Service Canada’s online CPP Calculator is a well-intended but poorly designed tool, and I strongly suggest that you don't rely on its results for your retirement planning, especially not for CPP retirement estimates.
As an example, I had a client the other day who is 54 years old and had recently retired after 30 years of maximum CPP pensionable earnings. His CPP statement of contributions (SOC) estimated that if he started taking his CPP pension at 65, he would receive $985. When he used the online calculator and indicated he would have $0.00 earnings from his current age until age 65, it still said that he would get $985 at age 65. I told him that was impossible!
I told him to try again using $5,000/year for his future earnings, because I knew that the calculator doesn't work with $0.00 income projections (even though that’s one of the options). After entering $5,000 for future earnings until age 65, the online estimate came back with results of $894. That’s a better answer for sure, but still more than $100 higher than my calculated result of $778.
Then I realized the basic flaw of the online CPP calculator. It's not even capturing enough information to do a meaningful calculation!
By asking only for the SOC estimate amount and future earnings, the online CPP calculator is missing critical information. That current SOC estimate of $985 could be based on 30 years of maximum and six years of zero earnings. It could also be based on 36 years of near-maximum earnings.
The result would be the same when calculating the SOC estimate at age 54, because almost six years would be dropped out at that time. However, the result of the two scenarios would be very different (possibly by almost $150), when calculating an age-65 retirement pension with little or no earnings after age 54.
I used to think the online CPP calculator simply couldn't work with future earnings estimates of $0.00. I now realize that it's unhelpful and possibly harmful for any accurate retirement-planning purposes, at least from the perspective of CPP retirement pension calculations.
In trying to identify how the online calculator was coming up with results that were so different from my calculations, I noticed the following disclaimer in the calculator’s preamble: “The calculator's results are rough estimates for information purposes only – not financial planning.”
Now that’s a fine disclaimer, but do they truly believe that anyone is using the online CPP calculator for something other than financial planning purposes?
Perhaps they should have called it an estimator or an approximation. But they call it a calculator and show results like, “Based on your revised future earnings, your recalculated CPP retirement pension estimate at 65 is $990 per month ($11,880 per year), expressed in today’s dollars.”
When the calculator appears to give a single dollar value in response to the input, it implies some degree of accuracy, and that you should be able to trust it. I could accept a variance of a few dollars, but being a few hundred dollars out is not what anyone should expect.
As mentioned above, the online CPP calculator asks for two pieces of information only, when trying to “recalculate” your future CPP retirement pension. These two items are:
- Your age-65 SOC estimate (or alternately your guesstimated average lifetime earnings, expressed in today’s dollars)
- Future earnings up to the age that you want to start receiving your CPP retirement pension
As also mentioned above, there is really no possible way for anybody to turn these two pieces of information into an accurate estimate of your future CPP retirement pension. At best, they could provide you with high/low possible calculations or an average result with a plus/minus range.
In my mind, presenting the answer as a single calculation is misleading at best, especially since the results of the calculator appear to be the maximum possible pension amount (or sometimes even more than the maximum possible amount), rather than the average or a range.
As mentioned above, the online calculator cannot seem to deal with zero future earnings, even though that is one of the choices given in the dropdown box. I tried numerous examples of zero future income, and it never once came back with even a possibly correct result.
In the most extreme result, I told the calculator that I was a 25-year-old and that my SOC currently showed my age-65 estimate as $1,012 (maximum) but that I would have zero earnings for the next 40 years. The calculator’s result was still a pension of $1,012 at age 65, even although the maximum possible result would be about $175.
The online CPP calculator cannot handle zero earnings, so don’t ever use zero earnings. Zero earnings aren’t the only calculation flaw. I tried entering numbers for a 55-year-old with a SOC estimate of $1,012 and future earnings of $5,000 until age 65. The online calculator’s result was a pension of $990. The maximum possible result for this scenario is $968. The minimum possible result is $827.
I haven’t been able to figure out exactly how the online calculator comes up with its results, but it appears to be something like – calculate the maximum possible pension and then add a bit.
Is there any point to using the online CPP calculator at all? Using the online calculator is an interesting exercise, and it is probably worth exploring. However, I strongly recommend that you do not rely on the CPP results given by the calculator.
And oh yes, “Do not use any of the results for financial planning purposes.”