Personal Finance

Service Canada CPP Estimate

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  • May 17th, 2021 2:56 pm
[OP]
Newbie
Jun 15, 2018
32 posts
13 upvotes

Service Canada CPP Estimate

I'm 55 and have looked at my Service Canada CPP estimate and there is a value displayed beside the heading "at 65, you could receive".
The value displayed on the site is much higher than I calculate.
The displayed value is almost at the current maximum benefit, and I currently have nowhere near enough years to be near that maximum.
The website says that the calculated value *may* not include future earnings (which is pretty vague statement).

So my question is... which one of these is the correct definition of that estimate:
  1. It assumes you will continue working and contributing to age 65.
  2. It assumes you will stop working and contributing now.
  3. Something else.


BTW - pls don't ask how I am calculating the value for myself. It's so complicated, it could be the topic of another thread. ;-) If you could pls just stick the definition of that value on the website. Thanks.
8 replies
Deal Addict
User avatar
Mar 9, 2012
3598 posts
2283 upvotes
Kitchener
btwpg999 wrote: I'm 55 and have looked at my Service Canada CPP estimate and there is a value displayed beside the heading "at 65, you could receive".
The value displayed on the site is much higher than I calculate.
The displayed value is almost at the current maximum benefit, and I currently have nowhere near enough years to be near that maximum.
The website says that the calculated value *may* not include future earnings (which is pretty vague statement).

So my question is... which one of these is the correct definition of that estimate:
  1. It assumes you will continue working and contributing to age 65.
  2. It assumes you will stop working and contributing now.
  3. Something else.


BTW - pls don't ask how I am calculating the value for myself. It's so complicated, it could be the topic of another thread. ;-) If you could pls just stick the definition of that value on the website. Thanks.
I'm 90% sure it assumes you will carry on with your current income situation. But I've been wrong before. There is an expert here, that you can ask. Dogger1953. That would be the best place to ask this question.

im-canada-pension-plan-cpp-expert-any-q ... s-1295017/
Why can't we all just get along?
Sr. Member
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Dec 12, 2012
922 posts
710 upvotes
Courtenay
btwpg999 wrote: I'm 55 and have looked at my Service Canada CPP estimate and there is a value displayed beside the heading "at 65, you could receive".
The value displayed on the site is much higher than I calculate.
The displayed value is almost at the current maximum benefit, and I currently have nowhere near enough years to be near that maximum.
The website says that the calculated value *may* not include future earnings (which is pretty vague statement).

So my question is... which one of these is the correct definition of that estimate:
  1. It assumes you will continue working and contributing to age 65.
  2. It assumes you will stop working and contributing now.
  3. Something else.


BTW - pls don't ask how I am calculating the value for myself. It's so complicated, it could be the topic of another thread. ;-) If you could pls just stick the definition of that value on the website. Thanks.
Their estimate assumes that you are eligible effective the next month, which has the same effect as projecting your current average lifetime earnings through until age 65. Here's a link to an article that I wrote about this issue: https://retirehappy.ca/understanding-cp ... tions-soc/
[OP]
Newbie
Jun 15, 2018
32 posts
13 upvotes
Dogger1953 wrote: Their estimate assumes that you are eligible effective the next month, which has the same effect as projecting your current average lifetime earnings through until age 65. Here's a link to an article that I wrote about this issue: https://retirehappy.ca/understanding-cp ... tions-soc/
Oooh thanks, that answers it perfectly :-) Gee, CRA should hire you to fix that estimate page with a better description (sounds like I'm not the only one asking that question).

I know I said I didn't want the thread to deviate into the topic of the actual calculation of the CPP benefit, but since you've answered the question *and* by miracle of miracles you wrote the page that I am using to calculate the benefit... I'll take a chance and ask a question about the benefit calculation.

If I follow the instructions to the letter, I end up with a benefit at 60 that is higher than the benefit at 65????
In step 4, AMPE is calculated as follows:
AMPE = TAPE (after dropout) / NCM (after dropout)
NCM is calculated in step 1, and it states that NCM ends
the month that your CPP retirement pension starts
.
So if pension starts at 60, it results in a smaller NCM number than if pension started at 65. The smaller number in the denominator of the AMPE formula creates a higher AMPE for age 60.
Where am I going wrong, because shouldn't AMPE be less if you take it early?
Sr. Member
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Dec 12, 2012
922 posts
710 upvotes
Courtenay
btwpg999 wrote: Oooh thanks, that answers it perfectly :-) Gee, CRA should hire you to fix that estimate page with a better description (sounds like I'm not the only one asking that question).

I know I said I didn't want the thread to deviate into the topic of the actual calculation of the CPP benefit, but since you've answered the question *and* by miracle of miracles you wrote the page that I am using to calculate the benefit... I'll take a chance and ask a question about the benefit calculation.

If I follow the instructions to the letter, I end up with a benefit at 60 that is higher than the benefit at 65????
In step 4, AMPE is calculated as follows:



NCM is calculated in step 1, and it states that NCM ends .
So if pension starts at 60, it results in a smaller NCM number than if pension started at 65. The smaller number in the denominator of the AMPE formula creates a higher AMPE for age 60.
Where am I going wrong, because shouldn't AMPE be less if you take it early?
It depends on what earnings (if any) you plan to have between age 60 and 65. If you're not working for those 5 years, your AMPE will likely decrease from age 60 to age 65 but you'll get to keep more of it due to the age-adjustment factor. That's what I call waiting to receive a larger slice of a smaller pie, but you'll always get more pie if you wait, because the age-adjustment factor increases at a greater rate than the decrease to the AMPE.
[OP]
Newbie
Jun 15, 2018
32 posts
13 upvotes
Dogger1953 wrote: It depends on what earnings (if any) you plan to have between age 60 and 65. If you're not working for those 5 years, your AMPE will likely decrease from age 60 to age 65 but you'll get to keep more of it due to the age-adjustment factor. That's what I call waiting to receive a larger slice of a smaller pie, but you'll always get more pie if you wait, because the age-adjustment factor increases at a greater rate than the decrease to the AMPE.
That's interesting.

