Author Topic: when to draw CPP and how much will I get  (Read 753 times)

bluebelle

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when to draw CPP and how much will I get
« on: August 08, 2018, 01:36:42 PM »
Does anyone have  good way of caclulating expected CPP benefit for early retirees?  I have contributed the maximum for most of my working life, however, I struggle to figure out what my benefit will be and when to draw.
I plan to retire in 2 years at age 56.  Looking at Service Canada, at age 65 I will have 9 years at 0 earnings, 3 years at nearly 0 earnings (unniversity years), 1 year at slightly below max, and 34 years at max pensionable earnings.
It feels like Service Canada assumes you work until the month before you draw CPP, so I'm not convinced their calculator works.
Also, I have a few relatives at or near age 60, and their financial advisors are all telling them to start drawing at 60 (I don't know their details, maybe they need the money).  I had been leaning towards waiting until age 70 and getting the bigger payout (based on family history, longevity runs in the family).

What are your thoughts?  I trust you folks here more than many financial 'experts'.

I think that the benefit of taking it at 60 in my case takes out some of the 0 years, but I'm not sure

« Last Edit: August 08, 2018, 01:43:34 PM by bluebelle »

SoftwareGoddess

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Re: when to draw CPP and how much will I get
« Reply #1 on: August 08, 2018, 04:05:22 PM »
Yeah, the ServiceCanada calculator is not very useful. Are you up for rolling your own spreadsheet? There is a lot of useful info on your previous thread (https://forum.mrmoneymustache.com/canada-tax-discussion/cpp-best-age-to-start/).

I created a spreadsheet to answer this question for myself, using info I found at https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/. My situation is similar to yours. I've concluded that I will get a greater percentage of the (smaller) maximum payout if I take CPP at 60. On the other hand, if I take it 65, I will break even at age 79. Since I have pretty good longevity in my family, taking it at 65 is my current plan, and I may even extend that to 70.

My financial advisors also recommended that I take CPP at 60, without doing any calculations at all, which makes their advice rather suspect. My hypothesis is that this is simple bird-in-the-hand advice that sidesteps the need for the advisors to ask about your spending and your life expectancy.

bluebelle

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Re: when to draw CPP and how much will I get
« Reply #2 on: August 08, 2018, 06:07:41 PM »
thank you SoftwareGoddess.  You are more charitable than I, I sometimes wonder if advisors are just trying to keep the most dollars under their management, rather than what's best for the client.  And it is negligent for them to make that advice without having numbers to back it up.  Much like their standard advice to drain all non-registered accounts before touching RRSP/RRIF money, leaving clients with huge minimum withdrawals in their 80s and subject to OAS claw back, that could have been avoided by pulling some registered money out in early retirement.

yes, I'm up for rolling my own....I love spreadsheets.  I was just being lazy earlier.....and now I'm a bit embarrassed if the info was in one of my own threads.

SoftwareGoddess

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Re: when to draw CPP and how much will I get
« Reply #3 on: August 08, 2018, 07:01:22 PM »
thank you SoftwareGoddess.  You are more charitable than I, I sometimes wonder if advisors are just trying to keep the most dollars under their management, rather than what's best for the client. 

That's very possible. But then, figuring out the future CPP payment is so complex, I wouldn't be surprised if they don't want to make any recommendations that depend on it.

Quote
And it is negligent for them to make that advice without having numbers to back it up.  Much like their standard advice to drain all non-registered accounts before touching RRSP/RRIF money, leaving clients with huge minimum withdrawals in their 80s and subject to OAS claw back, that could have been avoided by pulling some registered money out in early retirement.

Oh, yes, they made that recommendation to me, too. With 80% of my retirement funds in registered accounts, that sounded like crazy talk to me.

Mighty Eyebrows Boy

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Re: when to draw CPP and how much will I get
« Reply #4 on: August 12, 2018, 10:05:17 PM »
bluebelle,

In that other thread, you linked to this spreadsheet:

http://www.holypotato.net/?p=1694

It is the best one I have found, and allows you to stop paying early.

(Disclaimer: I am not a CPP expert.)

