# Curiosity question - Value of QPP/CPP after 40 years



## jman123 (Jan 28, 2015)

Hi,

Assumption : At 65 years, 40 years as a worker making more than the Maximum Pensionable Earnings for all those 40 years.

If my contributions for all these years were invested and made what the TSX return was what would be the value?

If I equate the QPP/CPP with a single life annuity would I be ahead or behind in monthly income compared with that investment? 

I have a friendly argument with someone who claims his pension is too small.

Thanks.


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## Dogger1953 (Dec 14, 2012)

jman123 said:


> Hi,
> 
> Assumption : At 65 years, 40 years as a worker making more than the Maximum Pensionable Earnings for all those 40 years.
> 
> ...


jman - As your starting point, 40 years of max contributions ending in 2015 would total $44,692.80.


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## naysmitj (Sep 16, 2014)

Remeber, unless you are self employed, your employer has contributed the same amount as you have.


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## Beaver101 (Nov 14, 2011)

Dogger1953 said:


> jman - As your starting point, 40 years of max contributions ending in 2015 would total $44,692.80.


 ... may I ask where can I find online (if available) the history of the max contributions and YMPE values, if not all 40 years past, the last 30 years ... so far I have been able to locate just the past 10 years. Checking for a friend, thanks.


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## naysmitj (Sep 16, 2014)

http://www.drpensions.ca/cpp-rate-table.html


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## livewell (Dec 1, 2013)

I did that calculation a couple of years ago. What I found was assuming your contributions received 7.1% return (This was in my spreadsheet, not totally sure why I used this number, I think that was the CPP published performance figure for the past 40 years back in 2013) the value of your (+Employer contributions) would be worth $242k (In 2013) and I calculated that the maximum annual payout ($12460 in 2013) was equal to 5.14% of the accumulated value.

So by my calculation with a CPI indexed WR of ~5% it is probably better than any annuity I could purchase @65 so my conclusion was CPP was a good investment.


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## sags (May 15, 2010)

Thanks for that livewell.

Is that a die broke scenario or simply paying benefits from the returns of the capital ?

I would think if the fund is paying out 5.14% and earning 7.1% average, the benefits would be paid from investment returns and the capital would remain in the fund and actually continue to increase. Even the 6% benchmark would be higher than the benefit rate of withdrawal, and the CPP has beaten the benchmark for the past 10 years, including 18% last year. As the fund is much larger now.............that 18% single year return is a lot of dollars. It actually was 4 times the level of contributions, which would be more than 4 extra years of benefits paid, as benefits will be paid solely from contributions for quite a few more years.

Perhaps that is why the fund is rising at a significantly higher rate than it was projected to be.........despite big losses during the recession.


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## livewell (Dec 1, 2013)

Just for clarity it is nothing to do with die broke, the percentage is just the value of the annual CPP payment divided into the the calculated value of the CPP payments (That have been compounded by the investment return.)

Thats only considering the retirement funding. Don't forget CPP also covers disability payments, and if I recall it is something like ~30% of the premiums go towards disability coverage. 

Also that calculation I did covered someone from who started paying CPP in 1975 , in 1987 the CPP premiums jumped significantly (The pre 1987 level was unsustainable). For those of us who started paying CPP later than 1987 the payout percentage is not quite so generous. I started paying CPP in 1992, and assuming the same 7% invesstment return my withdrawal rate will be ~4%.


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## fraser (May 15, 2010)

My spouse had a very good return. She only worked a little part time after 1985 and claimed 7 years for child rearing. We were quite pleasantly surprised when we saw her CPP payment numbers. Her ROI was much better than mine.


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## Eclectic12 (Oct 20, 2010)

Dogger1953 said:


> jman - As your starting point, 40 years of max contributions ending in 2015 would total $44,692.80.


I take it this is for CPP? Any idea how QPP differs? 
Quebec has to be different so I'm expecting this would also include pensions. :biggrin:




jman123 said:


> ... If my contributions for all these years were invested and made what the TSX return was what would be the value?


 ... sounds complicated to work out. Premiums used to be not sustainable so either one would need forty years of records to plug into a spreadsheet how much was put into the TSX at what point in time. Maybe there's a web site that lists the max contributions for the last forty years? I haven't stumbled across it yet.




jman123 said:


> If I equate the QPP/CPP with a single life annuity would I be ahead or behind in monthly income compared with that investment?


Can you get a quote online somewhere? 
The web sites I've getting want contact info where they seem to be providing details of the types, rather than the costs. 




jman123 said:


> I have a friendly argument with someone who claims his pension is too small.


Have fun ... the last time I tried something similar it was "dump the DB pension to get more RRSP contribution room" versus "keep the DB pension". Both pepole I was talking to were adamant that dumping the DB pension was the way to go, regardless of what I said. Final comment was run some numbers before you decide. One didn't and the other was surprised that their numbers showed they'd run out of RRSP money in seven years versus the DB pension's minimum ten year payout.


