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Discussion Starter #1 (Edited)
If I've been a Canadian resident all my life, but decided to take an early retirement at age 55, how is my CPP effected? If I hold off until age 65, do I still receive maximum payments (even though I haven't been working for the last 10 years (55 to 65)? What about if I decide to receive my CPP at age 60?

All the documents I've read always discuss taking CPP at age 60 and take a penalty (0.5%/month before age 65), however, how does it work if you retire at age 55 and then wait to collect your payments?

Thanks!
 

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Early retirement may not be beneficial

New changes have been made to reduce the benefit of early retirement. Now max. pension is reduced 0.6% per month if retiring before 65 (but after age 60). Conversely, pension amounts are raised 0.6% per month if retirement delayed past 65 (up to age 70).

See www.fin.gc.ca/n08/data/09-051_1-eng.asp

My understanding is that you have to be 60 to receive CPP i.e. live on other savings between 55-60.
 

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The short answer is no, you won’t get your maximum CPP benefit if you get out of the workforce at age 55 and wait until age 65 to collect... The formula for calculating CPP benefits allows for the exclusion of certain low-income periods within the overall measurement period, but the 10 years that you’re talking about is more than the basic exclusion. It’s a relatively simple formula and you can set up a spreadsheet to model various “what-if?” scenarios.

The rules have changed recently ... it used to be a 0.5% reduction factor if you elect to begin CPP before age 65, but for anyone whose CPP starts on or after 2011, the reduction factor is 0.6%, and if you delay past age 65, then your benefit increases by 0.7%. The 15% exclusion factor referred to above will also be bumped up to 17%.

Under the old rules, if you retired at 55 and took CPP at 60, you’d suffer about a 22% reduction in CPP benefits as compared to starting CPP at 65.
Under the new rules, it’d be more like a 28% reduction, compared to starting at 65.
 

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Not quite sure how you calculated that. Assuming you retired at 55 in both cases, the penalty for taking CPP at age 60 was 30% (0.5%/mo. x12 mos/yr. x 5 years). In 2011 it will be 36%.
 

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toolbox said:
Assuming you retired at 55 in both cases, the penalty for taking CPP at age 60 was 30% (0.5%/mo. x12 mos/yr. x 5 years). In 2011 it will be 36%.
Yeah, that's a very common mistake. I was referring to the difference between the actual dollar amounts you'd receive at age 60 vs age 65. The reduction factor remains 0.5% (or 0.6%) per month, but the dollar amount that that factor is applied to is different in each case ... the result is that the two amounts are not as far apart as most people think they are.
 

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I've done the CPP calc and at 50 even if I don't put another $ into CPP it doesn't effect my payout. Which seems strange but if you pay in the max for 25 years then there is no payback for working more.

There should be more reward for people working longer but it works for me.
 

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Well put in $0 earnings from 49 to 65 and got the same $934 per month. Now that assumes that I was making full $47K form 18 on which is not true but for me its ~ 22 so if I make full CPP to 52 should be same~.
 

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read the cpp website. there is a percentage the the cpp tries to replace for your income. then you take your actual incomes up to the max, and subtract out the others year. you will be close.

or go the the service canada area and get into your account. it will be accurate and NOT $934...
 

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Its funny that the calculation on the service Canada site is so off. I ran the calc many times and always got the result that I was not expecting. Though I have not been able to find the actual calculation formula on a gov't website. I'm assuming its in a crude form number of years worked /40 is the fraction of a max benifit pension.


Have asked for a password into account so when I'll get it I'll go from there.
 

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Doug said:
Its funny that the calculation on the service Canada site is so off.
Something must be wrong with your inputs ... the results you were getting are clearly not possible ... unless you will still have kids under age 7 during retirement, or will be collecting a CPP disability benefit during retirement ... I assume neither of those exceptions applies to you?

The Average Joe would have to work at least to age 57, in order to maintain full benefits starting at age 65 ... if A.J. chose to start CPP at age 60, he’d have to work at least to age 53, to maintain the maximum reduced benefit.
 

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The average Joe would have to work until age 57 or 53 *making full contributions for each year* in order to receive the maximum benefit at 65 / the maximum reduced benefit. (Not disagreeing with you at all Carhu; just amplifying...)
 

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The average Joe would have to work until age 57 or 53 *making full contributions for each year* in order to receive the maximum benefit at 65 / the maximum reduced benefit. (Not disagreeing with you at all Carhu; just amplifying...)

Based on what beginning age (for full contributions)?
 

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18. That's the "contributory period" for CPP contributions: ages 18-70 (and you can opt to take CPP earlier than 70 and receive CPP payments).

Also: you can drop out up to 15% of the lowest-earning years, and if you were the primary parent taking care of a child and you received CCTB, you can drop out an additional (I think) 7 years for child-rearing. There's also the capacity to drop out years if you were/are disabled.

But generally speaking if you want full CPP you need to contribute the maximum from ages 18 to at least 65.
 

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You are thinking of GIS.

You can only get GIS if you have little or no other income other than OAS.

GIS is clawed back if you receive CPP income or ANY other income.

You only get GIS if your total income from all other sources (not gifts, ha) is less than about $15K for an individual.

Don't plan on more than $14K from government sources (taxable, in today's dollars) as a *maximum.*
 
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