Stasher

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Re: when to draw CPP and how much will I get
« Reply #5 on: August 15, 2018, 07:49:22 AM »
Are you setup with CRA to access "My Account" and review all your tax returns, tfsa, rrsp and so on?
Well if you are they have made things very easy, go login and on the left column you will see they have now linked "My Services" which is your CPP panel. Here they have your entire CPP history laid out and it shows you exactly what you will be getting based on today. Check it out as it is easy to access and view.

Also, for me nothing in life is a given or a sure thing. I will be taking my money at 60 absolutely as I could get hit by a truck on my 61st birthday.
« Last Edit: August 15, 2018, 07:50:54 AM by Stasher »

Prairie Stash

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Re: when to draw CPP and how much will I get
« Reply #6 on: August 15, 2018, 08:50:53 AM »
Are you setup with CRA to access "My Account" and review all your tax returns, tfsa, rrsp and so on?
Well if you are they have made things very easy, go login and on the left column you will see they have now linked "My Services" which is your CPP panel. Here they have your entire CPP history laid out and it shows you exactly what you will be getting based on today. Check it out as it is easy to access and view.

Also, for me nothing in life is a given or a sure thing. I will be taking my money at 60 absolutely as I could get hit by a truck on my 61st birthday.
No, the CPP estimate is based on working till you take CPP. The history is laid out, excellent for the spreadhseet, but the estimate is wrong if you retire early (before 60).

My prediction is very high (nearing max), my actual will be half because I intend to FIRE 20 years early. All those zeroes are going to drag my CPP down.

Stasher

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Re: when to draw CPP and how much will I get
« Reply #7 on: August 16, 2018, 08:52:05 AM »

No, the CPP estimate is based on working till you take CPP. The history is laid out, excellent for the spreadhseet, but the estimate is wrong if you retire early (before 60).

My prediction is very high (nearing max), my actual will be half because I intend to FIRE 20 years early. All those zeroes are going to drag my CPP down.

That was my point with saying "based on today" , CRA calculates with an assumption you will continue working until 60 or 65. I am FIRE'd and will have the issue you just mentioned above as I am 44, that will be 16 years of no CPP contributions.

Shinplaster

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Re: when to draw CPP and how much will I get
« Reply #8 on: August 16, 2018, 10:02:42 AM »
Bluebelle - do you have children?   If you do, you are allowed to drop 7 years of zero or low contributions from the calculations.  You have to apply for this - it is not automatic.

Also the general drop out provision might work to your advantage too:

"The CPP offers protection against this by automatically dropping a number of months of your lowest earnings when calculating your CPP benefit.

This provision affects 17% of your contributory period, allowing up to eight years of your lowest earnings to be dropped from the calculation. This benefits all CPP contributor"

I had many years of not working due to kid, and also low income due to part time accommodating kid and husband schedule.   In the end the CPP I receive is higher than I expected because I could drop a bunch of those years.
« Last Edit: August 16, 2018, 10:14:20 AM by Shinplaster »

Mighty Eyebrows Boy

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Re: when to draw CPP and how much will I get
« Reply #9 on: August 16, 2018, 09:50:05 PM »
The holypotato spreadsheet I linked above does the automatic 17% dropout and will allow you to calculate the effect of retiring early. I am not sure if you can adjust it to include the child-rearing dropout as well.* Read the notes and play around with it.

Just enter your current numbers from Service Canada and go to town.

(*Edit: I looked more at the notes. Yes, you can.)
« Last Edit: August 16, 2018, 09:57:44 PM by Mighty Eyebrows Boy »

Goldielocks

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Re: when to draw CPP and how much will I get
« Reply #10 on: August 26, 2018, 04:29:09 PM »
Just a caution -- the child rearing drop out has to be for low income years simultaneous with a child under 7 living at your home, and only one spouse / parent gets it per year.

A rough calculation:

Assumptions
34 years of max payment
47 years between ages 18 and 65
CPP started at age 65
8 years drop out allowed.
No deduction / bonus for early / late claiming.
$1,134 maximum CPP/month

= 34/39 x 1134 = $988 / month  (can be split with spouse to reduce taxes).

If you have partial credits then you could get more.  Also, it is indexed to inflation, so increases a bit each year.