Peter  The CRDO must be applied only to the specific years when you were the primary caregiver for a child under age 7.pmj wrote:Hi  with respect to ChildRearing Dropout  must it be applied only to the years when one had a child under 7  or can it be applied to other years that might have lower earnings (relative to YMPE) than those particular years?
Any questions about CPP?

 Silver Ring
 Posts: 208
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Re: Any questions about CPP?
DR Pensions Consulting (http://www.DRpensions.ca)
Re: Any questions about CPP?
Thanks. That was what I expected  but the wording at the various sites I checked wasn't specific.Dogger1953 wrote:Peter  The CRDO must be applied only to the specific years when you were the primary caregiver for a child under age 7.pmj wrote:Hi  with respect to ChildRearing Dropout  must it be applied only to the years when one had a child under 7  or can it be applied to other years that might have lower earnings (relative to YMPE) than those particular years?
Peter
Patrick Hutber: Improvement means deterioration
Patrick Hutber: Improvement means deterioration
Estimating CPP or QPP
How to calculate your CPP retirement pension from Doug Runchey gives a full explanation of how CPP is calculated, but I am wondering if there is a simpler, rough method.
[*]The normal contribution period is from ages 18 to 65, i.e. 47 years. The 8 years with the lowest incomes as a proportion of the YMPE are dropped, leaving the best 39 years for the calculation.
[*]For retirement at age 60, the best 34.86 years out of 42 are kept.
[*]Also consider the ChildRearing Provision, if applicable
[*]Divide each year’s pensionable earnings by the applicable YMPE
[*]Average these percentages and multiply by the current maximum pension at 65 or 60, depending on the case examined
I've done an equivalent calculation for QPP (dropping only 15% of the years, not 17% as for CPP) and I come to within 12% of what Retraite Québec estimates for me at 60 or 65.
I'll like to get some confirmation that my method is not flawed, since I can then apply it to early retirement calculations... Also I may add it to finiki.
Thanks!
[*]The normal contribution period is from ages 18 to 65, i.e. 47 years. The 8 years with the lowest incomes as a proportion of the YMPE are dropped, leaving the best 39 years for the calculation.
[*]For retirement at age 60, the best 34.86 years out of 42 are kept.
[*]Also consider the ChildRearing Provision, if applicable
[*]Divide each year’s pensionable earnings by the applicable YMPE
[*]Average these percentages and multiply by the current maximum pension at 65 or 60, depending on the case examined
I've done an equivalent calculation for QPP (dropping only 15% of the years, not 17% as for CPP) and I come to within 12% of what Retraite Québec estimates for me at 60 or 65.
I'll like to get some confirmation that my method is not flawed, since I can then apply it to early retirement calculations... Also I may add it to finiki.
Thanks!
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
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Re: Estimating CPP or QPP
Quebec,Quebec wrote: I'll like to get some confirmation that my method is not flawed, since I can then apply it to early retirement calculations... Also I may add it to finiki.
Here's the precise calculation for QPP: http://www.rrq.gouv.qc.ca/en/services/p ... rente.aspx
I've implemented it into a spreadsheet and I get identical values (after rounding) to my annual estimate available on http://www.rrq.gouv.qc.ca/en/services/s ... ation.aspx.
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 Silver Ring
 Posts: 208
 Joined: 04 Mar 2013 21:00
Re: Estimating CPP or QPP
Quebec  Your method as described is not flawed and should give you a good approximation.Quebec wrote:
I'll like to get some confirmation that my method is not flawed, since I can then apply it to early retirement calculations... Also I may add it to finiki.
Thanks!
DR Pensions Consulting (http://www.DRpensions.ca)
Re: Any questions about CPP?
Selecting years to apply the ChildRearing Dropout provision seems to be somewhat of an iterative process if the YPE/YMPE factors for any of those years were similar to your average YPE/YMPE factors.
Peter
Patrick Hutber: Improvement means deterioration
Patrick Hutber: Improvement means deterioration

 Silver Ring
 Posts: 208
 Joined: 04 Mar 2013 21:00
Re: Any questions about CPP?
Peter  Selecting CRDO years is a 2step process. The first step (I call this CRDO1) is to remove all years with zero earnings. Then you calculate a temporary lifetime average earnings and drop out any CRDO years that are less than that average (I call this CRDO2). You don't continually recalculate the average earnings as you drop out these CRDO2 years.pmj wrote:Selecting years to apply the ChildRearing Dropout provision seems to be somewhat of an iterative process if the YPE/YMPE factors for any of those years were similar to your average YPE/YMPE factors.
