Unintended consequences

Later this week we can talk about stock markets, expectations for B&D portfolios in 2019, Mitt Romney, Oprah and Angelina Jolie plus, of course, BC real estate. In fact, here are the only 38 words you need to know about the latter: moronic taxes, combined with the stress test, have made houses nobody could afford cheaper while making cheap houses unaffordable. Lose-lose. The market’s in the midst of a political meltdown. So, how do you like socialism so far?

But before all that excitement, let’s go back and mop up some preconceptions being splashed around. Yesterday the topic was commuting pensions – yes or no? This blog gave you a handful of reasons why it’s almost always a good idea (if you get the chance) while the steerage section sounded its usual note of terrified, hostile insecurity.

Yesterday we also touched on the other topic of universal confusion – whether retiring little beavers should take CPP when first offered (age 60) or hang in for a bigger stipend at 65. Or even (gasp) 70. As expected, this filled my email Wednesday morning. Typical was this note from Wendy. “I read your blog today telling me yet again to take my CPP early, and then I browsed the Globe & Mail and saw the exact opposite,” she writes. “I’m keen to hear your rebuttal to her.”

But there was also a compelling suck-up.

Also, I just can’t thank you enough for your wise words. You have provided such good advice in your blog that I feel like I am actually going to financially survive my divorce despite being 50, staying home for over a decade with my kids, and taking a lower paying, less secure, but completely flexible job to permit me the time to help these kids navigate this next year (they’re only 14 and 11). I have left the matrimonial home and downsized, am in the process of telling TNL@TB to screw off, discovered ETFs, faithfully invest a good chunk every month, and am working towards maxing out my TFSA. I might have to work until I’m 70, but if my kids end up ok, that’s ok. The downsizing was key to all of this and you consistently remind me that I don’t have to apologize for living within my means. All this, and I kept the dog!

Yay, Wendy! Atta girl. No reason whatsoever you can’t kick ass when it comes to financial empowerment. Far too many people (and too many of them are women, sad to say) get ensnared by the banks and end up in high-fee mutuals or dead-end cash products. Because females outlive men by a scary margin and traditionally earn less, they need growth. Remember what the biggest risk is. (And it’s not losing money.)

So what about this public pension debate?

The latest never-take-it-early argument published this week comes from Bonnie Jeanne MacDonald of Ryerson University. Not only does she dump on collecting the pogey at age 60, but ‘proves’ delaying to 70 is wildly more beneficial. She writes:

“In delaying CPP by five years (from 65 to 70), you are “purchasing” an additional 50 per cent of the CPP benefits at the “cost” of five years of forfeited CPP payments. It would currently cost a 70-year-old man 64 per cent more in the private market to purchase an annuity equal to that provided by CPP. For a woman, the cost is 84-per-cent higher…. With a CPP maximum of $13,600 a year, choosing to delay CPP benefits could mean getting up to $6,800 more in secure income each year, which increases with inflation. This reliable extra income can be essential to cover supplemental care, above and beyond the limited government benefits available.”

Those are compelling numbers, and mathematically correct. But they also misrepresent life.

Here’s why.

Most of us don’t stand a chance in hell of collecting $13,600 a year in CPP. The average is $670 a month, and this is skewed much more to men than women (who apparently still rear children). Therefore waiting until you’re 70 to collect less than $300 a month more means giving up $40,000 in CPP payments over five years (from age 65) or almost twice that if you wait ten years. Seriously? How does that justify not having the use of forty or eight thousand bucks for years and years just to collect $75 more a week a decade before you expire? Huh?

Face it: the feds have devised a plan encouraging people to wait to take CPP because they believe you will collect less if you do. Nobody knows when they’ll die. Delaying this benefit until the beginning of your eighth decade is simply gambling – thus it’s weird that so many risk-averse Venuses think that way.

Meanwhile every Canadian needs to realize the public pension plan was never meant as a retirement allowance, but merely a supplement to savings, RRSPs or a work pension. It’s booze & weed money, not rent money. Stressing over seventy-five bucks a week extra is pathetic. If you need to do this it means you failed financially over the six decades you were given to prepare.

That sounds harsh. On purpose. Take the time spent uselessly debating this point and use it to budget instead, so your TFSA will be sweet and hot this year. In fact at age 60 stick your hand out, take the CPP and put it into your tax-free account in growthy ETFs. In a decade it can provide you a tax-free stream of income that will not reduce OAS. (Also not worth worrying about.)

So, Wendy, it all comes down to two irrefutable points. First, continue to do what you’re doing – invest aggressively, curb your real estate exposure and focus on building assets that’ll pay you to own them. Second, take the CPP when offered early and enjoy it. Life is short. Time is precious. Use the money when you can derive the greatest pleasure from doing so, not during the Depends years when a spin on the walker is a big deal.

The person who waits to the last grisly, drooling moment to collect the most pension does not win.

Now, on to Angelina!