Any questions about CPP?

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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poedin
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Re: Any questions about CPP?

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Dogger1953 wrote:
Norbert Schlenker wrote:
Replying to BRIAN5000, dogger1953 wrote:If you had some zero or low years when you were younger though, your calculated retirement pension might start decreasing at age 60 or earlier. In any case, the most that the CPP can decrease with an extra year of zero earnings is about 2.5% (1/39) which would never fully offset the increase for waiting a year (12 x 0.58% = 6.96% for 2015).
Let me go back to this almost month old answer, because there's some interesting figuring here. My wife and I are both in BRIAN5000's situation, with a spotty CPP contribution history due to a lengthy expat period, and then shortened by early retirement. As we're both 58 now, we have decisions to make in relatively short order. For a very long time, given what the dropouts and discounts were, I thought taking CPP at 60 had to be the rational decision. Per the calculation above, the extra zero year costs 2.5% but waiting a year gets you 7%. However, that swayed me not at all because, while waiting a year appears to net 4.5%, there's a year of foregone pension there. A 60 year old seems likely to collect CPP for 20-25 years, so waiting the year costs 4-5% of the total pension payments, i.e. it's a wash. (As it should be actuarially.)
But here's the wrinkle. I have some entitlement circa age 65. For the sake of illustration, let's say it's $400/month. By the time I turn 60, the monthly discount factor for early payment will be 0.60%. If I take CPP at 60, the total discount is 60 months x 0.6% = 36%, so I get 64% of $400 = $256. If I wait until I'm 61 and have another zero year, the age 65 entitlement falls to $390, but now I collect $71.2% of $390 = $278, which is an 8.5% increase on the figure from a year earlier. The breakeven period declines from something around mean life expectancy to about half that, so waiting one year definitely looks worthwhile. Waiting from 61 to 62 nets another 7%, 62 to 63 another 6.5%. Because the discount for every month you go early is flat arithmetically instead of geometrically, there is a big incentive not to take CPP right at 60.
Looks like I'll be waiting a few extra years ...
Norbert - I can see no flaws in your calculations or conclusions.
It's not that many years before I could opt for CPP @ 60, but this illustrates the $benefit of taking it later (especially if there no real immediate need for the income, good health, etc.).
Thank-you for the insight :D
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Re: Any questions about CPP?

Post by Zipper »

Everyone thinks they are going to live to 90 or even 100.

It doesn't work that way. Look around you at your own family and friends. How many 100 year olds do you personally know? And most importantly are they in good health?

Even if you are in good health at 60 you all know friends taken by the "Grim Reaper" even earlier.

Take CPP as soon as you can. Period.

CRA wants you to work as long as you can. Then they will grab half your RRSP if you croak. PP's definitely want you to work, hopefully till you drop.

The older you get and the longer you collect CPP/OAS the sooner you will eventually hit the "comfort Zone" knowing if you depart you got value for all those years of contributions.

I think it would be a bummer to get a year diagnosis and not to have collected a cent.

But then you could delay 'til 70 and hope for the best.
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Re: Any questions about CPP?

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Question regarding CPP splitting. Do both parties have to split their CPP (i.e can only the highest earner elect to split) &/or does it have to be done when the first to collect elects to receive their benefits (7 year gap between planned election dates)? Any info on how this effects total $ would also be appreciated,
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Re: Any questions about CPP?

Post by eezee »

The two amounts get summed and divided by two. What I don't know is what happens when one of the two dies. Does the survivor continue with the split amount or revert to his/her entitlement.
I am going to live forever .... so far so good.
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Re: Any questions about CPP?

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bcjmmac wrote:Question regarding CPP splitting. Do both parties have to split their CPP (i.e can only the highest earner elect to split) &/or does it have to be done when the first to collect elects to receive their benefits (7 year gap between planned election dates)? Any info on how this effects total $ would also be appreciated,
I'm going to assume that you're talking about the CPP credit-splitting (aka DUPE) that can occur after separation/divorce, and not the pension-sharing (aka Assignment) that can occur in an ongoing relationship. If I'm wrong, let me know.

Within the DUPE rules, it varies a bit depending on whether it's a legal or common-law relationship that has ended. I'm going to assume that it's a legal marriage that has ended in divorce, and you can let me know if I'm wrong.

