Carpe diem

Daniel Nwosu’s parents were Nigerian immigrants. To the cold rockiness of Newfoundland, of all places. Born twenty-nine years ago, he made his way from St. John’s to Ottawa, then to the States, where he went to college, wrote poetry, worked as a janitor, then became a rapper. A good one. He also changed his name. Dax.

When Dorothy and I heard his cross-over single, “To be a Man,” we talked about the fem-wave which has washed over society. It’s not a bad thing. But in supporting women, it has denigrated men. At least many feel such. Dax gave it voice. Big hit. The black rapper from The Rock ripped to the top of US country music charts.

“The first time most men receive flowers,” I said to Dorothy as we discussed it, “is at their funeral.”

So what did she have sent to me for my birthday last week? Yup. A honking big mess of flowers.

Another birthday. They creep up. We’re an aging society in Canada with surveys showing too many have no clear idea how to cope with getting old, or years in retirement. “I’ve just turned 59 and received the call to the land of wrinklies,” Darren writes me. “Time to apply for the return of my contributions to the CPP.

“You advocate we all start drawing payments at 60 and I fully agree with triggering payments early, however, my question stems from a detail I was not previously aware of concerning the monthly amount.  The letter states:

“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%.  The reduction is permanent.”

“Does this mean they’ll continue to reduce the monthly payment for every month I choose to receive payment from 60 to 65 years of age!? If so that’s dog awful!”

Relax, D. It’s a one-time reduction. Taking early CPP means you opt for more payments, but each one (during the rest of your life) is for less than if you’d waiting at least five years more. And this opens up a debate that’s rocked this pathetic blog a few times. Should people stick their hand out to take money back from the government at age 60 or wait until they’re much closer to death in order to grab a bit more?

The numbers are simple enough to calculate. The max CPP benefit is $1,364, for which you must toil for a full career, making contributions. You can wait until 65, and collect it, or start at sixty and take 36% less, or $873. So from sixty to 65, total payments would be $52,380. If the payments were invested and earned 6%, after five years the total would be $62,100.

In other words, take it at 60 and have $62,100. Or wait until 65 and have zero – but a larger benefit going forward. Smarty-pants financial planners with emotionless software will tell you that at age 75 (more or less) the person who waited will ‘catch up’ to the guy who went early – and thereafter have more total cash flow.

But, Darren, we know that ignores the most important elements of the pension plan payments. First, let’s understand why the feds incentivize people to delay benefitting from the plan they paid into for four decades. The reason is simple: we all die. The sooner folks croak and the less they collect, the better it is for the CPP administrator. So if Canadians can be cajoled into waiting until age 65 or 70, it saves the plan money.

It stands to reason, of course, that what is worst for the pension plan is best for the pensioner. But it seems brainwashing and the misguided notion that we’ll live forever have convinced many people to delay getting their money back.

This is dumb. Myopic. Wistful.

Not everyone’s circumstances are the same, of course, but the overriding principal is that you should take and enjoy money while you are spry, mobile and (in my case) impressively virile. CPP was never intended to support you after work is done. It’s just a supplement to a corporate pension and (especially) personal savings in an RRSP, TFSA, business or non-registered accounts. In any case, cash flow is cash flow. Enjoy it.

Second, delaying this stream of money is tantamount to gambling with your death date. Yes, the average wrinklie at 65 in Canada should live for twenty more years, but perhaps you’re not average. Ponder what happened during the pandemic, for example. You have no idea what’s around the corner. It could be a bus. Take the money.

Third, why not collect an invest it? That way you have access to capital if needed, or to pass on if you expire, plus you’re mitigating the difference in payments if you waited. Stick it in your TFSA. Or put it in an RRSP and until age 71 claim a tax refund on the contribution. Or a spousal plan, if your squeeze is younger.

Fourth, while the CPP is run by some third-party guys (who seem to be smart), it’s still a government entity. And government finances are a complete mess. We can’t run the country on what’s collected. The tax base is eroding. The national debt has recently doubled. There is absolutely no indication at present that politicians would raid the CPP fund in a crisis, but…

In short, if you’re being offered money in the form of a monthly paycheque when you’re 73% (or more) through your lifespan, why not take it?

Or, you can wait for the flowers. I didn’t.

About the picture: “Zoey lives to play fetch,” writes Michelle. “Hates to go for walks and could care less about dog treats. She knows what she wants. Zozo just celebrated her fifth birthday.Thanks your daily blog. I appreciate the information you and your guest bloggers offer.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.