Takin’ it

Every Canadian with a legit job has a DB pension. Yes, the golden kind. Guaranteed moolah for life, indexed to inflation with payments that are risk-free and will never fade or disappear. It’s called the CPP.

Now, two things to remember about the public pension system. First, it’s not managed by the government, so relax. There’s a CPP Investment Board (operating as CPP Investments) run by a bevy of Bay Street smarties with $500 billion under management. The plan is to grow the CPP pot to $1.7 trillion by 2040. The return on global investments last year was 20.4%. Sweet. Those fears of a decade ago that the plan would be crushed by lousy demographics are kaput.

Second, (however) the plan pays out peanuts. The CPP was never intended to be a primary source of retirement income for all us little beavs. In fact, the deal was for it to be just one leg on the after-work stool – along with a corporate plan and personal savings. These days one of those supports (company pension) has disappeared for 70% of the working population, so never before have RRSPs, non-registered investment accounts and TFSAs been so critical.

Remember, the current average CPP monthly payment is just $619.44. That’s $7,400 a year. Grocery money. Add in the old age pogey (OAS) of $626 a month, and the average retiree in Canada is collecting less than $15,000 annually. Nobody can live on that. Even a couple doubling that amount will be scratching out a penurious existence. It amounts to financial failure after spending six or seven decades on this planet.

By the way, the maximum CPP payout is $1,203 a month, but few achieve that, since it takes almost 40 years of continuous contributions between the age of 18 and 65. These days a lot of people are not beginning their careers until late in their 20s – one reason everybody’s premiums went up in 2021, so that a little more money can be paid in retirement to people now in their teens.

Well, now to Rob. And let’s revisit the No. 1 question that a certain pathetic financial-and-canine blog is routinely asked:

Next year I turn 60 and I was planning to start taking my CPP. My plan is to deposit it directly to my TFSA every month where I hold ETFs. When my contribution limit is reached then I would continue and contribute into my wife’s TFSA.

Our financial planner (I am self-directed but my wife likes the penguin) at the bank is against this and recommends waiting at least to 65 and even up to 70 before taking my CPP!

I know you always say if the government is giving you money….take it. We are financially solid and don’t “need” the money but… I do trust your advice and would love to know your thoughts on this.

TPTB want to discourage people taking CPP at age 60 for obvious reasons. You will stop collecting from the fund when you die, so the closer you get to exiting, the better. This is why those who wait get more, but for a shorter time. The reduction in benefits for early payout is 0.6% for each month prior to your 65th birthday. That’s about 7% a year, or a total of 36% less for collecting at 60 as opposed to 65. In general this means if you plan on living to 85 and want to max the total amount received, then delay collecting until 69. This is what the number-crunchers, actuaries and stubble-less young bank advisors will tell you.

But wait. What if you croak at 74? That would blow.

Anyway, this is not the essence of Rob’s question. The point is he doesn’t need the money to finance his retirement (which is one of the only valid reasons for delaying, especially if you’re a woman). And in his case, the advice is simple. Stick your hand out. Take the cash.

Reasons abound for doing this. First, (as stated above) you have no idea what your death date will be. So why gamble for the sake a relatively small gain later? When the government offers to give you back some tax money, take it. After all, 60 monthly payments of, says $800, is almost fifty grand. Put into a TFSA in growthy ETFs will boost that further. Voila at age 65 – a new Mercedes E-class sedan! Thanks, Chrystia!

More fundamentally is the aging process. Sixty, as you know, is the new 50 and most people feel frisky and alive. Not so much at 70. Definitely not at 85. So if you can collect and enjoy a guaranteed government pension when you’re young and vital enough to spend it on new experiences, why not? It seems like a really dumb choice to have an extra two hundred bucks a month coming in during your eighties when you could have been enjoying the cash for a decade.

Time is your most precious asset. Do not waste it, waiting.

About the picture: “This is Sugar x 4. She doesn’t worry about cats or anything other than people and food,” writes Brian. “Perhaps it’s food and peeps. Either way, she’s a doll and we love her to bits. I have a comment about the comments section. I’ve been a police officer for 23 years. I used to read comments on police related reporting and started to feel the world was against me. Quite seriously. I know it wasn’t though. It was that fringe group of folks who are so disconnected and permanently pissed off that by taking the time to spread their venom they seems to think it will change things. It won’t. I’d suggest you just shut down the comments for a month or two and perhaps even permanently. When YOU comment about their comments – you make them relevant. They aren’t. You’d lose some fodder but maintain your sanity. Just a thought ….”