One of the most frustrating practical challenges in planning for retirement when it’s still many years in the future is trying to get an accurate estimate of your Canada Pension Plan (CPP) benefits.
If you are ready to collect, Services Canada will accurately calculate your CPP benefits. It can also provide a reasonably accurate advance estimate of your basic benefits if you’re within a year or two of starting them (online at My Service Canada Account). But farther out than that presents a real challenge.
For the first time, there is a free online calculator (at CPPcalculator.com) that can help you calculate in advance what precise CPP benefits to expect when you retire.
The calculator was created by Doug Runchey, a well-regarded CPP calculations expert, and David Field, a certified financial planner — with a knack for programming — at Mississauga-based Papyrus Planning.
The launch of a new calculator isn’t normally a big deal in this online age, but the mind-boggling complexity of CPP calculation makes this one surprisingly notable. There are other spreadsheets and online tools that give ballpark CPP projections, but this is the first that I know of that can credibly claim precise accuracy for basic calculations. (That said, it doesn’t yet cover certain special situations such as raising young children, having a severe disability or combining and splitting CPP benefits.)
The unequalled credibility of this calculator owes much to the testing and endorsement of Runchey, a 66-year-old retired federal civil servant. He mastered the intricacies of CPP computations during a 32-year career with predecessors of Service Canada, the federal government’s point of public contact for many of its services. He was once manager of outreach for CPP and Old Age Security for B.C. and the Yukon.
Since 2013, Runchey has made a modest second career producing CPP estimates by hand for a small fee. He works from home in the Comox Valley on Vancouver Island. As far as I am aware, Runchey — and now the Runchey-Field calculator — are the only publicly available sources of reliably accurate estimates of future CPP benefits.
If you’re trying to plan for what your CPP benefits might be many years ahead, the Service Canada estimates can be way off. That’s because your future payout depends in part on the amount and pattern of your CPP contributions and earnings in the interim. The Service Canada estimates assume simplistically that you continue making the same average level of contributions as you have in the past.
These misleading government estimates can distort important decisions about when to start CPP. It often comes into play for people who retire early, and then must decide whether to then start CPP payouts at age 60 or defer the start of their benefits until age 65 or later. In that case, the government estimates typically assume you continue to contribute to CPP at the same relatively high average level that you did through your working years, whereas in reality, you’ve stopped working and contributing.
How those zero-contribution years factor into the complex calculations varies. In some cases it has no impact. But in other situations it results in the Service Canada estimates being too high by up to two per cent a year, estimates Runchey. In that case, if you fully retire and stop contributing at age 60, but delay collecting your pension until age 65, Service Canada could be overestimating your CPP pension payout by up to about 10 per cent.
Of course, your monthly CPP payout is still going to be higher over-all if you start it later (to compensate you for taking fewer payouts over your shorter remaining lifetime). It just might not be as high as Service Canada lead you to expect.
I have tried the Runchey-Field CPP calculator and found it easy to use. You follow the simple instructions at CPPcalculator.com. You will be sent a link to upload your past contribution and pensionable earnings data from your Service Canada account directly into the calculator. Type in your projected pensionable earnings for future years and hit “calculate.” The calculator tells you what your basic CPP pension payout would be (in today’s dollars) if started at each age from 60 to 70.
The calculator’s major limitation is that, for now, it doesn’t include special situations where your basic CPP benefits need to be adjusted. These include where you have: low-income years raising children under the age of seven; low-income years due to severe disability; the combination of a regular CPP pension and a CPP survivor’s pension; or the need to split your CPP benefits due to divorce or separation. Of course, the Service Canada future estimates don’t cover those special cases, either. For now, if you want accurate future projections in those special cases, you probably need to engage Runchey (drpensions.ca) to get a manual calculation. As an example, he will estimate your CPP benefits including the child-rearing adjustment with two optional start dates (e.g. ages 60 and 65) for $ 50. Getting those calculations for every age from 60 to 70 will cost $ 125.
Meanwhile, Runchey and Field are hoping to extend their calculator to cover the child-rearing adjustment and possibly other special situations. At some point they will likely charge a small fee to use the calculator, at least for enhanced features.
That prompts the question of why Service Canada doesn’t provide better help with CPP estimates.
“The government has made the CPP calculations so complex, but they don’t provide the proper tools to help you with it,” says Field.
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If the government can’t produce accurate future CPP estimates on its own, I think it should hire Runchey and Field as consultants to help develop proper software to do it.
In the meantime, getting accurate CPP projections remains utterly dependent on how Runchey chooses to spend his golden years.
“If Doug decides to fully retire and this goes away as a service, then we’re really sunk,” says Field.
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Have you figured out an estimate of your Canada Pension Plan (CPP) benefits? What was the process like?