One of the biggest decisions retirees face is when to take their Canada Pension Plan (CPP) benefits. There’s a case to be made for deferring CPP until age 70, or taking CPP at 60, or somewhere in between (like the standard age 65).
You can view your estimated monthly CPP benefits online using your My Service Canada Account. But the information can be highly inaccurate. For instance, the My Service Canada estimate assumes you’ll continue earning your current salary until age 65. this can make your estimates either too high or too low, depending on your actual future earnings.
But questions abound when other variables are introduced. Like, what happens if you retire early and have a period of five or more years with no (or low) contributions to CPP?
For years Doug Runchey has offered a fee-for-service to help Canadians get an accurate estimate of their own CPP benefits. This business started very small but has since grown into nearly a full-time role for Mr. Runchey. He says that’s mainly because, “Service Canada is doing a terrible job of providing accurate information to many groups of people.”
Mr. Runchey has now partnered with Certified Financial Planner David Field to create a free CPP Calculator to give Canadians a simple and highly accurate way to calculate their Canada Pension Plan benefits.
“View the calculator here at www.cppcalculator.ca.”
I reached out to Mr. Runchey to get his feedback on why he (and partner David Field) created this free CPP Calculator for Canadians and what makes it different from the My Service Canada estimates.
Mr. Runchey said the free CPP calculator is different from the My Service Canada Statement of Contributions and online estimates for two main reasons, as follows:
Key Differentiators for the free CPP Calculator:
Future earnings – Our calculator uses whatever you enter for future earnings, whereas Service Canada pretends that the person is eligible for CPP in the following month, which has the same effect as projecting their average lifetime earnings through until age 65. Depending upon the person’s actual future earnings, that can make Service Canada’s estimates either too high or too low, but rarely is it accurate unless they are very close to being eligible for CPP.
Enhanced CPP changes – Our calculator includes the enhanced CPP increases for earnings in 2019 and subsequent years, whereas Service Canada’s estimates do not. This can make the Service Canada estimates far too low if the contributor will be working several years after 2019.
Variables not considered in the free CPP Calculator (or My Service Canada)
There are also other factors that neither our calculator nor the My Service Canada estimates currently deal with. It is my hope that our calculator will deal with at least some of these situations in the not-too-distant future, although for now they still require my full-service calculations, as follows:
Child-rearing dropout (CRDO) – Neither our calculations nor Service Canada’s estimates include the CRDO. This makes both of our results too low for anyone who can claim the CRDO. This is possibly our highest priority for improving our free calculator.
Post-retirement benefits (PRBs) – Neither our calculations nor Service Canada’s estimates consider the value of PRBs. This doesn’t affect the amount of the regular retirement pension calculations, but it does affect the breakeven analysis.
Combined retirement/survivor’s benefits – Neither our calculations nor Service Canada’s estimates consider the impact of the combined benefit calculations rules. These are quite complex and might never be part of our online calculator. They will remain part of my full-service business though, and they may transition to David’s business line at some point in the future.
CPP disability – Neither our calculations nor Service Canada’s estimates consider the impact of someone previously or presently receiving a CPP disability pension. We hope to include this in some future version of our calculator.
Mr. Runchey hopes the free CPP calculator will succeed so that he can begin to transition to semi-retirement again, and yet hopefully still enjoy an income from CPP calculations.
“Our CPP calculator is presently free, but hopefully once we get it fully up and running, we can start charging enough to cover expenses and realize a bit of profit from it. I have been told that my current full-service fees are quite low, but the eventual fees for our online calculator should likely be considerably lower.”
You can get an accurate CPP estimate using the free CPP Calculator here. For more complicated situations, I highly recommend reaching out to Doug directly for a full-service and personalized CPP estimate (including multiple scenarios and calculations).
This Week(s) Recap
I wrote the following posts over the past two weeks:
My wife’s trusty navigation helped me get over my anxiety about driving in another country. If you’re anxious about managing or investing your money, maybe you need a financial navigator.
This one’s for the anti-RRSP crowd – why RRSPs are not a government tax scam.
Credit card balance protection, mortgage life insurance, and other big financial rip-offs to avoid.
Over on the Young & Thrifty blog I wrote about the best GIC rates in Canada.
I also explained how to transfer a credit card balance wisely.
Our friends at Credit Card Genius always have the most up-to-date list of the best credit card offers, sign-up bonuses, and deals of the month.
Want to know what’s happening with the Aeroplan loyalty program now that Air Canada is set to launch its own program later this year? The Prince of Travel has got you covered in this informative video:
From a former ad-man, why Wealthsimple and Questrade are winning the ad war this RRSP season.
Some index-embracing investors feel the need to ‘graduate’ their portfolio from TD e-Series funds to a lower cost portfolio of ETFs. Michael James explains the trade-offs of switching portfolios.
Des Odjick says the most damaging thing you can do for your money is believe that you’re bad at money.
Behavioural economist Shlomo Benartzi how digital design is helping to drive consumer behaviour.
Nick Maggiulli goes after the FIRE crowd’s cost cutting obsession, calling it the biggest lie in personal finance.
“But none of these things are the actual reason for how they retired early. Because the actual reason is either (1) earning a high income or (2) having an absurdly low level of spending, or both.”
On the flip side, Rob Carrick says it’s time to stop acting like retirement past age 65 is a failure.
An incredibly thought-provoking post by Lawrence Yeo, who says money is the megaphone of identity.
Millionaire Teacher Andrew Hallam wonders if you’ll be ready when stocks lose big.
Mr. Hallam also explained why strategies for happiness boost success and life expectancy.
Speaking of life expectancy, scientists are close to extending a human’s ‘healthy lifespan’. What would you do with 20 extra years?
Four Pillar Freedom breaks down the biggest misunderstanding about compound interest:
“Compound interest actually sucks early on. The magic only arrives in the later years.”
PWL Capital’s Ben Felix digs into the concept of socially responsible investing in his latest Common Sense Investing video:
Some great examples of retirement income and withdrawal strategies to keep more money in your pocket.
A question I hope to be able to answer for myself soon: I’ve maxed out my TFSA and RRSP. Now what?
Canadians used to live in a country that built housing with everyone in mind. What happened?
One answer could be here – How much does homeownership really cost?
Finally, the brilliant Morgan Housel explains why ‘easy’ comes in different flavours.
Have a great weekend, everyone!