[Dogger1953]

Thanks Dogger 1953

You have given me something to think about I may contact you likely will as what I receive could cost me more without your help.

Something else folks can consider.

My wife turns 60 this month and has five years to go before retiring.
She has decided to apply for her CPP now and put the money to her RRSP as she does have plenty of room.
The net effect is it won't change her income but she can build her RRSP with the money she receives .

Given that she has five more years of work it will adjust her CPP pension at 65.

Daniel - I'm glad if my free advice helps you at all, but I'd love to have you as a paying customer also!!

One comment on your wife's situation. I'm not exactly sure how CPP will treat her 2013 earnings and contributions, as this is quite a new situation, and there is really no process for them to identify what earnings were earned before/after she starts receiving her CPP, within the 2013 calendar year. What is certain is how her contributions for 2014 and later will be considered. They will NOT increase her CPP retirement pension that she's taking at age 60. That is fixed at the reduced age-60 amount, subject only to the annual inflation of increases in the CPI. What they WILL DO, is create new post-retirement benefits (PRBs). For each year that she contributes after starting her CPP retirement, she will generate a new PRB which is payable monthly starting in January of the following year, and is payable for life. The amount of the PRB is approximately equal to how the additional year of contribution would have affected her CPP pension if she hadn't applied for it at age 60, but I thought I should make that distinction for you anyway.
I hope this makes a bit of sense, but I realize the PRB is a totally new and somewhat complex benefit. I'm looking forward to receiving my first PRB next year!

 

[peterk]

PeterK - If those 10 years of employment were all at the max contribution rate (ie., your earnings were at or above the YMPE in those years), then YES, you will qualify for 10/40ths of the max CPP payout at age 65.

Would that be 10/39ths of the max CPP payout at age 35 (the last year of employment earnings) or the max payout 30 years in the future, at age 65? I would image the max would about double over that period due to inflation...

No need for specific numbers - This is long term planning I just want to make sure I understand the general way CPP works.

 

[Dogger1953]

Would that be 10/39ths of the max CPP payout at age 35 (the last year of employment earnings) or the max payout 30 years in the future, at age 65? I would image the max would about double over that period due to inflation...

No need for specific numbers - This is long term planning I just want to make sure I understand the general way CPP works.

PeterK - That would be 10/39ths of the max for the year that your CPP pension starts, so 30 years in the future in your case.

 

[Addy]

I worked for CPP for more than 32 years, and have recently retired.

I'd like to share my knowledge if you have any questions, especially around the calculation of CPP benefits.

Congratulations Dogger! I hope you have a lovely trip planned to celebrate?

Do you know much about CPP disability benefits?

 

[Dogger1953]

Congratulations Dogger! I hope you have a lovely trip planned to celebrate?

Do you know much about CPP disability benefits?

No big trip(s) planned, but better than heading off to the office every morning!

As for CPP disability, I know all of the legislation concerning it, but it's hard to comment on the medical side of it except to quote from the legilsation. What's your question?

 

[Rainey]

Dogger -- this may be outside your area of expertise (but you still may have an opinion).

I am 42 and currently employed in a regular job but trying to think through the options on starting my own company, including whether or not I pay myself a salary and make CPP contributions, or just go with dividends.

How would you recommend I try and weigh whether or not additional contributions would be worth it?

My current CPP status is as follows:

If you were 65 today, • you could receive a monthly retirement pension of: $680.51
If you apply at the age of 60, • you could receive a monthly retirement pension of: $435.53
If you apply at the age of 70, • you could receive a monthly retirement pension of: $966.32

Thanks for any guidance.

 

[Dogger1953]

Dogger -- this may be outside your area of expertise (but you still may have an opinion).

I am 42 and currently employed in a regular job but trying to think through the options on starting my own company, including whether or not I pay myself a salary and make CPP contributions, or just go with dividends.

How would you recommend I try and weigh whether or not additional contributions would be worth it?

My current CPP status is as follows:

If you were 65 today, • you could receive a monthly retirement pension of: $680.51
If you apply at the age of 60, • you could receive a monthly retirement pension of: $435.53
If you apply at the age of 70, • you could receive a monthly retirement pension of: $966.32

Thanks for any guidance.

Rainey - That's a really good question, and some of the answers are outside of my area of expertise, but I suspect others on this forum will have some thoughts for you.

