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Can you simplify RRSP, OAS, and Pension rules please?
February 3, 2021
6:44 pm
James
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That's what I like about this forum: always people jumping in to help. I appreciate the responses.

@pooreva this is more of a curiosity than required information - and I'm not curious enough to wait on hold with the government or confident enough that they will answer it correctly.

@Norman1 that's a helpful calculation guide there. I did the calculation for the scenario I made up. It's certainly not an easy calculation to do for the average person I would say.

@Bill I take issue with your statement "Alexandre provided the needed links in post #3 for anyone who wants to learn." Did you look at the post and try to calculate your minimum amount from that link? That information is not provided. Norman1's link is much more useful and it's quite complicated. I don't think anyone who wants to learn could figure it out from that. We are lucky enough to have the knowledge, ability, and resources to figure these things out but I don't think it is accessible to everyone and that's my point.

@Loonie from the example given by OP, the amount he would get after a few contributions might surprise you according to the link Norman1 provided.

February 3, 2021
9:31 pm
Save2Retire@55
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Thank you, all again!

So I ran a fun test based on the link provided by Norman1. https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/

Assumption: Working 12 months with pensionable earnings of $25000 ONLY.

This is indeed complicated and many factors to consider.

Unless I am missing a very big step on calculating, here are the numbers:

NCM before dropouts = 564
Drop Outs = 96 (Maximum) + CRP (Maximum) 76 = 172
NCM after dropouts = 392
UPE = 25000
YMPE = 25000 / 55000 = 0.4545
UPE / YMPE = 25000 / 0.4545 = 55000
TAPE = 25000
AMPE = 25000 / 392 = $63.77

CPP = 67.5 * 25% = $15.94 / Month

My CPP based on current income if it stays this way will be around $770 (Considering no contribution after 55 and waiting till 65 to receive it). Then there is the OAS (if it doesn't vanish) plus my wife CPP and OAS which will come up to be around $3000 / month. Well then, a saving of $1M seems to be way more than enough for our life style. Considering taking $50K per year from TFSA, RRSP, and saving accounts per year from the dividends for the first 10 years (Even if 0 income which I doubt will be the case - If we aren't traveling, we will need to work or will regret the retirement Haha) and then $20K / year for the rest. Oh well.
As the main income will be from dividends (I hope) the income tax won't be too bad either.
Now let's hope no financial crisis by that time and we won't face any major health issues. Fingers Crossed! We do what we can and the rest is out of our control 🙂

February 3, 2021
11:05 pm
Loonie
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I know Runcey is reliable as he's retired from working at CPP/OAS Benefits and has helped a lot of people, but I personally could never deal with the formulas.
We just asked for the Statement of Contributions every year and filed it as it gives an estimate of what you will receive. NOBODY at CP, however, is willing to stick their neck out and tell you what you WILL get, even you are turning 65 and all ready to apply. This shows you that nobody there can work the formula reliably, only the computers, and they won't talk!

Pension sharing for CPP, and pension splitting for RIF and any company plan may help you reduce income tax if one spouse has lower income, assuming these measures are still in place.

The formula for pension sharing is just as bad! I suspect that a lot more people could benefit from it than do because they haven't heard of it or find it too difficult to apply. Applying for it is a nuisance, and it's not useful for everyone but I estimate it is saving us about 900/yr, so I'm happy!

February 4, 2021
4:41 am
RetirEd
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It's a good practice to request from CRA a record of CPP/QPP contributions every few years, and certainly after any change in employment. And verify it when it comes! A lot of employers are really sloppy about it - or some may even crookedly be trying to avoid paying their share, or stealing your contributions. And you really SHOULD keep your pay slips and records of employment for the same reason. Digging up data that doesn't match the public records is near-impossible decades later. Some employers may no longer exist!

Pension eligibility is probably the best reason for those who work for tips and are in a low-tax bracket to always report their tips. And keep records of those, too. Don't trust anything in someone else's computers or files.

Nobody will tell you what your pension WILL be - not because of calculation complexity (they have computers, duh!) but because the laws can change at any time (remember Harper and delaying pensionable age?) and so can your employment or other circumstances. The statement of contributions - at least the ones I received before I reached pensionable age - can only tell you what you'd get if you retired TODAY.

