Page 116 - A Canuck's Guide to Financial Literacy 2020

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• If you start before age 65, payments will decrease by 0.6% each month or 7.2% per
year, up to a maximum reduction of 36%, if you took it at 60. (7.2% per year x 5
years from 60-65 = 36%)
• If you start receiving your pension after age 65, payments will increase by 0.7% each
month or 8.4% per year, up to a maximum increase of 42%, if you took it age
70. (8.4% per year x 5 years from 65-70 = 42%)

Example: Joe is 60 years old and is thinking about retirement. If he waits until 65, his CPP
pension would be the 2019 maximum of $1,154.58. Joe doesn't want to wait that long and
decides to commence his CPP at 60.

• Joe’s CPP Benefit at Age 60 = $1,154.58 * (1-0.36) = $738.93
• Joe’s CPP Benefit at Age 70 = $1,154.58 * (1.42) = 1,639.50

Drop Out Provisions

Drop-out provisions of the CPP refer to years of employment where you might have had low
or zero earnings. As discussed above, your CPP retirement benefit is based on your
pensionable earnings from the age of 18, also known as your contributory period. If you
"drop out" these low earning years, your CPP benefit will be higher in retirement. Low
earning years could be for a variety of reasons such as:

• Going to School
• Unemployment
• Child Rearing
• Taking Care of a Family Member

To offset these low earning years, CPP offers protection by dropping a number of months of
low earning years.

How many years can I drop out?

Since 2014, the general drop out provision has been 17% of months in a person's career
which means that you can drop off (65-18 = 47 years, 17% of 47 is 8 years.) Canada
Pension Plan automatically drops 8 years of your lowest earnings automatically.

How to Calculate Canada Pension Plan

• The easiest way to find out what your Canada Pension Plan retirement benefit will
be is to use the Canadian Retirement Income Calculator. This will provide you with
retirement income information such as CPP and OAS (Old Age Security).
o You would need to following documents in order to get accurate information.
▪ Statement of Contributions
▪ Financial Information regarding your employer pension
▪ Recent RRSP statements
▪ Statement of other savings such as annuities, foreign pensions;
survivor pensions, etc).