Strictly from a CPP perspective, you should be aware that the retirement pension estimates from the Service Canada site assume that the next 23 years of your working will be identical to what you've earned between age 18 and now, as compared to the YMPE for each year. If you don't contribute any more to the CPP, your actual benefits at age 60, 65 and 70 would likely decrease by about 50%, since you're 24 years into your contributory period and you've got 23 years left until age 65. I could do some actual calculations for you if you emailed your CPP statement of contributions to me at DRpensions@shaw.ca, but I charge $25 for each accurate calculation.

On the other hand, what your current contributions will "buy" you in 23 years is probably irrelevant to your current decision. A quick way of looking at payback on CPP contributions for a self-employed person (9.9%) versus the retirement benefit value (approx 0.64% per year of contribution, at age 65). This would give you a breakeven period of approx 15.5 yrs after you become eligible for an age-65 retirement benefit.

It's flawed to look at CPP "value" just on the basis of retirement pension payback though, as the CPP also covers you for disability and survivor benefits. Disability benefits require that you've made contributions in at least 4 of the last 6 years prior to becoming disabled. That means that if you decide not to contribute to CPP, you may want to take out your own private disability coverage, just in case.

I don't know if any of this helps, but good luck in whatever option you choose.

 

[Dogger1953]

Dogger -- this may be outside your area of expertise (but you still may have an opinion).

I am 42 and currently employed in a regular job but trying to think through the options on starting my own company, including whether or not I pay myself a salary and make CPP contributions, or just go with dividends.

How would you recommend I try and weigh whether or not additional contributions would be worth it?

My current CPP status is as follows:

If you were 65 today, • you could receive a monthly retirement pension of: $680.51
If you apply at the age of 60, • you could receive a monthly retirement pension of: $435.53
If you apply at the age of 70, • you could receive a monthly retirement pension of: $966.32

Thanks for any guidance.

Rainey - I just re-read your question, and realized that you talked about paying yourself as an employee and not considering yourself as self-employed. That perhaps changes the math a bit, as you would only be paying 4.95% as an employee, and your company would be paying the other 4.95% as the employer. Possibly irrelevant though, as you are the company.

 

[MoneyGal]

It may be worth noting that CPP contributions as an employer are tax-deductible, while CPP contributions as an employee give rise to a tax credit. The after-tax cost will be less than 4.95% in both cases.

 

[Dogger1953]

It may be worth noting that CPP contributions as an employer are tax-deductible, while CPP contributions as an employee give rise to a tax credit. The after-tax cost will be less than 4.95% in both cases.

MoneyGal - I thought about mentioning that also, but since any benefits are taxable, I thought that might be a wash?

 

[MoneyGal]

Yes, but if you are considering *whether to pay the premiums in the first place* you should probably take into account the tax cost.

 

[MoneyGal]

A quick way of looking at payback on CPP contributions for a self-employed person (9.9%) versus the retirement benefit value (approx 0.64% per year of contribution, at age 65). This would give you a breakeven period of approx 15.5 yrs after you become eligible for an age-65 retirement benefit.

For what it's worth, I think the other part of this equation - once you have this basic data on the payback period - is knowing the probability you will survive over the length of the payback period and beyond. So if the payback period is 15.5 years after age 65, what is the likelihood that someone aged 65 today will live an additional 15.5 years? For a Canadian man aged 65 today, it's about 60%.

 

[Rainey]

"Strictly from a CPP perspective, you should be aware that the retirement pension estimates from the Service Canada site assume that the next 23 years of your working will be identical to what you've earned between age 18 and now, as compared to the YMPE for each year. If you don't contribute any more to the CPP, your actual benefits at age 60, 65 and 70 would likely decrease by about 50%, since you're 24 years into your contributory period and you've got 23 years left until age 65. I could do some actual calculations for you if you emailed your CPP statement of contributions to me at DRpensions@shaw.ca, but I charge $25 for each accurate calculation."

Dogger -- thanks for your response (and Moneygal, thanks goes without saying). This little tidbit about the assumptions of the calculator never occured to me and is very valuable indeed (even if my CPP won't be!). It strike me there could well be healthy market for such specialized advice. Best of luck with the consulting, and may well be in touch when I take the plunge.

 

[sags]

Hi Dogger..........welcome to the Forum

Regarding the CPP death benefit.

As I understand it, as executor for my dad who passed away September 2012, I have to file a final tax return for 2012 by April 30th...........but cannot enter the CPP death benefit on that return. I must file another return..........a T3 return?...........and put the death benefit on it?

He will have no income after his death, as everything else can be entered on the 2012 return.

Is this correct?

 

[Dogger1953]

Hi Dogger..........welcome to the Forum

Regarding the CPP death benefit.