The rules aren't simple. Why do we pay OAS to snowbirds and expatriates? Because they have contributed taxes to Canada while they were here - not only income taxes but all the other levies, even if they did not work. And because there's a good bit of empathy among Canadians who are sick of winter for those who are ready to give it up forever.

The CRA has a tool called "Benefit Finder" that suggests other sources of income or rebates that one may qualify for. I'd never heard of BC's SAFER benefit before for example, and missed some benefits I can't collect retroactively now. Nobody I know had ever heard of it, either. You may want to take a look.

Leaving Canada? I live in Vancouver. It's nice, and mild, and civilized, and has the lowest religious adherence in most of North America. Frankly, I don't see why I'd want to pay extra to even vacation in some hot, dangerous-animal-ridden, politically unstable high-crime land where I don't speak the language when I'm already putting so much of my resource base into living in Vancouver.

As always, your mileage may vary. sf-cool
RetirEd

RetirEd

February 4, 2021
5:31 am
Bill
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Re pension splitting I find it easiest just to use T1032 form every year to split pension income as needed at tax time. But I suppose that provision could be amended at some point.

James, you're right, I could have been more helpful when someone wonders what their minimum guaranteed lifetime pension entitlement is (presumably funded by other taxpayers) after putting in almost zero to a plan, guess we "take issue" with different things. Good thing Norman1's a nice guy!

Those statements from CPP were never clear to me re one thing.
It indicated what my pension would be but I was never clear if that number was a minimum guarantee or if it would go down if my employment pattern changed, i.e. was it calculated only on the assumption I would continue my contribution pattern until age 65? And was it indexed if I stopped working? It didn't seem to be clear about that but I didn't care enough to follow up, my intention was to keep working and contributing to the max.

February 4, 2021
7:35 am
savemoresaveoften
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CPP contribution history can be downloaded from Service Canada web site, so one can run the various scenarios.

Service Canada website CPP estimate is based on working until 65 years old, at same contribution rate as current. Not a very useful number at all. Some think the estimate is based on contributions already made and had a nasty shock when they retire early and ends up seeing a number much less.

To earn the max CPP, basically contribute 40 years at max contribution each year. Only a small % collects max CPP.

It is one of the very fair government program in the sense that it is proportional to your contribution.

February 4, 2021
9:36 am
Norman1
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savemoresaveoften said
CPP contribution history can be downloaded from Service Canada web site, so one can run the various scenarios.

Service Canada website CPP estimate is based on working until 65 years old, at same contribution rate as current. Not a very useful number at all. Some think the estimate is based on contributions already made and had a nasty shock when they retire early and ends up seeing a number much less.
… 

Yes, that's what that estimate on the CPP statement for "If you were 65 today, based on your average pensionable earnings since age 18…" means. That "average pensionable earnings" can be very different by the time one is 65, depending on career advancement or layoffs.

It would be more meaningful to show the estimate for if you stopped working today and earn $0 until you apply for your CPP pension when you are 65.

The first part of the CPP Statement of Contributions is the record of one's contributions and pensionable earnings. One should check those contributions and pensionable earnings against one's pay slips and T4 slips.

As RetirEd recommended, one should keep at least the T4 slips in case one needs to substantiate what one earned and contributed to CPP. It could be very difficult decades later to obtain supporting info. I don't think there is anyone whom former employees of Nortel, for example, can contact now.

February 4, 2021
11:07 am
topgun
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Save2Retire@55 said
Thank you, all again!

So I ran a fun test based on the link provided by Norman1. https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/

Assumption: Working 12 months with pensionable earnings of $25000 ONLY.

This is indeed complicated and many factors to consider.