First, it's a 2-way sharing, so the CPP credits are shared equally for the entire period of time that the couple lived together, with a few exclusions. In theory, this produces an equal impact on their benefits (one should increase by the same amount that the other goes down) , but in reality it produces a net loss of benefits in at least 50% of the cases, especially if there were children during the relationship.

Second, from a timing perspective, if the higher wage-earner starts their CPP first it would make sense if the credit split isn't done until the second partner is ready to receive their pension. If the lower wage-earner starts their CPP first however, the credit split should be done then.
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Re: Any questions about CPP?

Post by Dogger1953 »

eezee wrote:The two amounts get summed and divided by two. What I don't know is what happens when one of the two dies. Does the survivor continue with the split amount or revert to his/her entitlement.
The answer again depends on whether you're talking about CPP credit-splitting (aka DUPE) which happens after separation/divorce, or whether you're talking about CPP pension-sharing (aka Assignment) that happens during an ongoing relationship.

Credit-splitting is permanent and continues after death. Pension-sharing ends with the death of the first spouse and the survivor would revert to his/her own entitlement.
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Re: Any questions about CPP?

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eezee wrote:The two amounts get summed and divided by two. What I don't know is what happens when one of the two dies. Does the survivor continue with the split amount or revert to his/her entitlement.
I should also comment on the first part of your answer. I'm going to assume that you're talking about pension-sharing (aka Assignment and not credit-splitting (aka DUPE).

If so, it's only as simple as you suggest if the couple have lived together for their whole life, since age 18. Otherwise, the pension-sharing is proportional to how long they have lived together compared to their joint contributory period. For example, if a couple are the same age and have a 20-year relationship and start receiving their CPP at age 65, they would each share half of 20/47ths of their CPP with each other.

If we use this example where one spouse's CPP is $800 and the other is $200, pension-sharing would result in the one receiving approx. $672.34 and the other $327.66 (not $500 each, unless they had lived together for all 47 years of their joint contributory period, from age 18 to age 65).
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Re: Any questions about CPP?

Post by eezee »

I am not disputing what you say.

My wife is 2 years younger than I.We opted to receive CPP when we turned 60. I am entitled to get the full amount less the age reduction. Hers was ca 140 $. When she turned 60 and we applied for splitting , I 'gave' her 50% of mine and she 'gave me' 50% of hers. So we now receive equal amounts ever since.
I am going to live forever .... so far so good.
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Re: Any questions about CPP?

Post by bcjmmac »

I meant credit sharing :oops:
Since it seems the total amount wouldn't change and my spouse wouldn't benefit if I passed on first, I don't really see any benefit in sharing since I can split my pension at tax time (primary pension not CPP). Or are there other benefits to sharing? She will start collecting in 2 years at age 60 - I plan on waiting until 65 (at least for now).
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Re: Any questions about CPP?

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bcjmmac wrote:I meant credit sharing :oops:
Since it seems the total amount wouldn't change and my spouse wouldn't benefit if I passed on first, I don't really see any benefit in sharing since I can split my pension at tax time (primary pension not CPP). Or are there other benefits to sharing? She will start collecting in 2 years at age 60 - I plan on waiting until 65 (at least for now).
It's pension-sharing or credit-splitting, not credit sharing. The only advantage to pension-sharing is by reducing taxes on CPP benefits, and if you've both contributed to CPP you must both be receiving your CPP in order to pension-share.
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Re: Any questions about CPP?

Post by SoninlawofGus »

I was born in 1964 and moved to Canada in 1990. The first three years here, I made about 2/3 of the maximum CPP contribution. After that, I maxed out for the next 22 years. I think that brings my number to roughly to 24 years.

I'm trying to estimate my CPP payout as if it was today. With possible before-and-after dropout years, I did not find the CRIC tool helpful to my situation. Instead, I used this article to do the following rough estimate.

Max CPP payout in 2015: $12780
24 years/ 39 max years = .615

Assuming I collect at age 60 and never worked another day, the annual payout in today's dollars would be
$12780 x .615 x .64 (penalty) = $5033.

Is this a reasonable approximation?
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Re: Any questions about CPP?

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SoninlawofGus wrote:I was born in 1964 and moved to Canada in 1990. The first three years here, I made about 2/3 of the maximum CPP contribution. After that, I maxed out for the next 22 years. I think that brings my number to roughly to 24 years.