DR Pensions Consulting (http://www.DRpensions.ca)
Re: Estimating CPP or QPP
Yes, I know, but they are working with months, etc. Getting to within 12% of the estimate is good enough for me, especially on a Friday night...longinvest wrote:Here's the precise calculation for QPP: http://www.rrq.gouv.qc.ca/en/services/p ... rente.aspx.
Thanks, I appreciate that. If a few other people can try my simplified method for the QPP (only drop 15% of the years, as opposed to 17% for the CPP) and confirm they get within 12% of what Retraite Québec says for their pension estimate at age 60 and age 65, I'll add this to finiki.Dogger1953 wrote:Quebec  Your method as described is not flawed and should give you a good approximation.
.longinvest wrote:I've implemented it [the complete method] into a spreadsheet and I get identical values (after rounding) to my annual estimate
Interesting. How are you dealing with the months? I vaguely remember working for only 34 months in 19xx while I was a student, but it would be painful to get the monthbymonth details for the years when I got less than the YMPE. These low income years cannot be dropped in my case.

Added: I have to keep some zero income months anyway, so I guess the low income years are just taken as 12 months without trying to be fancy about selecting partial years
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
 Posts: 1391
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Re: Estimating CPP or QPP
Quebec,Quebec wrote:.longinvest wrote:I've implemented it [the complete method] into a spreadsheet and I get identical values (after rounding) to my annual estimate
Interesting. How are you dealing with the months? I vaguely remember working for only 34 months in 19xx while I was a student, but it would be painful to get the monthbymonth details for the years when I got less than the YMPE. These low income years cannot be dropped in my case.
The Régie probably doesn't know about your monthly income. All it cares about is the annual income, which is reported on your annual QPP statement.
For each year, you divide the income reported on your QPP statement by 12 to get the monthly amount. As a consequence, you can only have 0$ months in 0$ years.
For early retirement, the penalty varies between 0.5% to 0.6% per month. The (implicit) formula for the exact monthly penalty is actually:
0.5% + 0.1% X (monthly_annuity_before_penalty / maximum_monthly_annuity)
Another detail: you can remove a partial month. For a retirement at age 60, you remove the worst (60  18) X 12 X 15% = 75.6 months of income.
Give it a try.
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Estimating CPP or QPP
I've prepared a spreadsheet with the proper/official method for the QPP as per the document linked by longinvest. The step by step explanations are clear. Yet I get estimation errors of 0.7% to 2.2% relative to my Statement of Participation, for retirement at 60 and 65. I.e. the error is similar to that of my simplified method. So either I'm doing something slightly wrong when implementing the proper/official method, or Retraite Québec is projecting my future income slightly differently than I am. It seems difficult to obtain the exact dollar amount even with the official method...
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
 Posts: 1391
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 Location: QC
Re: Estimating CPP or QPP
Quebec,Quebec wrote:I've prepared a spreadsheet with the proper/official method for the QPP as per the document linked by longinvest. The step by step explanations are clear. Yet I get estimation errors of 0.7% to 2.2% relative to my Statement of Participation, for retirement at 60 and 65. I.e. the error is similar to that of my simplified method. So either I'm doing something slightly wrong when implementing the proper/official method, or Retraite Québec is projecting my future income slightly differently than I am. It seems difficult to obtain the exact dollar amount even with the official method...
On your statement, there is a projection for retirement at ages 60 and 65 assuming you won't make any additional contribution and another assuming you'll contribute similarly to the latest years.
Do your calculations match, when projecting no additional contribution? Mine do match exactly with the projection on my statement (assuming no additional contributions).
If they happen to match, I would rather use my own projections of future income than the Régie's.
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Estimating CPP or QPP
Yes they now match (same dollar amount after rounding), but for age 60 I had to reduce the pension by 31.66% (using your formula), not 36% as misleadingly listed here. There is a footnote to the table that says ''The amounts apply to persons entitled to the maximum pension'', but this appears to apply to the dollar amounts when you look at the table. In fact it applies to the percentages too below the age of 65!!!! Grrrrrr. In the calculation instructions they do say that the adjustment factor varies from 0.5% to 0.6% a month, but no details are given.longinvest wrote:On your statement, there is a projection for retirement at ages 60 and 65 assuming you won't make any additional contribution and another assuming you'll contribute similarly to the latest years. Do your calculations match, when projecting no additional contribution?