Most other web pages, youtube videos, etc indicate that taking CPP at 60 reduces the benefit by 36%.
However if I do the step-by-step calculation, I find that the benefit is only reduced 25%

If I follow the calculations for both 60 and 65:


Step 1: Calculate NCM (by definition, NCM ends when pension starts)
NCM(60)=(60-18)*12=504
NCM(65)=(65-18)*12=564

Step 2: Calculate TAPE (summed all APE)
TAPE(60)=1900000
TAPE(65)=1900000

They are the same as I will no longer work.

Step 3: Calculate Dropouts 17%
Dropouts(60)=0.17*504=86
Dropouts(65)=0.17*564=96


Step 4: Calculate AMPE
AMPE(60)=1900000/(504-86)=4546
AMPE(65)=1900000/(564-96)=4060

Note the higher number for CPP at 60

Step 5: Calculate RTR-FBC
RTR-FBC(60)=4546*0.25=1136.50
RTR-FBC(65)=4060*0.25=1015.00

Step 6: Reduce early retirement amount by 0.6% per month for 5 yrs
RTR-FBC(60)=1135.50*(1-(5years*12months*0.006))= 762.72
RTR-FBC(65)=1015.00*(1-(0years*12months*0.006))= 1015.00 (note it is unreduced)

So in the end, the CPP pension at 60 is reduced from 1015.00 to 762.72.
This results in a reduction as follows.

762.72/1015.00 = 0.75

So taking the pension at 60 results in only a 25% reduction from the amount at 65.
This is much better than the 36% reduction that most other web pages claim.
Deal Expert
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Dec 12, 2009
21244 posts
9649 upvotes
Toronto
btwpg999 wrote: That's interesting.

Most other web pages, youtube videos, etc indicate that taking CPP at 60 reduces the benefit by 36%.
However if I do the step-by-step calculation, I find that the benefit is only reduced 25%

If I follow the calculations for both 60 and 65:


Step 1: Calculate NCM (by definition, NCM ends when pension starts)
NCM(60)=(60-18)*12=504
NCM(65)=(65-18)*12=564

Step 2: Calculate TAPE (summed all APE)
TAPE(60)=1900000
TAPE(65)=1900000

They are the same as I will no longer work.

Step 3: Calculate Dropouts 17%
Dropouts(60)=0.17*504=86
Dropouts(65)=0.17*564=96


Step 4: Calculate AMPE
AMPE(60)=1900000/(504-86)=4546
AMPE(65)=1900000/(564-96)=4060

Note the higher number for CPP at 60

Step 5: Calculate RTR-FBC
RTR-FBC(60)=4546*0.25=1136.50
RTR-FBC(65)=4060*0.25=1015.00

Step 6: Reduce early retirement amount by 0.6% per month for 5 yrs
RTR-FBC(60)=1135.50*(1-(5years*12months*0.006))= 762.72
RTR-FBC(65)=1015.00*(1-(0years*12months*0.006))= 1015.00 (note it is unreduced)

So in the end, the CPP pension at 60 is reduced from 1015.00 to 762.72.
This results in a reduction as follows.

762.72/1015.00 = 0.75

So taking the pension at 60 results in only a 25% reduction from the amount at 65.
This is much better than the 36% reduction that most other web pages claim.
I get identical results using the formula from retirehappy (72.8% of age 65 pension at age 60). My sense is the 36% reduction is based on a rule of thumb calculation whereas the detailed calculation fully accounts for the adjustments NCM and 17% drop out when pension is taken early.
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[OP]
Newbie
Jun 15, 2018
32 posts
13 upvotes
will888 wrote: I get identical results using the formula from retirehappy (72.8% of age 65 pension at age 60). My sense is the 36% reduction is based on a rule of thumb calculation whereas the detailed calculation fully accounts for the adjustments NCM and 17% drop out when pension is taken early.
That's amazing.
Most people will be getting completely wrong info for their retirement and be in for a nasty surprise.
They go to Service Canada and look at those numbers and may decide to retire now (not knowing that those numbers have nothing to do with now).
Then they go to the multitude of web pages and youtube videos where everyone swears up and down that you'll lose 36% by taking pension at 60, and that turns out to be wrong.
It's a minefield out there ;-)
Deal Expert
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Dec 12, 2009
21244 posts
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Toronto
btwpg999 wrote: That's amazing.
Most people will be getting completely wrong info for their retirement and be in for a nasty surprise.
They go to Service Canada and look at those numbers and may decide to retire now (not knowing that those numbers have nothing to do with now).
Then they go to the multitude of web pages and youtube videos where everyone swears up and down that you'll lose 36% by taking pension at 60, and that turns out to be wrong.
It's a minefield out there ;-)
If the contributory period was kept at 47 years for early pension, then the 7.2% annual reduction is valid. But that is now how the calculation works. The contributory period ends when pension is taken. The delayed pension estimates are correct in that the contributory period is held at 47 years past age 65.

The services Canada website is totally misleading. What they should do is provide a real calculator that allow work assumptions be be manually adjusted. As a minimum, they really should be a lot clearer that the pension estimate provided assumes no work interruptions until age 65.
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