How to optimize the timing for taking your CPP payments


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For retirees or near-retirees who lack traditional employer-sponsored Defined Benefit pension plans, the federal government’s Canada Pension Plan (CPP) and Old Age Security (OAS) are the closest most of us will get to such a valuable pension.

True, RRSPs and TFSAs do allow you, in a tax-effective way, to build up nest eggs that can ultimately be converted to an annuitized stream of retirement income for as long as you live. But the good news is that just about every working Canadian eventually qualifies for the Canada Pension Plan, as well as Old Age Security, and both are inflation-indexed to boot, unlike many private-sector pensions.

Normally, those ready to retire contact Service Canada to get a record of past CPP contributions. They send you benefit estimates (both for CPP and OAS) some months before you turn 65 but you can also obtain this information before or after by visiting Canada.ca. There, you can find a CPP/OAS calculator provided by Ottawa, providing an estimate of expected sources of income.

The value of CPP is highest for top earners who maxed out CPP contributions. According to Rona Birenbaum, president of the fee-for-service planning firm Caring for Clients, the RRSP capital needed to generate an annuity similar to taking maximum CPP at 65 is roughly $400,000, although the Canadian average benefit is half that.

While OAS is straightforward, optimizing CPP is surprisingly complicated—so much so that Doug Runchey (one of the country’s pre-eminent experts on both programs) provides calculation services to help individuals make optimal decisions on timing the start of benefits. Runchey used to work at Service Canada, so he is intimately familiar with the ins and outs of the timing of receipt of these programs.

Today, he runs DR Pensions Consulting in British Columbia, charging $30 to $250 for personal consulting, depending on complexity. Runchey is developing a CPP calculator program in partnership with David Field (Papyrus Planning), a Mississauga-based advice-only financial planner and programmer. The program is free, although that may change in the future. But any fees would be lower than for the personalized service because clients do their own data entry, and calculations are automated.

The tool lets users upload their CPP Statement of Contributions without having to manually enter data. It’s not an estimator: it provides exact calculations in current-year dollars. Initially, it does not include special calculations for combined retirement/survivor benefits, post-retirement benefits, credit-splitting, time away for child-rearing or disability dropouts, although his consulting service continues to handle those. (Service Canada’s calculator does not include special calculations, either.) Runchey and Field may address some of these in a future version of their calculator.

In the meantime, you can use the basic functionality by clicking here. Included is a CPP quiz, which explains how CPP integrates with employer pensions, and common issues like “bridging to 65.” The calculator takes your age and generates the expected amounts you’d receive at various ages. Runchey says it doesn’t assume any specific future earnings, but lets users estimate future earnings from zero to maximum on a year-by-year basis (unlike current estimates provided by Service Canada).



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