I'm trying to estimate my CPP payout as if it was today. With possible before-and-after dropout years, I did not find the CRIC tool helpful to my situation. Instead, I used this article to do the following rough estimate.

Max CPP payout in 2015: $12780
24 years/ 39 max years = .615

Assuming I collect at age 60 and never worked another day, the annual payout in today's dollars would be
$12780 x .615 x .64 (penalty) = $5033.

Is this a reasonable approximation?
The truth is even a little better for you. CPP counts your best 39 years if you apply at age 65 or later, but at age 60 it counts your best 34.86 years (83% of the 42 years from age 18 to 60). Your percentage of max would therefore be 24/34.86 = 68.85% and a better approximation would therefore be:
$12,780 x 68.85% x 0.64 = $5,631
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Re: Any questions about CPP?

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Thanks! Anyone who shows me how I have more money is a friend of mine. :D
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Re: Any questions about CPP?

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Question for Dogger1953...

My company (a CCPC) provided its employee, my son, with $4800 dollars worth of lodging benefits in 2014, but no other income, particularly cash income, whatsoever.

Accordingly, my CCPC paid no employer's CPP contribution for, and withheld no employee's CPP contribution from, my son (i.e., nothing to withhold it from). The $4800 benefit was recorded on his T4A in boxes 14 and 30 (but nothing in box 26).

My question: Will my son's $4800 income (i.e., non-cash benefit) count towards his lifetime CPP pensionable earnings?

Thanks,
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Re: Any questions about CPP?

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rapporteur wrote:Question for Dogger1953...

My company (a CCPC) provided its employee, my son, with $4800 dollars worth of lodging benefits in 2014, but no other income, particularly cash income, whatsoever.

Accordingly, my CCPC paid no employer's CPP contribution for, and withheld no employee's CPP contribution from, my son (i.e., nothing to withhold it from). The $4800 benefit was recorded on his T4A in boxes 14 and 30 (but nothing in box 26).

My question: Will my son's $4800 income (i.e., non-cash benefit) count towards his lifetime CPP pensionable earnings?

Thanks,
Rapporteur - I don't know whether those "earnings" could/should have been considered contributable earnings or not, but if you as the employer didn't deduct and remit CPP contributions and if your son didn't make any CPP contributions when he filed his tax return, it will not count as pensionable earnings.
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Re: Any questions about CPP?

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Thanks
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Re: Any questions about CPP?

Post by Yasehtor »

Well I have to say it is terrific having Dogger contribute his knowledge to the complex world of CPP.

I will be 60 in July 2015 and am strongly considering taking my CPP at that time. I retired in 2010 and have zero pensionable earnings for the four years 2011-2014. Decided to do some seasonal work this year and will earn about $21,000 (more than I will earn in future years).

From what I have read above it seems I can drop out 7.14 of my lowest years (42 x 17% =7.14). Worked through the calculations and came up with a pension at 65 or 977.40, slightly more than what CPP has which is 974.71. ( I didn't factor in 2015 earnings as I wanted to see how close the numbers were).

Taking a pension this year means I would have a 34.8% reduction and according to CPP receive $635.51. If I wait til next year it would be reduced by 6% less than this year - 28.8% (4 yr x 12 months x 6%). However I will have another year where the pensionable earnings I make will be less than my career average right now. My question really is does it make sense to delay taking it to next year or perhaps later. Just seems that if I will only earn $10-12,000 seasonally from now til 65 the average pensionable earnings will continue to drop. I think it was mentioned above that the drop wouldn't be more than 2.5% and each year deferred gains 7.2%, so net there would be max 4.7% reduction each year. So in reality if I take CPP at age 60 am I looking at a net reduction of less than 25% from what I would actually get if I wait until 65 given these circumstances? Can't see not taking it if that is the case.

Also, I understand that I must contribute to CPP from 60-65 if working. If I earn $10,000 to $12,000 how is the increase in CPP pension calculated.

And finally, how does CPP deal with pensionable earnings in your last year prior to taking CPP as they won't have complete information on contributions until the end of 2015 if I take it then. Do they adjust the pension for final year earnings in the following year?

Would appreciate any input on these matters as it is definitely not a straight forward topic. Thanks.
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Re: Any questions about CPP?

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Yasehtor wrote:Well I have to say it is terrific having Dogger contribute his knowledge to the complex world of CPP.