As I understand it, as executor for my dad who passed away September 2012, I have to file a final tax return for 2012 by April 30th...........but cannot enter the CPP death benefit on that return. I must file another return..........a T3 return?...........and put the death benefit on it?

He will have no income after his death, as everything else can be entered on the 2012 return.

Is this correct?

Sags - Your question is more of a tax issue than a CPP issue, so I'm not going to pretend to be an expert on that. I do believe that you're correct though, and here is a CRA link that you may find useful: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/114/dth-eng.html

 

[sags]

Thanks for the reply Dogger.

From the link you provided, and reading some other information, it appears that I have 2 choices.

Claim the CPP death benefit on my own taxes or file a T3 Trust tax return.

The T3 looks complicated......requiring a trust number and other things.........so I will probably take the easy route and simply claim the benefit on my own return and then bill the estate for the estimated 500 taxes on the 2500 benefit.

The only other option is to split the 2500 among the 5 beneficiaries...........but that is just too much work.

I was surprised to learn the CPP is taxable though. Any other death benefit can be entered on the deceased terminal tax report and be included in a 10,000 deduction, making it tax free.

I am sure there is a logical reason, but it seems odd to treat the CPP death benefit differently than all others.

 

[Dogger1953]

Thanks for the reply Dogger.

From the link you provided, and reading some other information, it appears that I have 2 choices.

Claim the CPP death benefit on my own taxes or file a T3 Trust tax return.

The T3 looks complicated......requiring a trust number and other things.........so I will probably take the easy route and simply claim the benefit on my own return and then bill the estate for the estimated 500 taxes on the 2500 benefit.

The only other option is to split the 2500 among the 5 beneficiaries...........but that is just too much work.

I was surprised to learn the CPP is taxable though. Any other death benefit can be entered on the deceased terminal tax report and be included in a 10,000 deduction, making it tax free.

I am sure there is a logical reason, but it seems odd to treat the CPP death benefit differently than all others.

Sags - No problema. Only wish I could have been more help to you! That's very generous of you to suggest that there must be a logical reason for this situation. In my 32 years with the government, I don't remember logical and legislation ever being used together in the same sentence.

 

[dubmac]

Hi Dogger -

My question relates to CPP and mum's who spend their "prime" working years raising kids. Not sure, but I think that CPP does recognize these years in one way or another and pays some money in retirement for these periods.

Me: 52, Her: 50.
Our CPP payment history is logged below for the 2 of us -
Age 16-22 - both of us worked summer & seasonal work during university - some of those years (3) had maxed out contributions.
23-26 - Full contributions to CPP
26-29 - Partial Contribution (say 40%) during which we pursued further education.
Me: 32-52 (20 yrs) fill CPP contribution
My wife - since age 30 - no CPP contribution as she raised 2 kids.

How does CPP recognize those years when women are raising kids?

 

[Dogger1953]

Hi Dogger -

My question relates to CPP and mum's who spend their "prime" working years raising kids. Not sure, but I think that CPP does recognize these years in one way or another and pays some money in retirement for these periods.

Me: 52, Her: 50.
Our CPP payment history is logged below for the 2 of us -
Age 16-22 - both of us worked summer & seasonal work during university - some of those years (3) had maxed out contributions.
23-26 - Full contributions to CPP
26-29 - Partial Contribution (say 40%) during which we pursued further education.
Me: 32-52 (20 yrs) fill CPP contribution
My wife - since age 30 - no CPP contribution as she raised 2 kids.

How does CPP recognize those years when women are raising kids?

Dubmac - The CPP recognizes years where a parent raised children up to the age of 7, by allowing a "dropout" of those years, known as the Child Rearing Dropout (CRDO). CRDO can't create a benefit on its own if that parent never contributes to CPP, but it can increase both the eligibility for disability/survivor benefits, and in can increase the amount of all benefits. For example, in your wife's case, I calculate that she has the equivalent of 8.6 yrs of max contributions. Without the CRDO, her CPP retirement benefit at age 65 would be about $223.60/mth. With the CRDO, (assuming your 2 children were born 3 years apart), her benefit would increase to approx $283.80/mth, by dropping out the 10 years while at least one of them was under age 7.

 

[dubmac]

awesome -thnaks for this Dogger.
one other question -

Could I make contributions (max is around $2200) to my wife's CPP! Is there any advantage (other than the obvious - getting income in retirement) in doing so? Would the payments that I make to my spouses plan be taxed favousrably? seems like a longshot - but thought I'd ask anyway.