If a person will be turning 45 in December 2014, and his CPP statement of contributions indicates that he could receive the maximum CPP retirement pension of $1,038.33 "if he were age 65 today", what will his actual retirement pension be at age 65 (in 2014 dollars) if he makes no further CPP contributions after 2014?
Please explain your answer.
I will give the answer in one week, assuming nobody comes up with the correct answer before then.
I calculated it by assuming YMPE from age 18-45, removing the allowed dropout and dividing the remaining average pensionable earnings by 4.
I think this may be an overestimate because I think it's possible for the calculator to tell you you'll receive the maximum, even if you didn't have maximum contributions every year since age 18. So I don't know how to account for that.
I will second lonewolf's answer but add my gripe that there is a big difference between investing in something in the first 20 years of a 40 year program, then the last 20 years. Have these idiots at the CPP not heard of something called the time value of money?
Love a good mind bender....first, there are a lot of assumptions. As the statement of contribution is very general it has (or had last time I looked) three categories at the bottom. One is the amount you get at 65, one a disability and one a survivor. So, I am going to assume this fellow started work at 18 and has worked for max contribution up until 45, giving him 27 years at max. I am also going to take the eight year dropout for lower earning years from the max of 40 years. So now we are missing only 5 years.
It looks like you took 8 years of dropout from 40 years. But I think you meant to use 47 (65-18=47 years of contributions for the basic case). You'd be "missing" 12 years, not 5.
As CPP contributions are mandatory on employment income, and the person will not contribute again, I assume the person began collecting CPP disability benefits at age 45 and will continue to do so until age 65.
The months collecting CPP disability benefits are not considered contributory months and are dropped from the calculation.
Therefore the person has contributed enough years of the maximum CPP contributions required for maximum CPP benefit.
sags - I considered adding an assumption that he doesn't qualify for either CPP disability or the child-rearing dropout between age 45 and 65, but I didn't want to make it too complex. You win a prize for one possible correct answer.
Your assumption of disability is not valid.
There could be any number of scenarios for not working between 45 - 65, such as working abroad, early retirement, etc.
The latter case fits our own Jon_Snow, who recently retired at 43 but will be eligible to collect CPP at 65 (or 60 at a reduced rate).
Of course, how silly of me....then I need to take about $200 off my estimate.
$708. I am too lazy to go and grab the calculator for an exact number....
Lots of smart folks here!
RBull - I agree with you 100% on the max amount. I also agree that a credit split could make that amount smaller (or larger if the split gained him earnings after age 45), but that's not what I see as being the minimum amount.
The key to calculating the minimum amount is that while the 45 year-old could have 27 years of max earnings, he doesn't need to have that many in order for the SOC to show him as being eligible for $1,038.33. Does this clue help anyone?
The Canada Pension Plan (CPP) offers protection against periods where you had zero or low earnings by automatically dropping a number of months of your lowest earnings when calculating your CPP benefit.
I say the maximum will be 718.66 (1038.33 x 27/(47 x 0.83).
I say the minimum will be $505.99 (1038.33 x (27-7.99)/(47 x 0.83).
I am assuming the CPP statement of contributions calculation of 1038.33 has already dropped 7.99 years (17% for zero or low earning years). If that is the case then I think his CPP pension will be based on 19.01 years (27-7.99)/39.01.
Another skill question I arrived to Canada in mid 30's. My statement says "If you were 65 today,
you could receive a monthly retirement pension of: $455.39". If like Jon I retire earlier, let say next year , at age 48, what CPP I gonna get at 60 and 65?
And I don't get about minimum and maximum Shouldn't it be just one amount?
gibor - There's always going to be a min/max with this limited amount of info, as there are unlimited earnings scenarios that would cause a $455.39 SOC estimate for a 47 year-old. The two extremes in your case are 10.5 years of max earnings or 29 years of 43.85% of max earnings.
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