A new report says people in 'positions of influence,' namely financial advisors, pension plan sponsors and policy-makers, should be doing more to educate Canadians about when to take their CPP benefits.AscentXmedia/iStockPhoto / Getty Images
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Advisers should stop oversimplifying the decision about when Canadians should take their Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) benefits and avoid using “problematic narratives” that may lead people to take the benefits too soon, a new report argues.
Globe Advisor reporter Brenda Bouw breaks down some of the “flawed” narratives identified in the report, Retiring Problematic Narratives, released Wednesday from the National Institute on Ageing (NIA) at Toronto Metropolitan University. Those problematic views include, “You’ll be better off taking CPP/QPP benefits at age 60 if you die before your break-even age,” “What if the government changes its mind? Take advantage while you can,” and “Take it and invest it – you’ll do better.”
“Some of these justifications for early claiming have elements of truth, but they are largely unfounded,” states the paper from lead author Bonnie-Jeanne MacDonald, the NIA’s director of financial security research, and co-author Doug Chandler, an actuary and NIA associate fellow.
While some Canadians need to take CPP benefits earlier, the report states that a large majority of Canadians (about 90 per cent) choose to take their CPP/QPP benefits by the age of 65, which “reduces the lifetime income security they say they want and will most likely need.”
The report says people in “positions of influence,” namely financial advisers, pension plan sponsors and policy makers, should be doing more to educate Canadians about when to take their CPP benefits based on individual circumstances instead of relying on “troublesome mainstream justifications” to take it early and psychological biases that can distort decision-making.
“By offering easy justifications for early claiming, these existing narratives do a disservice to the public. But it’s not enough to simply add good reasons for deferring; we need to change the overall narrative,” the report states.
The authors don’t blame retirees for taking CPP benefits too soon. Instead, they point to “bad advice and biased perspectives” that can cause some people to make short-term decisions without considering long-term factors such as personal health and finances at later ages – and even emotions – around retirement.
“The CPP/QPP claiming choice is difficult and has not been explained well to date,” the report states. “It’s a once-in-a-lifetime, high-stakes financial decision that requires evaluating a wide range of uncertain future events, particularly financial market returns, inflation and age of death.”
Here are three “problematic narratives” cited in the report.
For more from Globe Advisor, visit our homepage.
Can Al, 61, and Kate, 57, increase their retirement spending and still leave a sizeable estate?
“I came to Canada 27 years ago and started working right away,” Al writes in an e-mail. He’s done well, earning $230,000 a year in a high-demand technical field.
After years of working “crazy hours” and with solid savings, he wants to slow down and perhaps work part-time if he can. “My conservative planning should consider the possibility of not being able to do so,” Al adds. “In my field you are either 100 per cent in or 100 per cent out.”
Al is 61 years old, his wife Kate is 57. They have a mortgage-free house in the Greater Toronto Area and a son, 24, who is back living at home after finishing a two-year contract abroad.
“Eventually it’s in our plan to get a smaller house somewhere up north, hopefully close to a lake or river,” Al writes. Their retirement spending goal is at least $84,000 a year after tax, in line with their current lifestyle spending. “If we can increase it, say to $96,000 or $120,000 a year after tax, that would be much better.”
They also want to leave a comfortable estate for their son. How much can they afford to spend if Al retires at year end?
In this Financial Facelift, Warren MacKenzie, an independent certified financial planner based in Toronto, looks at Al and Kate’s situation. Mr. MacKenzie also holds the chartered professional accountant designation.
The maximum CPP pension future retirees could get is about to start changing in a big way
The maximum Old Age Security pension you can get in a given year is the same whether you retired recently or many years ago, writes Frederick Vettese, in this Charting Retirement article. The same is not true with Canada Pension Plan pensions. The maximum amount of CPP payable depends on when you stopped contributing. Vettese, former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca), looks at how much retirement pension you could receive per year here.
In case you missed it
When things go wrong at funerals, you just have to laugh
“After Dad died at 100 years of age, the funeral director looked very serious as she promised us that what had happened at my mother’s interment would not happen again, writes Deborah Kraft, in this First Person article. “I looked her in the eye and said that was the best part of the whole funeral and our family will never forget it.”
