Any questions about CPP?

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brucecohen
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Re: Any questions about CPP?

Post by brucecohen »

adrian2 wrote: 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).
Yes. Here is an explanation of that integration's background and mechanics. Here is another that's more recent and less tedious.
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Re: Any questions about CPP?

Post by pmj »

Wondering how the CPP death benefit is calculated for someone on CPP disability benefit who dies before 65.

Usually, death benefit is 6 x CPP, max $2500. Presumably, that CPP number would be calculated based on contributions up to date of death?

Disability benefit is a fixed amount ($465.84 for 2015) plus 75% of calculated CPP, based on contributions at date of disability.
Assuming a $900 total disability benefit in 2015, 75% of CPP = $434.16, thus calculated CPP = $578.88 (2015 rates)

Would this CPP be used with the 6x multiplier for calculating the death benefit? And therefore the $2500 max would apply?
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izzy
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Re: Any questions about CPP?

Post by izzy »

pmj wrote:Wondering how the CPP death benefit is calculated for someone on CPP disability benefit who dies before 65.

Usually, death benefit is 6 x CPP, max $2500. Presumably, that CPP number would be calculated based on contributions up to date of death?

Disability benefit is a fixed amount ($465.84 for 2015) plus 75% of calculated CPP, based on contributions at date of disability.
Assuming a $900 total disability benefit in 2015, 75% of CPP = $434.16, thus calculated CPP = $578.88 (2015 rates)

Would this CPP be used with the 6x multiplier for calculating the death benefit? And therefore the $2500 max would apply?
This tweaked my curiosity so I looked up the death benefit on line.Quite how the benefit is calculated in relation to the disability benefit was not clear to me either.
One thing I was surprised about was the fact that the payment is so small-and that it's taxable!Given the amount involved compared to even minimal funeral costs that seems harsh !
Out of curiosity I checked out the death benefit associated with the UK state pension-not only is it larger but it is tax free!
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Re: Any questions about CPP?

Post by brucecohen »

izzy wrote: One thing I was surprised about was the fact that the payment is so small-and that it's taxable!Given the amount involved compared to even minimal funeral costs that seems harsh !
Several governments ago Ottawa decided to phase out this benefit by stealth. It's one of the few items in the tax system that are not inflation-indexed.
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Re: Any questions about CPP?

Post by izzy »

brucecohen wrote:
izzy wrote: One thing I was surprised about was the fact that the payment is so small-and that it's taxable!Given the amount involved compared to even minimal funeral costs that seems harsh !
Several governments ago Ottawa decided to phase out this benefit by stealth. It's one of the few items in the tax system that are not inflation-indexed.
Probably because it's a once only claim ,the relatives are too overwhelmed to kick up a fuss and the deceased is in no position to complain.
It just seems so cynical and petty,after all it could hardly amount to a major cost in the overall budget.
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Re: Any questions about CPP?

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The claim really only has material value to those beneficiaries who don't inherit enough to cover the cost of a funeral and who also don't have a lot of financial resources themselves. It just doesn't have much implication for a high enough percentage of families.

I think it should be a taxable benefit. Those who don't need the money can afford to pay taxes on the sum and those who really do need it are not taxable to begin with. IOW, it is helping the right people the most.
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izzy
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Re: Any questions about CPP?

Post by izzy »

AltaRed wrote:The claim really only has material value to those beneficiaries who don't inherit enough to cover the cost of a funeral and who also don't have a lot of financial resources themselves. It just doesn't have much implication for a high enough percentage of families.

I think it should be a taxable benefit. Those who don't need the money can afford to pay taxes on the sum and those who really do need it are not taxable to begin with. IOW, it is helping the right people the most.
I still think it's gratuitously petty and mean spirited to treat the bereaved that way over the tax on such a small sum but I guess we can agree to differ.
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Re: Any questions about CPP?

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pmj wrote:Wondering how the CPP death benefit is calculated for someone on CPP disability benefit who dies before 65.

Usually, death benefit is 6 x CPP, max $2500. Presumably, that CPP number would be calculated based on contributions up to date of death?