You figured this out by trial and error?longinvest wrote:0.5% + 0.1% X (monthly_annuity_before_penalty / maximum_monthly_annuity)
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
 Posts: 1391
 Joined: 10 Sep 2012 17:26
 Location: QC
Re: Estimating CPP or QPP
Yes, along with a little bit of reasoning. I had my projections and those of my wife to help deduce the linear relation.Quebec wrote:You figured this out by trial and error?longinvest wrote:0.5% + 0.1% X (monthly_annuity_before_penalty / maximum_monthly_annuity)
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Estimating CPP or QPP
There is support for your formula here:
The most simple way to go from 0.5% to 0.6% is of course a linear relationship. I find it amazing that the average worker is supposed to guess the formula. Of course the average worker probably has not even looked at his Statement of Participation, but that's besides the point.If you are under age 65, your pension will be reduced for each month between the start of payment and your 65th birthday. The reduction factor will be 0,5% a month if your pension is very small and will be up to 0,6% if you are receiving the maximum pension. If you were born before 1 January 1954, the reduction factor will be 0,5% a month.
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
 Posts: 1391
 Joined: 10 Sep 2012 17:26
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Re: Estimating CPP or QPP
You're not alone.Quebec wrote:I find it amazing that the average worker is supposed to guess the formula.
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Estimating CPP or QPP
Longinvest, I've distilled what I've learned at finiki  QPP  DIY pension calculations to summarize our discussion. Please have a look...
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
 Posts: 1391
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Re: Estimating CPP or QPP
Great! I would add an example of somebody retiring at 60 (with an average amount) and the consequences of claiming his QPP pension at ages 60, 65, and 70.Quebec wrote:Longinvest, I've distilled what I've learned at finiki  QPP  DIY pension calculations to summarize our discussion. Please have a look...
This can be illuminating. In particular, the increase for delaying from 65 to 70 (assuming one is not working during this period) is to multiply the age 65 pension amount by (6518) / (7018) X 1.42 = 1.28346, not by 1.42. (This is unlike CPP where there is a dropout provision for post age 65 years, allowing for an effective 1.42 factor).
Note: I'm ignoring the 85% factor for (65  18) and (70  18) because it applies to both numerator and denominator.
The higher the pension amount, the higher the increase for delaying from 60 to 65 (due to the graded 0.5% to 0.6% penalty). The factor, when not working during the delay period, varies between (6018) / (65  18) / (1  5 X 12 X 0.005) and (6018) / (65  18) / (1  5 X 12 X 0.006), or, more succinctly, between 1.27660 and 1.39628.
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Estimating CPP or QPP
But, in theory, if you have worked almost continuously from 18 to 65, you can use your general 15% dropout provision to get rid of the zero earning years from 65 to 70, and get the full 42% increase. I imagine that this is why they advertise 42%, even though it won't apply to many people. Your calculation assumes that the 15% dropout is fully consumed already and you are forced to add 5 years at zero earnings.longinvest wrote:In particular, the increase for delaying from 65 to 70 (assuming one is not working during this period) is to multiply the age 65 pension amount by (6518) / (7018) X 1.42 = 1.28346, not by 1.42. (This is unlike CPP where there is a dropout provision for post age 65 years, allowing for an effective 1.42 factor).
finiki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

 Gold Ring
 Posts: 1391
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 Location: QC
Re: Estimating CPP or QPP
Quebec,Quebec wrote:But, in theory, if you have worked almost continuously from 18 to 65, you can use your general 15% dropout provision to get rid of the zero earning years from 65 to 70, and get the full 42% increase. I imagine that this is why they advertise 42%, even though it won't apply to many people. Your calculation assumes that the 15% dropout is fully consumed already and you are forced to add 5 years at zero earnings.longinvest wrote:In particular, the increase for delaying from 65 to 70 (assuming one is not working during this period) is to multiply the age 65 pension amount by (6518) / (7018) X 1.42 = 1.28346, not by 1.42. (This is unlike CPP where there is a dropout provision for post age 65 years, allowing for an effective 1.42 factor).
You're right! Let's try two examples.
Example 1
Worker works exactly 39.2 years at full Year's Maximum Pensionable Earnings (YMPE)* between 18 and 65 (chosen so that the nonemployment is exactly 15% of age 70 dropout, so that any additional dropout over 65 is maximized).
* In 2016, the YMPE is $54,900.
If retires at 65:
39.2 / ((65  18) X 85%) = .98122657 of maximum 65 pension
If retires at 70:
39.2 / ((70  18) X 85%) X 1.42 = 1.25936652 of maximum 65 pension
Increase = 1.25936652 / .98122657 = 1.28346149
Example 2
Worker works exactly 44.2 years at full YMPE between 18 and 65 (chosen so that the dropped years at 65 start counting at 70):
If retires at 65:
min(44.2, 39.95) / ((65  18) X 85%) = 1 of maximum 65 pension
If retires at 70:
min(44.2, 44.2) / ((70  18) X 85%) X 1.42 = 1.42 of maximum 65 pension
Increase = 1.42 / 1 = 1.42
Conclusion
So, for age 70 retirement to increase the pension by 42%, one must have dropped 4.25 years at full YMPE at age 65. In other words, one must have worked at full YMPE from age 20.8 to 65!
