CPP and Survivors Benefit

Pension Planning

Unlike other felines this old cat has only one life. I am trying to decide what my retirement is going to look like and do a little bit of planning for that day. A number of my friends have opted to take their CPP (Canada Pension Plan) early. In Canada you have the option of taking CPP as early as the age of 60 or delaying it past the normal age 65 to as late as age 70. If you take it early it is reduced by a certain percentage for each month or if you delay it it is increased by a certain percentage for each month it is delayed. In addition these percentages are being changed each year for the next few years. see… http://www.servicecanada.gc.ca/eng/services/pensions/cpp/publications/changes.shtml . The net effect of this is if you take it early you are money ahead for a period of time (you are getting a pension, abet at a lower rate than if you waited) but at some point you break even and then after that you have left money on the table. This crossover point seems to happen at about age 75 to 77 (assuming taking it at 60) for most people. Conversely, if you delay your CPP you don’t get to collect it until later but the amount is more. This crossover where you are money ahead seems to happen at about age 80 (assuming you delayed until 70). It would be an easy question if we lived forever. There is also a cap ($1012.50 in 2013) to the total amount of CPP that you can collect that is increased or decreased by that same formula.

This is further complicated by the Survivor’s Benefit which is paid out to the widow or widower if your partner dies. This unfortunately is my case. This pension is paid out based on the deceased’s lifetime contributions to the plan to the surviving partner. The combined CPP and SB (survivors benefit) cannot exceed that cap on the total amount of CPP that you can receive. When I first looked at this I thought if I delay to 65 the combined CPP and SB exceeds the cap. If I take CPP early the combined total still exceeds the cap, ie it’s a no brainer, take it early. What I didn’t realize at the time was that the cap is increased or decreased by that same formula. To make it even more complicated the SB is recalculated with a completely different formula when you turn 65. And the SB is decreased if you take it early, but not increased if you take it late. I am a computer programmer by profession and I have seen simpler algorithms for modeling nuclear explosions.

In the course of my research I found a really good site that did the best job I have seen of explaining the combined benefit at http://retirehappy.ca/cpp-survivor-benefits/ . The author doesn’t take into account the changes to the reduced/increased rates that are being phased in over the next few years but it gave me a starting point. Some of his other excellent articles can be found at http://www.drpensions.ca/dr-pensions-library.html . I won’t go into the math but I did create a spreadsheet that you can download at http://www.wiseoldcat.com/wp-content/uploads/general/CPP-planningV2.xls . The numbers in the sheet are from the examples at retirehappy.ca. ( Updated version with 2019 values – http://www.wiseoldcat.com//wp-content/uploads/general/CPP-planningV3.xlsx )

There are other factors that my sheet does not take into consideration. If you take early CPP but continue to work (my plan) you have to contribute to the plan until age 65 and optionally on to age 70. These contributions will increase your monthly benefits, what they call a “Post Retirement Benefit”. If you do as I plan to and bank and invest those CPP benefits until retirement then that changes the breakeven point again. And my sheet does not allow you to input a date of expected death – that’s beyond “Life and other stuff”.

Notes, Cautions, and Instructions

The author has made best effort to ensure that the calculations are correct but takes no responsibility for the results

This work is based on information found on the Internet and as such I cannot guarantee the accuracy of the source of the formulas. In addition, I cannot guarantee that I have interpreted them correctly or that there are not errors in the way I have implemented them. This work is one that is in progress and I would appreciate any feedback or suggestions.

Start by going to Service Canada’s website at http://www.servicecanada.gc.ca/eng/online/mysca.shtml and registering for your account. Do not expect to get immediate access. Once you register they will mail you a Personal Access Code by Canada Post. Once you have that you can complete setting up your account and only then access your record of CPP Earnings and Contributions. Print that out. Then you should go to the page where you can access your Estimated Monthly CPP Benefits. This is the information that you need for this spreadsheet. It will tell you the Maximum Retirement Pension at age 65 for this year and your Retirement Pension if you were 65, if you apply at age 60, and if you apply at age 70. The important numbers are the maximum and your age 65 estimate.

I suggest that you phone Service Canada at 1-877-454-4051 and work your way through the menus until you find an option to speak to a representative. (Hint: It wasn’t until my second call that I figured out that you could dial zero once you had reached the proper department. Be prepared to spend 5 minutes or so listening to all of the information that you don’t need to reach that step.) Once you are there have your questions prepared. Questions such as.

What would be my pension/survivors benefit be at age XX?
What will it be if I take my CPP at age 60 and continue to work until 65?
What if I retire at 65 but delay my CPP until age 70.

They can give you these estimates (and they are only estimates) over the phone. Put your numbers and dates into the spreadsheet and compare the results with what Service Canada tells you. I found that there were differences but they weren’t huge which tells me that there is more to the calculation than what I have in the sheet.

I found in the course of 4 phone calls to Service Canada that the people that work there vary in their ability and willingness to assist you. Most freely admit that the calculations are complex and they do not fully understand them themselves. I have to agree.

This work is released under the GNU license.  You may copy it, build on it, or pass it on as long as you do not modify the text on the notes page or sell it.  – ¬©ATM – 2013 – http://www.gnu.org/copyleft/gpl.html

The current version of this work can be found on http://www.wiseoldcat.com . Please send feedback to maildrop@wiseoldcat.com with “CPP Calculator” in the subject line.