Making sense out of CPP estimates

Question

I received a reminder from Service Canada regarding my CPP plans. I need help making sense as to what they wrote. I'm trying to pick the best strategy to maximize total income. These are the details:

• If your pension starts before age 65, it will be reduced by 0.6% for each month (or 7.2% per year) before your 65th birthday. The maximum reduction, if you start your pension at age 60, is 36%. This reduction is permanent.

Does this mean if I retire at 60, each month I'm getting 99.4% of the previous month, or some fixed amount or what? Where does 36% come in?

• If your pension starts after age 65, it will increase by 0.7% for each month (or 8.4% per year) after your 65th birthday. The maximum increase, if you start your pension at age 70, is 42%. The increase is permanent, and there are no more increases after age 70.

Similar kind of confusion here. They provide a graph, but to me it has no bearing on what they're describing.

If someone understands this, can you provide a progression over the years as to what someone would be getting? Say assume $1,000 as the default, what would retiring at 60 vs. 65 vs. 70 look like?

Answer 1

Does this mean if I retire at 60, each month I'm getting 99.4% of the previous month, or some fixed amount or what? Where does 36% come in?

For example if you had waited until age 65 to file you would have received a check for $1000.

But you needed to start collecting the pension a year early. That means that you will see a reduced check. The check will be:

(100%-7.2%) * 1000 = $928

That means for the rest of your life you will get the smaller check. Of course you are getting an extra 12 checks.

The 36% is what happens if you collect at age 60 or 5 years early. that is 5 times 7.2%

So at age 60 each check will be $640.

If your pension starts after age 65, it will increase by 0.7% for each month (or 8.4% per year) after your 65th birthday. The maximum increase, if you start your pension at age 70, is 42%. The increase is permanent, and there are no more increases after age 70.

So if you wait until age 67 each check will be 1000 * 108.4% or $1084.

If you can wait until age 70 the check will be for 1000 * 142% or $1420.

Waiting past age 70 doesn't increase the size of checks.

Answer 2

Funny thing, after writing a question, one gains some clarity. I think I understand now. My confusion arose because I didn't realize a pension is a fixed amount.

At age 65, a pension of $1,000 / month would translate to $312,000 total paid out by age 90.

At age 60, the pension is reduced to $640 / month, which would translate to $238,080 total paid out by age 90.

At age 70, the pension is increased to $1,420 / month, $357,840 total paid out.

For each year between 60 to 70 that you start at, this would be the monthly pension and total paid to age 90:

 Age | Pension | Total Paid 
-----+---------+------------
  60 |     640 |    238,080
  61 |     712 |    256,320
  62 |     784 |    272,832
  63 |     856 |    287,616
  64 |     928 |    300,672
  65 |   1,000 |    312,000
  66 |   1,084 |    325,200
  67 |   1,168 |    336,384
  68 |   1,252 |    345,552
  69 |   1,336 |    352,704
  70 |   1,420 |    357,840