A case study on CPP combined benefits
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A case study on CPP combined benefits

A case study on CPP combined benefits -www.aliko-aapayrollservices.com
 
 
 
A case study on CPP combined benefits
 
 
 
 
Written by Doug Runchey
I provided calculations for a client recently, and I think his situation might provide a good example of how receiving a CPP survivor’s pension can affect the decision of when to start receiving your CPP retirement pension.
When you’re eligible for both a CPP retirement pension and a CPP survivor’s pension, you get CPP combined benefits. If you want to know more about how these CPP combined benefits are calculated, read Understanding CPP Survivor Benefits.
 John’s situation
John has been receiving a CPP survivor’s pension since his wife died three years ago. The current amount of this pension is $500 per month. He has been a maximum contributor to CPP every year since he was 18; he will turn 60 this year.
His CPP statement of contributions (SOC) indicated that his retirement pension would be $689.45 if he took it at age 60, $1,038.33 if he waited until age 65, or $1,474.43 if he waited until age 70.
John’s understanding of his choices
John knew that the above retirement pension choices from the SOC did not apply to him, due to the combined-benefit rules. He thought that combined benefits were “capped” at the maximum of a single retirement pension ($1,038.33 for 2014). So he thought that his choices were either to take a combined benefit of $1,038.33 at age 60 or continue receiving his CPP survivor’s pension of $500 until age 65 and then to take his combined benefit of $1,038.33.
In his mind, this made for a simple decision between taking his retirement pension at age 60 or 65; he thought he would always be ahead if he took it at age 60.
However, he wasn’t sure what would happen if he waited until age 70 to start his CPP, and that’s where he wanted my help.
The truth about John’s choices
The first thing I had to clarify with John was that due to the combined-benefit rules, he would only receive $976 monthly if he took his CPP at age 60, not the maximum of $1,038.33. The second thing I had to clarify was that if he took his CPP retirement pension at age 60, the combined benefit amount would be recalculated to $862.27 when he reached age 65.
Putting these two calculations together with the fact that he would continue to receive his CPP survivor’s pension of $500 monthly if he waited until age 65 to take his retirement pension, it appeared that waiting until age 65 might be a viable option. This is because the “breakeven age” for waiting until age 65 would be age 79 (this is the point in time that the total dollar payout of CPP under the two choices is equal).
The whole truth about John’s choices
The final thing that I had to clarify with John was what he would receive if he waited until age 70 to started receiving his CPP retirement pension. This is where he was really surprised.
If John waited until age 70 to start receiving his CPP retirement pension, his combined benefit at that time would be $1,474.43. In the meantime, he would continue receiving his CPP survivor’s pension of $500.00 until age 65, at which time it would be recalculated to $514.33 and continue at that rate until he applied for his retirement pension at age 70.
The breakeven age for this choice compared to taking it at age 60 would be age 77, which is even earlier than the age-65 breakeven age calculated above.
Summarizing John’s choices
1.        John could start receiving his retirement pension at age 60. He would receive a combined benefit of $976 from age 60 to age 65, at which time it would be recalculated to $862.27.
2.       John could start receiving his retirement pension at age 65. At that time he would receive a combined benefit of $1,038.33, and in the interim he would continue to receive his survivor’s pension of $500.
3.       John could start receiving his retirement pension at age 70. At that time he would receive a combined benefit of $1,474.43. In the interim he would continue to receive his survivor’s pension of $500 until age 65, at which time it be recalculated to $514.33.
From a total payout perspective:
·         If he doesn’t live past age 76, he is better off taking his CPP at age 60.
·         If he lives at least until age 77, he is better off taking his CPP at age 70.
·         Taking his CPP at 65 is never the optimal age, when compared to the other two choices.
Conclusion
The combined benefit rules are an important factor in deciding when to start receiving your CPP retirement pension. If you are receiving a CPP survivor’s pension and are trying to decide when to take your own CPP retirement pension, know what your true choices are.
Note that the above breakeven calculations were accurate in John’s situation, but may not apply to you if the amount of your survivor’s pension and/or if your retirement pension choices are different from the above amounts.
If you are in this situation, and want to find out more about your choices, contact me at DRpensions@shaw.ca. I can calculate (for a fee) what your combined benefit would be at the various ages, along with the breakeven ages for each choice.
 
 
 
 
 

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