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Estimating CPP or QPP
longinvest wrote:...This is unlike CPP where there is a dropout provision for post age 65 years, allowing for an effective 1.42 factor)...
Longinvest, do you have a source for this? I've read everything I could find about CPP on the canada.ca site and I only see the general dropout of 17% and the childrearing provision. Here is the specific text:
What is my contributory period and how is it used?
Your contributory period begins when you reach age 18 (or January 1, 1966, whichever is later) and ends when you either start receiving your CPP retirement pension, turn 70 or die (whichever happens earliest).
We use the contributory period to calculate the amount of CPP benefits that you may become eligible to receive.
The amount you get considers periods where you had zero or low earnings. A certain number of your lowest earnings years may be automatically dropped from the pension calculation under the socalled "general dropout provision".
You should also request the "childrearing provision" if you had zero or low earnings because you were the primary caregiver raising your children.
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 Gold Ring
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Re: Estimating CPP or QPP
Quebec,Quebec wrote:longinvest wrote:...This is unlike CPP where there is a dropout provision for post age 65 years, allowing for an effective 1.42 factor)...
Longinvest, do you have a source for this?
Here's where I've read about it:
https://retirehappy.ca/howtocalculate ... tpension/
If you delay starting your CPP until after age 65, there is an additional dropout provision, known appropriately enough as the over65 dropout (surprisingly, there is no acronym for this dropout.)
Bogleheads investment philosophy  Simple index portfolios  Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflationindexed)bonds  VCN/VXC/VAB/ZRR
Re: Any questions about CPP?
To CPPDogger:
Hi there and thanks for the service (civil and FWF),
Contributed to CPP for 15 yrs as FT employee (13yrs maximum, or maybe more, not sure). Last 5 yrs, as CPCC owner, contributed 3050 % of maximum. I plan to contribute 5 more years. Considering I'll probably have 15 yrs or so of exclusion room, would it be more advantageous to contribute 4X50% or 2X100% of maximum ? Or it would not matter ?
Related: does it matter for final calculation if I contribute monthly or one lump sum yearly ? (Any compounding penalty ?)
Hi there and thanks for the service (civil and FWF),
Contributed to CPP for 15 yrs as FT employee (13yrs maximum, or maybe more, not sure). Last 5 yrs, as CPCC owner, contributed 3050 % of maximum. I plan to contribute 5 more years. Considering I'll probably have 15 yrs or so of exclusion room, would it be more advantageous to contribute 4X50% or 2X100% of maximum ? Or it would not matter ?
Related: does it matter for final calculation if I contribute monthly or one lump sum yearly ? (Any compounding penalty ?)

 Silver Ring
 Posts: 208
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Re: Any questions about CPP?
KFried  It depends slightly on what age you apply for your CPP to start, but if you start at age 60 it will be based on your best 34.8 years (86 month dropout) or at age 65 it will be based on your best 39 years (96 month dropout). Assuming that you will have less than 35 years of contributions in total, your benefit amount will be exactly the same if you contribute 4x50% or 2x100%. Your contribution cost however will be slightly less if you contribute 4x50%, as you won't contribute on the first $3,500 of earnings (the Year's Basic Exemption) for each of 4 years instead of just for 2 years.KFried wrote:To CPPDogger:
Hi there and thanks for the service (civil and FWF),
Contributed to CPP for 15 yrs as FT employee (13yrs maximum, or maybe more, not sure). Last 5 yrs, as CPCC owner, contributed 3050 % of maximum. I plan to contribute 5 more years. Considering I'll probably have 15 yrs or so of exclusion room, would it be more advantageous to contribute 4X50% or 2X100% of maximum ? Or it would not matter ?
Related: does it matter for final calculation if I contribute monthly or one lump sum yearly ? (Any compounding penalty ?)
DR Pensions Consulting (http://www.DRpensions.ca)
Re: Any questions about CPP?
Thx for the Basic Exemption pointer, which I had overlooked. Still deciding if it's worth contributing more than 50% of max/yearDogger1953 wrote:. Your contribution cost however will be slightly less if you contribute 4x50%, as you won't contribute on the first $3,500 of earnings (the Year's Basic Exemption) for each of 4 years instead of just for 2 years.
Re: Any questions about CPP?
Please consider the following scenario:
The mother emigrates to Canada with her two year old child. Stays at home till the child is seven, then works, contributes to CPP for 25 years and retires. Is she eligible for the child rearing provision ?
Thank you
The mother emigrates to Canada with her two year old child. Stays at home till the child is seven, then works, contributes to CPP for 25 years and retires. Is she eligible for the child rearing provision ?
Thank you