" refers to what your "calculated retirement pension" is prior to any reduction for taking it early. If your benefit(s) are the maximum for an age-60 pension the only survivor's benefit either of you will be eligible is the flat-rate portion, and that only while you're under age 65. After age 65, neither of you will be eligible for any survivor's benefit, if your retirement pensions are at the max age-60 rate.
The only good news is that by taking it early, when one of you dies, the survivor will become eligible for a "special adjustment" to his/her retirement benefit. What this special adjustment attempts to do is "unreduce" a portion of the survivor's retirement pension, equivalent to the "lost" survivor's benefit.
I'll be writing an article on this subject in the not-too-distant future, and I'll post a link to that article once it's available.
 
#48 · (Edited)
Judging by my experience, I don't think it's as simple as the surviving spouse receiving enough of their deceased partner's CPP to bring them up to the maximum. I know that I received a survivor's benefit in the range of approximately $350 when my husband died. Later, when I retired at 63 and started collecting my own CPP, my survivor's benefit was reduced to a lesser amount (I don't remember how much) and then when I turned 65, the survivor's benefit was further reduced to only $30 dollars a month which is added to my own pension but still leaves me short of the maximum. Perhaps Dogger can clarify this for us.
 
#49 ·
Karen - You are 100% correct that combined benefit calculations are not as simple as being subject to whatever brings you up to a maximum retirement pension. That is only one of the 3 possible amounts, and the "maximum" doesn't mean what most people think it does. What it does mean in this context is your "unreduced calculated retirement benefit". This means for instance, that when the max for an age-65 pension is $1,012.50 for 2013, if you started your retirement at age 63 at a 12% reduction, your maximum for combination purposes would be 88% of $1,012.50 or $891.00. While you were under age 65 however, you would also have been eligible for the survivor's flat-rate benefit ($173.82 for 2013), which would have disappeared when you turned age 65, but it would have been replaced by a larger percentage of your husband's CPP, but subject to the same maximum as above. Before you think it's that simple though, there's a "special adjustment" to your retirement benefit in this situation, that would basically "unreduce" a portion of your retirement benefit to offset for any of the survivor's benefit that you aren't receiving as a result of being limited by the maximum combined formula.

I've devised an Excel sheet that will approximate this combined calculation, and I would love to test it by using your case as an example. If you're interested, email me offline @ DRpensions@shaw.ca.
 
#50 ·
As a rule of thumb. If the choice is to leave your money a little longer under the control of a politician, or take it into your own control, the rule of thumb states, take it now ... or it will quickly be given to some other person that will ensure a larger number of votes for that said politician. This rule has never been broken.
 
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