steves wrote:BTW..... My example was for someone absolutely retired at age 60. I haven't included salary in either projection.
It was fascinating to pour over your detailed calculations, Steves. Thank you so much for posting them. They really help me to see the compounding effect of the difference in CPP income between the two examples over 2 decades. It may not be too fair to gloat over "geniuses" making mistakes having taken early CPP, though. Much of the advantage you show is due to the new rules which don't affect those of us who have already started our claims. That said, your charts really show that the advantage of CPP at 60 is rapidly eroding as the new rules are phased in.
I also have some questions about your results.
My first is about contributory periods. Your guy has a 10 year longer contributory period in example 2 than in example 1. For all 10 of those years he has zero pensionable earnings. What difference should that make to his pension entitlement, before adding the 42% bonus for waiting until 70 to draw his pension? Did you, perhaps omit that in your calculation for the "retirement at 70" scenario?
My second question is how did you get the starting CPP for each example? Using the current CPP maximum pension, adding 2% each year for inflation, applying the penalties/bonuses for starting early or late and discounting example 2's starting pension because of a greater drop out would seem to be the right way to calculate the pension in each scenario but I get significantly different figures from you when I do this.
You assume the guy in both examples has earned the maximum insurable earnings each year between ages 18 and 59. So, in the first scenario, he will have no reduction of pension for low premium contributions during his contributory period of 42 years (60-18). He will, of course have a hefty penalty for taking his pension 5 years early. He'll get 100% of a 2013 pension when he retires minus the 32.4% penalty. The CPP maximum payment in 2013 should be the 2011 payment ($11,520) plus two 2% increases for inflation: $11,985. Subtract 32.4% and he should receive a starting pension of $8,102 in 2013, by my calculations. You've got his starting pension to be $7,520. From my explanation of my calculations, can you figure out why we are so far apart?
In your second example his contributory period is 52 years (until he's 70 and starts CPP). However he has earned no money in the last 11 years of his contributory period. That will reduce the maximum pension he can receive. Under the new rules he's entitled to "drop out" 17% of any low/no pensionable earning years in his 52 year contributory period. That reduces the years he must have worked from 52 to 43. However, he has worked only 41 years. His pension will be reduced to 95% of the maximum (41 years credit/43 years required). On the plus side, the reduced amount is then increased by 36% because he delayed taking his pension until age 70.
With 2% annual inflation, the maximum CPP pension has risen from $11,985 to $14,610 between 2013 and 2023. He gets 95% of that -- $13,879 -- plus
3642%:
$18,878,$19,798 by my calculation. This is significantly lower than the $20,340 listed on your chart. Can you see where you and I did things differently?
I'm trying to learn more about how CPP works so humbly appreciate any response. And,if it's my faulty math, I apologize in advance.
edited once to correct bonus for taking pension late