What happens to your Canada Pension Plan (CPP) benefits if your spouse or partner predeceases you (or you them) may not rank on your list of life’s most pressing questions. However, if you’re unsure about how your CPP benefits work for you as a couple, you run the risk of financial trouble. Danger can lie in mistakenly assuming your CPP survivor benefits will be more generous than they actually are. Here’s a closer look at what you can expect and how to prepare.
Calculating CPP survivor benefits
The short answer on how CPP survivor benefits are calculated is that it’s complicated. The government first determines what the CPP payout is, or would have been, had the deceased been 65 years old when they died. Then, a further calculation is done based on the surviving spouse’s age at the time of the contributor's death, as follows:
|If the survivor is:||Then the survivor’s pension is:||2019 monthly maximum|
|Age 65 or older||60% of the contributor’s retirement pension (if the surviving spouse or partner isn’t receiving other CPP benefits)||$692.75|
|Below age 65||A flat-rate portion plus 37.5% of the contributor’s retirement pension (if the surviving spouse or partner isn’t receiving other CPP benefits)||$626.63 (includes flat-rate benefit of $193.66)|
In the simplest scenario, where only one of you contributed to CPP and that person dies after taking their CPP at age 65, the surviving spouse can be eligible for up to 60% of the deceased’s benefits. How much of that 60% the survivor receives depends on a number of factors, including their age and whether they’re taking their benefits before or after age 65.
It’s more likely that both spouses worked and therefore both contributed to CPP. In this case, you may be surprised at how little the surviving spouse will be entitled to. Ultimately, there’s a cap to what the survivor or their spouse or partner will receive in total CPP benefits.
Mind the cap
In 2019, the per-person cap is about $1,154 monthly. A surviving spouse already earning the $1,154 limit on their own wouldn’t receive any survivor benefits. Likewise, someone earning $1,000 individually would only receive up to $154 more in survivor’s benefits, bringing the individual to the $1,154 maximum. If you’re used to both receiving full government retirement benefits as a couple, that can feel like a big pay cut, especially since your bills don’t go down by the same amount.
Allowance for the Survivor benefit
On the flip side, low-income surviving spouses or partners between age 60 and 64 can apply to receive the Allowance for the Survivor benefit. A non-taxable monthly benefit of up to $1,375.17 (for the July to September 2019 period) is available assuming the survivor’s annual income doesn’t exceed $24,816 in 2019.
The application for the Allowance for the Survivor benefit can be submitted as early as the month after the survivor’s 59th birthday. If he or she continues to meet the eligibility criteria, the allowance stops the month after the survivor turns 65. At that point, he or she may be eligible for Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
Plan well, live well
With so many variables to consider and potentially thousands of dollars on the line, understanding how your government benefits work – individually and as a couple – is critical to securing a comfortable retirement. Just as essential is looking beyond government income sources to fund your later years. For example, starting as early as possible with tax-efficient savings, like a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), can help to provide the income you need to maintain your lifestyle, with or without CPP.
Have questions or want to get a head start on retirement income planning? For help, contact us today.
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