Disability benefit is a fixed amount ($465.84 for 2015) plus 75% of calculated CPP, based on contributions at date of disability.
Assuming a $900 total disability benefit in 2015, 75% of CPP = $434.16, thus calculated CPP = $578.88 (2015 rates)

Would this CPP be used with the 6x multiplier for calculating the death benefit? And therefore the $2500 max would apply?
Peter - You are 100% correct on your assumptions in this situation.
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Re: Any questions about CPP?

Post by pmj »

Thank you.
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Re: Any questions about CPP?

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Dogger1953 wrote:
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.
What if one spouse is collecting a CPP pension and the other spouse is collecting CPP Disability benefits. Can the CPP pension be shared to reduce taxes in this case?
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Re: Any questions about CPP?

Post by Dogger1953 »

dadaswell wrote:
Dogger1953 wrote:
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.
What if one spouse is collecting a CPP pension and the other spouse is collecting CPP Disability benefits. Can the CPP pension be shared to reduce taxes in this case?
dadaswell - No, CPP pension sharing can only be done if both are receiving CPP retirement pension or if one is receiving a CPP retirement pension and the other has never contributed to CPP.
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Re: Any questions about CPP?

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Hello Dogger1953! In a nutshell my concern is the combined CPP benefit for a survivor. The best info has been your article "Understanding CPP survivor benefits" at retirehappy.ca.

My wife's parents are both in their mid-80's and the only income stream they have is CPP and OAS. The survivor will lose the other's CPP and OAS, but they will get the survivor's benefit from the deceased's CPP. I am trying to calculate what the survivor's benefit will be.

I created an Excel worksheet to follow the procedure outlined in the article and my results match for the case of the example. Now I am trying to run the same calculations for the two cases of my FIL and MIL being the survivor.

I know each ones current CPP ($901 FIL and $247 MIL). I *believe* they both took CPP at age 60 so there will be the reduction factor in Option A from the Article. I assume that taking at 60 they would have been subject to 30% reduction (based on the old 0.5% per month).

But the reduction is applied to their "full age 65 benefit". How would I determine that? Simply take: (current benefit) / 0.7 ? (that's easy). Or is this value what the full benefit would be as re-calculated now?

For example, I determine that if FIL passes, MIL's Survivor's Benefit would be $399.5 and the Special Adjustment would be $42.4, if I am doing this correctly. So her total CPP benefit is $921.42 (247.7 + 631.2 + 42.4)

Comments please?

Thank you from South of the Border (USA).


ETA: now I'm confused, FIL's CPP is $901 a month. I assume this was knocked down by the 30%. But when I divide this by 0.7 I get $1288, which is more than the maximum benefit of $1092.5
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Re: Any questions about CPP?

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John

Find out for sure what ages they each started their CPP, because it appears that your FIL at least didn't start at age 60.
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Re: Any questions about CPP?

Post by JohnFiscal »

Dogger. Thank you, I am much obliged. It may take a few days to get this information but I will post back when I can get it.
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Re: Any questions about CPP?

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JohnFiscalUSA wrote:Dogger. Thank you, I am much obliged. It may take a few days to get this information but I will post back when I can get it.
John - Your question reminded me that there are "grandfather rules" that apply to combined benefit calculations if the surviving spouse was born prior to 1933 or started receiving their CPP retirement pension prior to 1998. These grandfather rules essentially remove the 40% reduction option, and I've added a Note to this effect in my RHB article.
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Re: Any questions about CPP?

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Dogger, If I can still ask away...

Turns out MIL & FIL both took CPP at age 65, no reduction. Their current benefits on CPP are $901 and $248 respectively. Birth years were 1931 and 1932. I calculate that the Option B Survivor's benefit applies to both and would be about $90 for FIL and about $442 for MIL. The Special Adjustment would not apply as they did not take CPP early.

For example, for MIL:

Option A: $901*0.6 = $541. The Survivor Benefit is 1092.5 - 247 = $844 (I'm rounding off cents throughout)

Option B: 40% of $541 = $216. 40% of $247 = $99. The reduction is the lesser = $99. Thus the benefit is $541 - $99 = $442

Can you confirm for me please?

