# Skill testing CPP question



## Dogger1953 (Dec 14, 2012)

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.


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## Spudd (Oct 11, 2011)

$726.92/month?

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.


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## lonewolf (Jun 12, 2012)

519.165
have to work 40 years to get max pension. So his statement tells him he needs 20 more years of work to get max pension 65-45 =20

He must have 20 years in already 40-20=20

20 is half of 40 so he would get half his pension 1038.33 divided by 2 = 519.165


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## OptsyEagle (Nov 29, 2009)

lonewolf said:


> 519.165
> have to work 40 years to get max pension. So his statement tells him he needs 20 more years of work to get max pension 65-45 =20
> 
> He must have 20 years in already 40-20=20
> ...


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?


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## NorthernRaven (Aug 4, 2010)

Gee, this question looks familiar... 



lonewolf said:


> 519.165
> have to work 40 years to get max pension. So his statement tells him he needs 20 more years of work to get max pension 65-45 =20
> 
> He must have 20 years in already 40-20=20
> ...


Actually, since CPP starts at 18, he has been working 27 years not 20, which puts your calculation awry.

My CPP calculator comes out at 726.83 (pretty much Spudd's) assuming a $0 contribution for December 1969; I'm not sure when exactly CPP is first deducted around the 18th birthday, but it should be within a few dollars unless there's a trick in the question I'm missing. As I mentioned elsewhere, this assumes he doesn't later qualify for Child Rearing dropout credit.


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## Itchy54 (Feb 12, 2012)

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.

My magic number is $ 908.54


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## sags (May 15, 2010)

$1,038.33

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.


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## HaroldCrump (Jun 10, 2009)

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).


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## NorthernRaven (Aug 4, 2010)

Itchy54 said:


> 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.
> 
> My magic number is $ 908.54


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.


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## Dogger1953 (Dec 14, 2012)

Spudd said:


> $726.92/month?
> 
> 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.


Spudd - You're pretty close to the correct maximum value, but figuring out the minimum is the tricky part!


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## sags (May 15, 2010)

HaroldCrump said:


> 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).


True there are many scenarios, but I was looking for one that guaranteed the individual would receive the maximum CPP benefit.

I could be wrong though.......and it appears I am.................again.


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## Dogger1953 (Dec 14, 2012)

lonewolf said:


> 519.165
> have to work 40 years to get max pension. So his statement tells him he needs 20 more years of work to get max pension 65-45 =20
> 
> He must have 20 years in already 40-20=20
> ...


lonewolf - Sorry, but this is not the correct maximum or minimum.


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## Dogger1953 (Dec 14, 2012)

NorthernRaven said:


> Gee, this question looks familiar...
> 
> 
> 
> ...


Some birds really get around! CPP deductions begin the month following age 18, so a $0 contribution for 1969 is correct. I made the same assumption about not being eligible for the child-rearing dropout or CPP disability between age 45 and 65. Pretty close to the correct maximum. What is the minimum?


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## Dogger1953 (Dec 14, 2012)

Itchy54 said:


> 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.
> 
> My magic number is $ 908.54


Itchy - Good try, but the "magic 40" is now actually 39 years, but the way you get there is by subtracting the 8-year dropout. You can't therefore drop those years out a second time.


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## Dogger1953 (Dec 14, 2012)

NorthernRaven said:


> 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.


A gold star for NorthernRaven!! So 27/39ths is the correct maximum that he can receive at age 65. Now what's the answer to the minimum that he might receive?


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## Dogger1953 (Dec 14, 2012)

sags said:


> $1,038.33
> 
> 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.
> 
> ...


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.


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## Dogger1953 (Dec 14, 2012)

sags said:


> True there are many scenarios, but I was looking for one that guaranteed the individual would receive the maximum CPP benefit.
> 
> I could be wrong though.......and it appears I am.................again.


sags - As stated, you didn't have the answer that I was looking for, but your answer was 100% possible because I didn't state my assumption that he was not disabled.


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## Itchy54 (Feb 12, 2012)

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!


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## Dogger1953 (Dec 14, 2012)

Itchy54 said:


> 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!


Itchy - That's close enough to his age-65 maximum, but I'm still waiting for somebody to calculate his minimum age-65 pension amount.


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## RBull (Jan 20, 2013)

Max -$718.84
Min -Same (unless divorce credits or something like that apply)


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## nortel'd (Mar 20, 2012)

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.


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## gibor365 (Apr 1, 2011)

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?


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## Dogger1953 (Dec 14, 2012)

RBull said:


> Max -$718.84
> Min -Same (unless divorce credits or something like that apply)


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?


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## Dogger1953 (Dec 14, 2012)

nortel'd said:


> 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).
> 
> ...


nortel'd - You're the closest to the truth so far, but the SOC doesn't drop out the full 7.99 years at age 65. It drops out 17% of the 27 years.


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## Dogger1953 (Dec 14, 2012)

gibor said:


> 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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## nortel'd (Mar 20, 2012)

Dogger1953 said:


> nortel'd - You're the closest to the truth so far, but the SOC doesn't drop out the full 7.99 years at age 65. It drops out 17% of the 27 years.


How about a minimum of $596.49 from 1038.33 x (27x0.83)/(47x0.83). They have already dropped 4.59 years of low or zero earnings and his CPP pension will be based on 22.41 years (27X 0.83) out of 39.01 (47x0.83).


or

How about a minimum of $548.67 from 1038.33 x (27x0.83)/(47-27X0.17). They have already dropped 4.59 years of low or zero earnings and his CPP pension will be based on 22.41 years out of 42.41 (47-27x.017).


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## Dogger1953 (Dec 14, 2012)

nortel'd said:


> How about a minimum of $596.49 from 1038.33 x (27x0.83)/(47x0.83). They have already dropped 4.59 years of low or zero earnings and his CPP pension will be based on 22.41 years (27X 0.83) out of 39.01 (47x0.83).
> 
> or
> 
> How about a minimum of $548.67 from 1038.33 x (27x0.83)/(47-27X0.17). They have already dropped 4.59 years of low or zero earnings and his CPP pension will be based on 22.41 years out of 42.41 (47-27x.017).


nortel'd - You win the gold star for the minimum answer being $596.49. The SOC result at age 45 could be based on as few as 22.41 years of max earnings. When these are averaged over the age-65 period of 39 years, the pension would be 22.41/39 x $1,038.33.


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## carverman (Nov 8, 2010)

lonewolf said:


> 519.165
> have to work 40 years to get max pension. So his statement tells him he needs 20 more years of work to get max pension 65-45 =20
> 
> He must have 20 years in already 40-20=20
> ...


It's got to be more than that. I worked for 25 years at Nortel. Retired at 56 in 2002. Because of a cancer issue, I survived to age 60 (2006) and applied for CPP at 60, as I really don't know what's in store on my life's horizon. 

Currently drawing a reduced pension for 8 years now, I get $548 a month (COLA inclusive), and that is with a divorce credit split on CPP credits/benefits back in 1998 (married for 22.5 years) taken into account.

I don't know how much the CPP credit split "equalization" was at time of divorce, but I'm sure it had be to some kind of reduction in benefits for me. 




> CPP Credits and their Division: How It Works
> Accumulating CPP Pension Credits
> 
> The CPP maintains a Record of Earnings for each individual who has made contributions to it. The record lists the individual's earnings and contributions for each year during his or her contributory period (see Appendix 1 for the definition of Unadjusted Pensionable Earnings). Upon the divorce or separation of legal spouses or common-law partners, and the receipt by the Minister of required applications, information and documentation, credit splitting can begin.
> ...


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