Cheers


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## Beaver101 (Nov 14, 2011)

naysmitj said:


> http://www.drpensions.ca/cpp-rate-table.html


 ... wow, thanks for the link to the table ... I see the YMPE since inception but what about the maximum contributions by the employee? The contribution rate wouldn't happen to be consistently 4.95% in the past 40 years?


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## Dogger1953 (Dec 14, 2012)

Beaver101 said:


> ... wow, thanks for the link to the table ... I see the YMPE since inception but what about the maximum contributions by the employee? The contribution rate wouldn't happen to be consistently 4.95% in the past 40 years?


Contribution rate and max contributions will be added to that table within a day or two.


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## Beaver101 (Nov 14, 2011)

^ Many thanks in advance!


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## Dogger1953 (Dec 14, 2012)

Beaver101 said:


> ^ Many thanks in advance!


As promised, the above link to the CPP rate table now includes the historical CPP contribution rate and the maximum yearly employee contribution.


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## Beaver101 (Nov 14, 2011)

^ Wow, wow, wow, super-duper ... thanks so much, Mr. Runchey!


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## nortel'd (Mar 20, 2012)

jman123 said:


> Hi,
> 
> Assumption : At 65 years, 40 years as a worker making more than the Maximum Pensionable Earnings for all those 40 years.
> 
> ...



For 45 years from 1969 to 2013 (age 18 to 63) inclusive, I along with my employer contributed approximately $79000 tax deferred to my CPP and using an average marginal tax rate of 30% on my contribution alone, I may have received a tax rebate of $12,000. 

For me... I'll gladly let the CPP investment board take care of my and my employers contributions. My mistake ... I should have also invested the tax rebate I received on my yearly contribution. 

In January 2014 I started collecting $881 CPP per month. Had I tried to manage my contribution plus the resulting tax refund along with my employers contributions, I'd be lucky to start 2014 with $661 and end 24 years later in 2037 with $802 per month.

I started collecting $881 (84.88% max CPP) January 2014. 

Because I did not have the nerve or spare time to play the stock market for the majority of my working life, I can't say what would have happened had I invested in the TSX. From 1969 to 2003 all my investments were either in GIC's or Treasury Bills held at my bank. 

For my comparison, I am going to use The current Treasury Bill Auction - Average Yields 6 month V122552 May 1959 to December 2014

If every year on January 01 my yearly contribution along with 1/2 of the tax rebate for my contribution and every July 01 my employer's matching contribution along with the other 1/2 of the tax rebate for my contribution, had been rolled into an RRSP account at my local bank, my spreadsheet gives a December 31, 2013 value of $143,500 for the CPP contributions plus $21,500 for the tax rebate on my contribution alone for a grand total of $165,000.

I now transfer this amount over to one of my Manitoba Credit Union RRSP accounts on January 01, 2014 and proceed to create my own withdrawal stream using the interest from a GIC ladder and a portion of the remaining principal such that by December 31, 2038 at age 87 nothing remains ... (my life expectancy according to Statistics Canada)

At this moment, my Manitoba Credit Union daily HISA rate is 1.85% and its term rates are 1 year - 2.05%, 2 year - 2.20%, 3 year - 2.30%, 4 year - 2.45%, 5 year - 2.55% .... By the 5th year all GIC's are 5 year term earning 2.55%. Starting in 2031 at age 80 I need to set up a reverse ladder such that by 2037 at age 86 all the remaining principal has been transferred to the HISA making 1.85%. I also had to remove the negative value GICs that started to show up in 2037.

NOW the ... if nothing changes and ...

Every December 31, I withdraw all the interest earned from the ladder plus a 2.498% portion of the remaining principal plus, starting in 2015, every December 31, I also remove an additional principal amount equivalent to 2.498% of previous years interest ...

On December 31, 2014 I should have been able to withdraw $3811 interest and $4122 of the principal for a grand total of $7933 equivalent to a monthly withdrawal of $661. ($220 less than my starting monthly indexed CPP benefit)

On December 31, 2015 I should be able to withdraw the $3871 in interest and $4225 of the principal for a grand total of $8096 equivalent to a monthly withdrawal of $674.

On December 31, 2038 I should be able to withdraw the $175 in interest and the remaining $9461 of the principal for a grand total of $9636 equivalent to a monthly withdrawal of $803. (still $78 less than my starting monthly indexed CPP benefit)


On January 31, 2039 ... I am broke, alive, my health is good and I am finally a senior member of this forum. It has been 69 years since I was 18.


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## sags (May 15, 2010)

Interesting that in 1997 the death benefit had gradually increased to $3580, and then in 1998 it was reduced to $2500 where it has remained since.

Also interesting that the CPI index benefit increase every year was barely over 1%.