Thank you.


ETA: I have been reading through the comments to the Retirehappy article, Interesting and informative (still trying to understand the linked Excel workbook) and I intend to read them all.
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Re: Any questions about CPP?

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John - You would be 100% correct if they were born in 1933 or later, but because they were both born before 1933 and both started receiving their CPP before 1998 they are "grandfathered". As such, the 40% reduction under Option B doesn't apply and they are both subject only to the maximum under Option A.
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Re: Any questions about CPP?

Post by JohnFiscal »

Thank you Dogger.

So the Option B reduction falls to "0". There is no reduction per "B". Only the Option A reduction applies. Correct?

That's awesome!

Please correct me if I'm wrong.

ETA, I notice that now both MIL and FIL will obtain the same total CPP benefit (their own + survivor's) after the demise of either. Yes, they would get the maximum CPP benefit.
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Re: Any questions about CPP?

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John - By my calculation, neither would receive the max and they wouldn't receive the same amount. I get:
- FIL receives $1,049.20 if MIL dies ($901 + 60% of $247);
- MIL receives $787.60 if FIL dies ($247 + 60% of $901)
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Re: Any questions about CPP?

Post by JohnFiscal »

Thank you Dogger.

"It's back to the drawing board" for me ...yes, I see my error now. Thanks!
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Re: Any questions about CPP?

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Dogger1953 wrote:
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
Hello Dogger1953. I was just looking at the CPP estimate on the web site and noticed something that I'm trying to work out. Based on the above, my current numbers for an age 60 retirement would be

$13110 x (25/34.86= 71.7%) x 0.64 = $6017/year

However, the CPP site is giving me $609 monthly, or $7308/year. That's for "If you apply at age 60." For age 65, it's $951. I believe the numbers above are correct. Do you know why the CPP numbers are so much higher?
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Re: Any questions about CPP?

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SIL of Gus - Based on the CPP estimates that you've provided (and if the 25 years of max earnings is accurate), I'm going to guess that you were born around January 1964. Let me know your actual month and year of birth and I'll explain the differences between the two results.
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Re: Any questions about CPP?

Post by SoninlawofGus »

Dogger1953 wrote:SIL of Gus - Based on the CPP estimates that you've provided (and if the 25 years of max earnings is accurate), I'm going to guess that you were born around January 1964. Let me know your actual month and year of birth and I'll explain the differences between the two results.
Wow, you really are good! I try not to divulge too much personal info online, even anonymously, but my actual birthdate was September 1963. It does not change the site info, which does not yet include this past year's contribution (and even if it did, it still be a wide margin from the web site). So, that is showing 23 max years plus three years below the max. I did find the actual CPP YMPE for those three years, and it turns out I did a little better than anticipated, working out to 77.47% of the three-year maximum (58%, 94%, and 80%, respectively). But that adds only .324 to my years (2.324 sub-max years in total), which is fairly inconsequential.
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Re: Any questions about CPP?

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SIL of Gus - So, you're age 53 now which means that your current contributory period is 35 years. Service Canada's current estimate is therefore based on:
25.324 / (83% of 35) x $1,092.50 = $952.37 at age 65 or 64% of that = $609.51 at age 60
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Re: Any questions about CPP?

Post by SoninlawofGus »

Dogger1953 wrote:SIL of Gus - So, you're age 53 now which means that your current contributory period is 35 years. Service Canada's current estimate is therefore based on:
25.324 / (83% of 35) x $1,092.50 = $952.37 at age 65 or 64% of that = $609.51 at age 60
Thanks-- SILOG is a good abbreviation for me too. So, if I understand correctly, the CPP number is not really helpful. By changing the denominator to 29 years, it's using my contributory period and giving me an overly-rosy view of reality. I cannot collect CPP at age 53. IOW, if I stop working right now (not an entirely bad idea), I can't collect anything until age 60 or higher, which means that any number less than 34.86 does not provide a reasonable estimation of what the pension is worth in today's dollars. So, it begs the question, why would they give me this number rather than the other formula?
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