I will be 60 in July 2015 and am strongly considering taking my CPP at that time. I retired in 2010 and have zero pensionable earnings for the four years 2011-2014. Decided to do some seasonal work this year and will earn about $21,000 (more than I will earn in future years).

From what I have read above it seems I can drop out 7.14 of my lowest years (42 x 17% =7.14). Worked through the calculations and came up with a pension at 65 or 977.40, slightly more than what CPP has which is 974.71. ( I didn't factor in 2015 earnings as I wanted to see how close the numbers were).

Taking a pension this year means I would have a 34.8% reduction and according to CPP receive $635.51. If I wait til next year it would be reduced by 6% less than this year - 28.8% (4 yr x 12 months x 6%). However I will have another year where the pensionable earnings I make will be less than my career average right now. My question really is does it make sense to delay taking it to next year or perhaps later. Just seems that if I will only earn $10-12,000 seasonally from now til 65 the average pensionable earnings will continue to drop. I think it was mentioned above that the drop wouldn't be more than 2.5% and each year deferred gains 7.2%, so net there would be max 4.7% reduction each year. So in reality if I take CPP at age 60 am I looking at a net reduction of less than 25% from what I would actually get if I wait until 65 given these circumstances? Can't see not taking it if that is the case.

Also, I understand that I must contribute to CPP from 60-65 if working. If I earn $10,000 to $12,000 how is the increase in CPP pension calculated.

And finally, how does CPP deal with pensionable earnings in your last year prior to taking CPP as they won't have complete information on contributions until the end of 2015 if I take it then. Do they adjust the pension for final year earnings in the following year?

Would appreciate any input on these matters as it is definitely not a straight forward topic. Thanks.
Yasehtor - It's hard to give you exact answers without seeing your entire CPP contributory record, but I'll do my best.

First, your "calculated retirement pension" would only decrease by the maximum of approx. 2.5% each year between age 60 and 65 if you had zero earnings that year AND if you already had zero earnings in more than 17% of your prior contributory period, so determining that your net reduction from age 65 to age 60 might be only 25% is the minimum reduction.

On the other hand, your potential earnings of $10,000 - $12,000 per year in between age 60 - 65 may not increase your regular pension at age 65 much at all, but if you do take your CPP at age 65 they will definitely earn you post-retirement benefits of approx. $5 per month for each year of such earnings.

For your final question, you are right that Service Canada will adjust your pension once they have your 2015 earnings, IF those earnings actually even increase your pension calculation at all.
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[New Question: TIMING] Re: Any questions about CPP?

Post by strathglass »

OK, here is a new question:
Someone I know is planning to quit and take a break from work for 18-24 months.
This is not quite a retirement, as they are planning after that to return to the work force for lets say just ONE more year.

Now in terms of the CPP impact, is it not true that their eventual CPP payments will be impacted POSITIVELY if that one more year spans two calendar years - say July 1 to June 30, instead of all being in one year (Jan 1 to Dec 31)?
(Assume the salary is such that they will max out on CPP payments within 6 months.)
This is because this gives them two more CPP "M"s instead of just one!
I actually hadn't thought of this, but my friend did - is my friend right?
If my tentative calculations are correct, this could mean over $200 more per year assuming starting CPP at age 60.
Not a lot, but perhaps something to consider if going back like this!
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Re: Any questions about CPP?

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Strathglass wrote:is my friend right?
He’s right that it would count as two separate max-contribution years … but whether that translates into additional benefit is uncertain.
Strathglass wrote:If my tentative calculations are correct, this could mean over $200 more per year assuming starting CPP at age 60.
It could mean anywhere from ZERO to ~$237/yr, depending on his history of contributions … if he already has the requisite number of max contribution years under his belt, then adding more doesn’t provide any benefit at all … in that case, and assuming he’s old enough, he’d be better off applying for CPP first, and then working the additional year … the additional contributions would then be channelled into the post retirement benefit (PRB), instead of the basic pension … of course, he’d be paying tax at a higher rate for those benefits during those two years, but that would almost certainly be offset by the higher payments for the rest of his life.
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Re: Any questions about CPP?

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Zipper wrote: ... Take CPP as soon as you can. Period. ...
I'm with Zipper on this one. Ignoring actuarial tables and total returns calculations I simply went with, "government wants to give me money? Take it. Take it now." I am already enjoying my "free" monthly pittance. Helps pay for coffee at Denny's. :)
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Re: Any questions about CPP?