Unless I am missing a very big step on calculating, here are the numbers:

NCM before dropouts = 564
Drop Outs = 96 (Maximum) + CRP (Maximum) 76 = 172
NCM after dropouts = 392
UPE = 25000
YMPE = 25000 / 55000 = 0.4545
UPE / YMPE = 25000 / 0.4545 = 55000
TAPE = 25000
AMPE = 25000 / 392 = $63.77

CPP = 67.5 * 25% = $15.94 / Month

My CPP based on current income if it stays this way will be around $770 (Considering no contribution after 55 and waiting till 65 to receive it). Then there is the OAS (if it doesn't vanish) plus my wife CPP and OAS which will come up to be around $3000 / month. Well then, a saving of $1M seems to be way more than enough for our life style. Considering taking $50K per year from TFSA, RRSP, and saving accounts per year from the dividends for the first 10 years (Even if 0 income which I doubt will be the case - If we aren't traveling, we will need to work or will regret the retirement Haha) and then $20K / year for the rest. Oh well.
As the main income will be from dividends (I hope) the income tax won't be too bad either.
Now let's hope no financial crisis by that time and we won't face any major health issues. Fingers Crossed! We do what we can and the rest is out of our control 🙂  

If you take CPP at 60 you collect 5 years before 65. Even if you wait the 5 years it takes a long time to make up the difference. Have fun.

Have a Great Day

February 4, 2021
11:56 am
savemoresaveoften
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topgun said

If you take CPP at 60 you collect 5 years before 65. Even if you wait the 5 years it takes a long time to make up the difference. Have fun.  

Its an interesting bet on how long one thinks one will live to certainly, same with OAS.

To make it even more interesting, this is what goes into the CPP calculation.
First of all, its actually full 39 years and not the 40years (I was just rounding up in my earlier post).
If one chooses to collect at age 60, your denominator is 35, vs denominator of 39 at age 65.

assumption: Max CPP is $1000 per month

e.g. You did maximum CPP contribution every year for 30 years

If collect at 60, you will receive $1000 * 30/35 * 64% (this is the penalty for collecting early)

If collect at 65, you will receive $1000 * 30/39

If collect at 70, you will receive $1000 * 30/39 * 142% (this is the bonus for delayed collection)

As you can see, if one chooses to start receiving at age 60, you only need to have 35 years (instead of 39 years) to max the payout BEFORE the penalty of 0.6% per month. The denominator remains at 39 post age 65, so there is also a benefit of 0.7% per month for delaying.

The above is confirmed with Doug few years ago when I first came across his web site. Its the only website that debunk the CPP mystery, big kudo to Doug.
I also built the spreadsheet using Doug's website as guideline to mimic the real world scenario. Thats the only way to run real numbers for those who chooses not to work till 65.

February 4, 2021
12:17 pm
Save2Retire@55
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Loonie said

Pension sharing for CPP, and pension splitting for RIF and any company plan may help you reduce income tax if one spouse has lower income, assuming these measures are still in place. 

Thanks, Loonie! I think we will have enough time to fill out applications and apply for the Pension sharing. I never looked at it but when time comes if it is still around will do.

February 4, 2021
12:33 pm
Save2Retire@55
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RetirEd - Thank you for taking the time. Very nice. I agree but yeah Vancouver is different than living in QC (And I don't speak the language here either lol) plus it is not just about escaping Winter. It is about traveling and experiencing a different culture. Here is the link for the Benefit Finder. I've never heard of this before. https://benefitsfinder.services.gc.ca/hm?GoCTemplateCulture=en-CA
For keeping employment records, the T4 is on CRA web site and I have a copy here but I honestly never thought of keeping every pay cheque. I don't even look at them or receive them anymore (Need to go to online and download) unless there is a change in income or the pay is suspicious (Lower or Higher than expected). Oh well! I will start doing that now.

savemoresaveoften - Agree! It is just an estimate based on assumption. Totally looks fair to me.

savemoresaveoften - Yeah the plan is not to apply till 65. Who knows how long we live. No point keep pushing back more thinking I'll make it to 90 (Genetically impossible for me, Haha). Can you give me the URL of the site please?

February 4, 2021
12:43 pm
savemoresaveoften
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Save2Retire@55 said

savemoresaveoften - Yeah the plan is not to apply till 65. Who knows how long we live. No point keep pushing back more thinking I'll make it to 90 (Genetically impossible for me, Haha). Can you give me the URL of the site please?  

https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/

Its the same site that was quoted earlier by another contributor. Its the only site that I know of that shows the complete picture of what CPP calculation is all about.