The average rate of inflation for the preceding 50 years until 2014 was 4.1%

_The Canadian Consumer Price Index has been quite stable since 1992. In the 30 years from 1963 to 1992, the average annual increase (inflation rate) was 5.7%. During that time, there were 5 years where the inflation rate was over 10%, including 1981, when the rate was 12.4%. *1981 is also the year when Canadian 5 year mortgage rates were over 21% for a couple of months. The average 5 year mortgage rate from 1963 to 1992 was 11.03%. 
*_
The average annual return on Canadian government 10 years bonds was 7.5% over the 50 years preceding 2014.

http://www.taxtips.ca/stocksandbonds/investmentreturns.htm

Imagine home owners today facing the kind of interest that many baby boomers were paying for their mortgages.

For 30 years the average fixed rate 5 year mortgage was 11.03%. That would double or triple mortgage payments today.

Imagine what a car loan cost...........and amortizations for mortgages were only 25 years and car loans were 36 months........maybe 48 months.

It is a wonder that people saved anything at all for their retirement.


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## RBull (Jan 20, 2013)

sags said:


> Interesting that in 1997 the death benefit had gradually increased to $3580, and then in 1998 it was reduced to $2500 where it has remained since.
> 
> Also interesting that the CPI index benefit increase every year was barely over 1%.
> 
> ...


Not really. People then lived below or within their means. Saving was also a priority. Today spending everything and more, and having it all now is the priority. It is a wonder if these people will ever have a retirement.


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## fraser (May 15, 2010)

I think that we are ahead. I only had 12 years (until 2010) of higher premiums and was able to sneak under the new rules in order to take my CPP at age 60. Spouse did MUCH better. Few contributing years, virtually none in the higher premium period, and child rearing years.

I do think that the maximum death benefit should be increased and then tied to CPI

But here is one question to ask..... 

Had CPP employer premiums NOT been mandatory, how many employers would have voluntarily opted for them??? 

My guess would be a that fair percentage of small/medium businesses would not opt for this.


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## sags (May 15, 2010)

Speaking of sneaking in under the rules, it was in the media yesterday that Peter McKay is leaving just before the new MP pension rules become affective after the next election.

He can collect his pension at age 55..........instead of 65 under the new rules, and will avoid paying double the contributions.

He will get $1.2 Million more by leaving now, than under the new plan.

His pension is about $125,000 a year.

A lot of MPs have decided to leave this year. I wonder how much their decision was affected by the new pension rules.

What happens if they run for office in the future. Keep the old pension plan and start a new one ?


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## RBull (Jan 20, 2013)

Unquestionably this is a factor in Peters (and others) decision to leave when they have. 30 Conservatives not re-offering this year. I would do the same thing. 

That is huge money-$128,832 starting age 55 instead of 65 under the new rules coming in the fall. $1.288M more by getting in under the old rules. Especially considering he has less than 20 years on the job and that taxpayers have put in approx $24 for every dollar he and other MPs have contributed. The new rules make this $1.62 from taxpayers for every $1 from taxpayers.* Still juicy but not scandalous. 

No doubt if they go back they'll keep whatever they have and add some more gravy with another pension. 

*according to CDN taxpayers assoc.


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## Beaver101 (Nov 14, 2011)

^


> .. *sags:* What happens if they run for office in the future. Keep the old pension plan and start a new one ?


 ... what's your opinion? Cancel the old one and start afresh with the new or grandfather the old?


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## sags (May 15, 2010)

I would bet they keep all of the old pension because it is vested to them, and they would start a brand new pension.

Municipal, Provincial, Federal politicians all keep their pensions if they get elected to a different political arena.

My other opinion is that these are the people who say employers can't afford to contribute to their employee CPP or anything else, but are happy to have their own employers (we the taxpayers) pay 24 times the amount they put in.

In Ontario, the MPPs decided to change their pension to a DC type of plan to soothe public anger, but before they did so they arranged it so they decided what all the assumption numbers would be. They rewarded themselves far more than the normal calculations would render.

Such arrogance and entitlement...........and they wonder why voters don't want to hear their BS anymore.


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## naysmitj (Sep 16, 2014)

No surprises here, they are just feeding at the trough due to them by their rules, the same way that the rest of us would if we were public sector entitled.


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## fraser (May 15, 2010)

All I can see is derrieres and little tails packed tightly together.

Pigs at the trough. Snorting and grunting. We can hear them every day simply by turning on the news. The only difference is that they scrub up well and wear their Sunday best bow ties for these news clips. But that awful smell still pervades the air.

They are never satisfied-ever.

Just wait for the Senate expense reports to become public!


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## RBull (Jan 20, 2013)

sags said:


> I would bet they keep all of the old pension because it is vested to them, and they would start a brand new pension.
> 
> Municipal, Provincial, Federal politicians all keep their pensions if they get elected to a different political arena.
> 
> ...


Game, set match. Give the man a cigar.


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