# A case study on CPP combined benefits

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.

1. Jackie Sawicky

Can you please explain to me why they recalculate this at age 65 and reduce it so much. I seem to be in this situation. I was receiving a survivor pension and had always contributed the max to the CPP so I was going to be entitled to the maximum retirement pension. I took the retirement pension early because I thought there was no advantage to leaving it, as I was only going to get the maximum combined benefit regardless. I have just turned 65 and it looks as though they have reduced my combined benefit by about \$125 per month. Nowhere on their website does it say anything about reducing the combined benefit at age 65. I am really annoyed about this. Not only am I losing what my husband would have received from them, but now I am losing my own benefit as well. And now it’s too late to do anything. What a ripoff.

• Doug Runchey

Jackie

I can appreciate your frustration. I agree that Service Canada is doing a terrible job at communicating how these combined benefit calculations work.

The only justification that I’ve ever heard for the recalculation at age 65 is that it coincides with becoming eligible for OAS. Whether that’s currently a valid justification or not, it soon won’t be with the upcoming change in OAS eligibility to age 67.

2. Gerry

Do your calculations take the indexing of CPP into account? Will that not affect the break even point? When you charge, do you take it into account. Are there not other factors? Taxes? savings? It seems that retirehappy.ca takes an over simplistic view. Take it early and you will be ahead. If the average person doesn’t save while working, will they save and invest the CPP they receive between 60 and 65?

• Doug Runchey

Gerry – No, my calculations do not include indexing. And yes, that could affect the break-even point slightly. As you point out, taxes and savings should also be considered along with other factors. All that I am attempting to do in this article is to highlight that the CPP amounts themselves are the main things to consider, and nowhere do I suggest that taking it early is always the best course of action.

3. Gerry

I guess I am suggesting that retirehappy.ca says that taking your early is generally the best idea. Jim has an article or two.
Indexing seems to the break-even point down to about age 72 if started at 65.
If Jackie had started taking cpp at 61 wouldn’t the shock at 65 be greatly reduced.
I think that the case studies that only give 60, 65 and 70 as starting points give a very simplistic view. If Jackie had considered 61, 62 or 63 she might be in a better position now.

• Doug Runchey

Gerry – I don’t know what indexing values you’re using, but I’m doubtful that the breakeven age would be lowered to age 72. Perhaps you could supply the numbers that you came up with?
You’re right that I’ve simplified things a bit by using just the 3 data-points, but I have used the in-between ages in some of my consultations and they truthfully don’t make much difference in these combined benefits situations.

4. Gerry

Doug-Using the cpp calculator at taxtips.ca and an average 1.7 index the values for \$1000/month cpp if started at age 65 are:
Cumulative @ 72 starting at 60- \$110,686.
Cumulative @ 72 starting at 65- 110,8872
I’ve also done the calculations with a spreadsheet, they agree with these calculations.
Doug. Reading my comments over it seems that I am complaining, which is not what I had intended. Thanks for the information that you are giving us. I’m 59 and in a similar situation that Jackie was in a while back. I also thought that the survivor benefit would bring my cpp to the max if I started to collect at 60, which is not the case. I am also surprised that when you get to 65 more is taken away from the survivor benefit.

• Doug Runchey

Gerry – So, have you decided what age you’ll start collecting your CPP?

5. Gerry

A month ago when I started my investigation I was going to start at 60. Now I think it is better to start when I actually retire. I’m not that good at saving and investing. An extra hundred or two coming in when I’m 80 is more important than getting more now when I don’t need it.

• Doug Runchey

Gerry – As long as you fully understand your choices and feel comfortable with the numbers, I’m happy with whatever decision you make.

6. John Hill

• Doug Runchey

Hi John – If you read this article: https://retirehappy.ca/cpp-survivor-benefits/ you will see that you can never receive the full 60% survivor’s pension when it is combined with your own CPP retirement pension. At a minimum, it is always reduced by 40% of either itself or 40% of your own “calculated retirement pension”, whichever is less. In this case, a net survivor’s pension of 36% is exactly correct.

7. rubenoff Johnson

my wife oassed away june 11 2018 she was receiving only old age pension, I have paid into canada pension scince it started and retired dec 1994 drawing CPP and old age pension looking at my wife story she never paid nor drew cpp But did draw old age pension up to her death date

will there be any death benifit from to the estate her death. or should I have passed away first

• Doug Runchey

Hi Rubenoff – My condolences on your wife’s passing. I’m sorry, but if your wife never paid into CPP then her Estate wouldn’t be eligible to any CPP death benefit and you wouldn’t be eligible to any CPP survivor’s pension. Yes, if you had passed away first she could have been eligible to a CPP survivor’s pension.

8. Garrett

I really don’t understand the 60 year old calculation. Would you be able to explain it again further? I did review your CPP survivor benefit article as well and can’t seem to understand where I went wrong in my recalculation of your above example.

9. Rita H

I receive a CPP survivor’s benefit of approx \$800 per month, I’m waiting until I’m 70, to start taking my CPP retirement pension, I’m currently 68. Not sure if I will receive a maximum retirement benefit so for the purpose of this question, let’s assume my CPP entitlement was \$1000 per month at age 65. With the increase of 42% per year that would increase my retirement pension to \$1420 per month for a total of combined benefits of \$2220 . Let’s assume the maximum CPP retirement pension at the time of retirement is \$2000. Am I still subject to the cap or will I receive the additional 42% on my retirement pension entitlement in addition to the survivor’s benefit.

• Doug Runchey

Hi Rita – First, you will definitely receive your full retirement pension of \$1,420, because it’s always the survivor’s pension that gets reduced when the two benefits are combined. Second, you NEVER receive the full amount of the survivor’s benefit, because it is ALWAYS reduced when it is combined, even if you don’t reach the maximum. This reduction is the lesser of 40% of itself or 40% of your “Calculated CPP” (sometimes referred to as your age-65 amount), which means that in your example the survivor’s will definitely be reduced by at least \$320 (40% of \$800) or more, if the maximum would reduce it even further. Finally as to applying the maximum it’s again your “calculated CPP” that’s important and not the \$1,420 amount, so the \$1,000 plus \$800 do not exceed the maximum of \$2,000 for your survivor’s pension after combining would be \$480 and your retirement would be \$1,420 for a combined total of \$1,900.