February 4, 2021
12:55 pm
topgun
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When I started at 60 the payment reduction was 1 - 30% = 70%. Many of my friends started at 60 even though we worked in different industries. You collect $1,000 * 30 /35 * 64% for 5 years plus indexing by the time you reach 65.

Have a Great Day

February 4, 2021
1:50 pm
Save2Retire@55
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savemoresaveoften said

https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/

Its the same site that was quoted earlier by another contributor. Its the only site that I know of that shows the complete picture of what CPP calculation is all about.  

Yes. That is what I used to calculate.

February 4, 2021
3:26 pm
Norman1
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Save2Retire@55 said
…For keeping employment records, the T4 is on CRA web site and I have a copy here but I honestly never thought of keeping every pay cheque. I don't even look at them or receive them anymore (Need to go to online and download) unless there is a change in income or the pay is suspicious (Lower or Higher than expected). Oh well! I will start doing that now.

I keep my own copy of the T4 slips. If the info later disappears from HRDC's records, the slip may also go missing from CRA's.

The paystubs are not that important for CPP purposes once one receives the T4 slip for the year. The T4 slip has the employer's name, employee CPP contributions (box 16), and CPP pensionable earnings (box 26).

The paystubs could be useful in disputes over other payroll deductions. One friend ended up with family benefits coverage instead of employee-only coverage. She had no partner and no children who could be covered. Thousands of dollars extra had been deducted before the situation was discovered years later!

February 5, 2021
5:00 am
topgun
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Use the Net Present Value function to analyze the present value of the two cashflows. One starting at 60. The other starting at 65. Which one is the greater value at 60? This determines when to start taking CPP.

Have a Great Day

February 5, 2021
5:23 am
Bill
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Exactly, for those who know their date of death just do the npv calculation.

February 5, 2021
5:28 am
savemoresaveoften
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topgun said
Use the Net Present Value function to analyze the present value of the two cashflows. One starting at 60. The other starting at 65. Which one is the greater value at 60? This determines when to start taking CPP.  

The determining factor is how many years you get to collect, not the discount rate.

To do a very simple back of head calculation:

Start at 60, one receives extra 64% over 5 years = 64 * 5 = 320%
From 65 and on, you lose 36% each year for receiving early.
You need roughly 320/36 =9 years to break even
This put the break even age at 74 years old.

The result will be the same if you apply same discount rate over all future years anyway. If you apply a very steep (positive slope) discount curve, then your break even time will take longer, but still its the no. of years of collection that will dominate under most if not all scenarios.

February 5, 2021
5:41 am
Loonie
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Bill said
Re pension splitting I find it easiest just to use T1032 form every year to split pension income as needed at tax time. But I suppose that provision could be amended at some point.

 

It's not a matter of "easy" per se. That is the only way it can be done. It does not apply to CPP.

Pension sharing, however, applies only to CPP and can only be done a different way.

We find both useful, but it depends on individual circumstances whether that is true.

If you only need to use one method to have maximum effect, then spitting is easier except that you have to calculate it every year. It's also more flexible.

With sharing, it's more of a nuisance but you just set it up once and then it's automatic. It ends when one of you dies or you can fill out a request to terminate it if no longer needed.

February 5, 2021
6:05 am
topgun
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savemoresaveoften said

The determining factor is how many years you get to collect, not the discount rate.

To do a very simple back of head calculation:

Start at 60, one receives extra 64% over 5 years = 64 * 5 = 320%
From 65 and on, you lose 36% each year for receiving early.
You need roughly 320/36 =9 years to break even
This put the break even age at 74 years old.

The result will be the same if you apply same discount rate over all future years anyway. If you apply a very steep (positive slope) discount curve, then your break even time will take longer, but still its the no. of years of collection that will dominate under most if not all scenarios.  

In my case
Start at 60, one receives extra 70% over 5 years = 70 * 5 = 350%
From 65 and on, you lose 30% each year for receiving early.
You need roughly 350 / 30 = 11.6 years to break even
This put break even age at 76.6 years old.
I am not sure what year they increased the early payment penalty from 6% per year to 7.2% per year.

Have a Great Day

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