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Ken wrote:
Zipper wrote: ... Take CPP as soon as you can. Period. ...
I'm with Zipper on this one. Ignoring actuarial tables and total returns calculations I simply went with, "government wants to give me money? Take it. Take it now." I am already enjoying my "free" monthly pittance. Helps pay for coffee at Denny's. :)
Turn 60 next year so have to decide if it makes sense to start CPP or not. Below is a link to a Wade Pfau's article and two US Social Security calculators is there any calculators like this available in Canada?

http://retirementresearcher.com/philoso ... i=23606625
These explanations provide only a simple introduction to the complex world of Social Security claiming. It is worth repeating, again, that the minimal expenses required to test your situation with a high-quality comprehensive Social Security calculator is incredibly worthwhile. Such software could provide a strategy that garners significant additional benefits over your lifetime. This is a matter for which a basic investment of time and energy can lead to meaningful improvements for your retirement finances.
https://maximizemysocialsecurity.com/
https://www.socialsecuritysolutions.com/index.php

As only one benefit can be received at a time, practically speaking, it is important to coordinate the best claiming approach between spouses. Because of survivor benefits, the case for the higher earning spouse to delay benefits becomes even stronger. The relevant age for the higher earning spouse extends beyond your own age of death to your age when the last surviving member of the couple passes away.
For a couple, joint survivorship is higher. Additionally, if the higher earning spouse is significantly older, their benefit could generate survivor benefits for many years, making Social Security delay extremely attractive. To reiterate, the higher earner claims based on number-of-years benefits will be generated by their earnings record for the longest living member of the couple.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: [New Question: TIMING] Re: Any questions about CPP?

Post by Dogger1953 »

strathglass wrote:OK, here is a new question:
Someone I know is planning to quit and take a break from work for 18-24 months.
This is not quite a retirement, as they are planning after that to return to the work force for lets say just ONE more year.

Now in terms of the CPP impact, is it not true that their eventual CPP payments will be impacted POSITIVELY if that one more year spans two calendar years - say July 1 to June 30, instead of all being in one year (Jan 1 to Dec 31)?
(Assume the salary is such that they will max out on CPP payments within 6 months.)
This is because this gives them two more CPP "M"s instead of just one!
I actually hadn't thought of this, but my friend did - is my friend right?
If my tentative calculations are correct, this could mean over $200 more per year assuming starting CPP at age 60.
Not a lot, but perhaps something to consider if going back like this!
strathglass - Yes, you're friend is right that earnings over the max each year during only 6 months of working will give him two year's of "M"s and may increase his age-60 CPP by as much as $17.25 per month (or as little as nothing), but it will also cost him a 2nd year of CPP contributions totaling about $2,500 more compared to working all 12 months in one calendar year.
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Re: Any questions about CPP?

Post by Shakespeare »

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Hi there My name is Roger, I am close to 60 and luckily I found this valuable site just now as I googled to get an answer on CPP. I live in Toronto and have worked for about 25 years in pensinable service. I find the posts on this site incredibly knowledgeable.

Perhaps someone can refer me to a forum where I can obtain an answer to a CPP clawback question. I would get a federal superannuation of approximately 49,000 per annum at age 65 when I plan to retire and no CPP as it gets clawed back for those who receive federal pensions.

My question is that if I start receiving the reduced CPP thie year when I turn 60 and contue to work till age 65 and continue contributing to both federal pension and CPP,, does it affect the federal superannuation that I would get at age 65. Will it be different thaan if I had not collected CPP as it is base don clawback etc.

Thanks for referring me to the right forum.
Roger
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Re: Any questions about CPP?

Post by adrian2 »

an answer to a CPP clawback question. I would get a federal superannuation of approximately 49,000 per annum at age 65 when I plan to retire and no CPP as it gets clawed back for those who receive federal pensions.
As far as I know, you're using an incorrect terminology.

CPP is never "clawed back"; on the other hand, the formula for your pension may include a CPP integration factor. You'll have to check the details in your pension plan documents on how it works, but usually the plan assumes you'll be applying for CPP at age 65, and if you apply sooner (or later) you'll need to figure out the pluses and minuses yourself (the fed pension you'll be getting should not change based on the age you apply for CPP).
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