Kraft’s mother died 14 years earlier. “After her church service and reception, we drove out in a convoy to the country cemetery where my parents had their plots,” she says. This small cemetery is tucked into a pine forest and the grounds are covered with wildflowers. “It is the same cemetery where my grandparents and my in-laws are buried. My husband and I bought our own plots there soon after we were married. (It was a great buy in 1977 at only $60 each. The value of the plots has appreciated more than anything else we have purchased, including equities and real estate.)”
Kraft’s mother’s casket was placed in an antique hearse for the 30 kilometre drive to the cemetery.
About three kilometres from the cemetery, she recalls, the coach suddenly stopped and would not restart. The funeral directors who had accompanied the family were embarrassed and upset. “We were not left with many options,” she says. “We could not take the casket and put it in another vehicle and we could not walk down the road with the pallbearers carrying the casket.”
Eventually, another funeral home was called to deliver one of their hearses so they could move the casket and then carry on to the cemetery. But, adds Kraft, it would take almost an hour for the new car to arrive.
Read the full article here.
First Person is a daily personal piece submitted by readers. Have a story to tell? See our guidelines at tgam.ca/essayguide.
What travellers need to know ahead of Air Canada’s potential pilots’ strike
Air Canada says it is preparing to wind down operations ahead of an “increasingly likely” strike or lockout as contract talks with its pilots union are nearing an impasse over “inflexible” wage demands, write editor Abigale Subdhan and transportation reporter Eric Atkins in this Explainer article.
The Montreal-based carrier and the Air Line Pilots Association (ALPA), which represents 5,200 pilots at Air Canada and Rouge, have been in negotiations for more than a year. The two sides are in a legal strike or lockout position on Wednesday, Sept. 18, provided they issue 72-hours notice.
The labour dispute could disrupt travel plans for thousands of travellers during September and perhaps beyond.
Here’s what you need to know, as both sides continue to negotiate ahead of the deadline, including when the strike could begin and how long the disruption might last.
Retirement Q & A
Q: My husband and I are financially modest. My husband retired in 2022 and is 67. He receives an employee pension, as well as CPP and OAS; I’m 64, retiring at the end of this year. Together we expect a net income of approximately $89,000. We’re mortgage free but have a car loan of $880 per month and a $45,000 line of credit (we pay down $2,000 per month) – we also have a tenant who pays $1,000 per month, which helps pay it down. Will we have enough once I retire?
We asked Steve Bridge, CFP® and Advice-Only Financial Planner with Money Coaches Canada to answer this one.
A: This is a simple question that requires a not-so-simple answer. I will do my best to give you a concise answer here.
Will you have enough to retire? Yes. Will you have enough to retire and have the life you want? As with every question in personal finance, the answer starts with, ‘It depends.’
The first question any of us need to answer is, “How much do we need to have the retirement we want?” This means determining your annual target retirement spending, which can be done by analyzing what you are spending now and then deciding what will be the same and what will be different once you stop working. Maybe you will travel more, spend less on clothes, go down to one car, etc. Be sure to account for expenses that don’t come around each year, like home repairs/renovations, appliances/furniture, maintaining and replacing a car, big trips, etc.
Cash flow is useful for many aspects of our financial lives but doesn’t get the airtime it deserves; understanding our target retirement spending is one such use.
I’m guessing the $89,000 of net income came from your husband’s pension, each of your CPP and OAS and drawing from your RRSP/RRIF and TFSA accounts. Setting up an appropriate asset allocation for your investments and determining the optimal drawdown strategy (how much to take from which account and when) will be important. This needs to be looked at through a short- and long-term lens and reviewed annually.
Income splitting will also come into play. Your husband can split up to 50 per cent of his defined benefit pension plan with you on your taxes, and you can both split Registered Retirement Income Fund (RRIF) income once the account holder is 65 years old. Depending on the situation, converting one or both of your RRSP accounts to RRIFs may be beneficial before you turn 71 to help minimize taxes.
Deciding when to start your Canada Pension Plan (CPP) and Old Age Security (OAS) is important. Often, deferring these until age 70 is the best financial choice.
Other factors to consider are whether you plan on downsizing your home, the importance of leaving an inheritance, and your current health conditions.
Depending on where you live and your retirement plans, $89,000 after tax can be more than enough in annual retirement income. You may want to consult an advice-only financial planner to optimize your plan and ensure you aren’t missing anything. A proper customized financial can provide the peace of mind and confidence that you are entering your next phase fully prepared.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement newsletter.
