In my last two posts, here and here, we’ve been covering how to make realistic retirement plans. I hope these conversations are helping you think through the numbers involved.

Here’s one more set of numbers to think about: What happens to your Canada Pension Plan (CPP) benefits if your spouse predeceases you … or vice-versa? On the scale of romantic conversations, this may rank right up there with pricing out a new hot water heater. Pretty boring.

Still, if you’re not sure how your CPP benefits work for the two of you as a couple, you run the risk of ending up in financial hot water – or leaving your spouse to get burned. Most importantly, you may mistakenly assume your CPP survivor benefits will be more generous than they actually are. Let’s take a closer look at what you can really expect.

First off, it’s not easy to estimate your CPP benefits to begin with. Services Canada uses formulas that are elaborate and changeable, with plenty of mind-bending, if/then decision tunnels to crawl through. At the very least, you’ve got to consider your age, past contributions made, and when you have or will start taking your benefits. Will that be before, at, or after age 65?


CPP Benefits: The Simplest Scenario

Starting with the simplest planning scenario, if only one of you contributed to the CPP, and that someone is the first to pass after taking their CPP at age 65, the surviving spouse can be eligible for up to 60% of the deceased spouse’s benefits.

The amount against which you calculate that 60% can vary widely. For example, if your spouse had already started drawing benefits at age 60, you won’t receive as much as if they’d waited. Your own age factors in as well. Also, that 60% assumes your spouse start drawing the benefit at age 65. If you start taking it when you’re younger, the percentage will drop.

So, that’s kind of complicated. Still, so far, these numbers may be roughly what you were expecting. Too bad that’s not how it usually plays out in real life.


CPP Benefits: The More Likely Scenario

These days, far fewer families have a sole breadwinner. More often than not, you’ve both contributed to the CPP along the way.

This far more common scenario of a double-income family creates a CPP “gotcha” that many people are unaware of: If both of you have been working and contributing to the CPP, the sum of each of your benefits will probably NOT generate a greater whole for a surviving spouse.

 Let me explain. Basically, the equation the government uses to calculate a surviving spouse’s total pension comes with a cap. That cap is the same one you have for your own, per-person retirement benefits. In 2019, it’s $1,155/month.

What I’m getting at, is a surviving spouse does NOT get to add their own and their spouse’s per-person caps together. You’re still capped at that same, $1,155 limit. So …

  • What if you were already earning that $1,155 limit on your own retirement benefits? Your survivor benefits are a big, fat, zero dollars more.
  • What if you were earning $955/month in your own retirement benefits? Your survivor benefits could be $200, to bring you to the $1,155 cap.
  • By the way, if you end up being widowed more than once, don’t even think about collecting two survivor benefits.


Realistic CPP Survivor Benefit Planning

Most couples look forward to receiving their fair share of CPP benefits, especially if they’ve both been contributing to it for years. But as you plan for retirement, it’s worth being crystal clear on what the government has determined is “fair” for survivor benefits. Their calculations may not jive with your own and, for better or worse, theirs are the ones that matter. If your back-of-the-envelope calculations for CPP survivor benefits involve adding up your own and most of your spouse’s CPP retirement benefits, you’re probably overestimating what you’ll actually receive.

What else can I answer for you about your realistic retirement planning? Keep the No Dumb Questions coming, and I’ll keep the answers rolling along as well!