An opportunity to relieve a bit of your financial stress has presented itself.
A recent report from the National Institute on Ageing says the top worries of people aged 50 and up are inflation, running out of money and a reduction in payments from the Canada Pension Plan or other government benefits.
Please stop worrying about the CPP. It’s solid. If you don’t believe me, check out the roster of financial planners and advisers who backed the CPP in a LinkedIn discussion I started a little while ago. Or, try the fact-based, emotion-free thread that portfolio manager Benjamin Felix produced on the CPP recently on the social media platform X.
The institute report is called Perspectives on Growing Older in Canada and its findings are based on a survey of 5,875 people aged 50-plus. These participants were presented with a list of nine financial issues and asked to pick the ones of concern to them. Inflation came up in 70 per cent of the responses, which sounds about right because rising living costs are a stunner for a lot of people.
Running out of money came up in 46 per cent of responses, which is likewise easy to understand. If you’re financially stretched today, it’s normal to worry about having enough money over the long term.
Cuts to the CPP and other government benefits were mentioned in 37 per cent of responses. Cuts to some government programs will be needed to eliminate the federal deficit, and Old Age Security costs will have to be looked at in the years ahead. But concerns about the CPP are mislaid. The CPP is given what amounts to a full financial body scan every three years, the most recent of these being completed in December, 2021. The actuaries who completed this exam said the CPP is financially sustainable for the next 75 years.
The CPP is an imperfect entity in some ways. If you took your premiums and invested them yourself, it’s possible you could generate a better return on your money. When a CPP recipient dies after retiring, a lifetime’s contributions produce a $2,500 death benefit and a possible survivor’s pension for a spouse or common-law partner that is almost universally considered disappointing.
Also, the CPP is a handful to understand and operate to your best advantage. The information published online by the federal government does not achieve the needed level of clarity and connection to people who are looking ahead to retirement and wondering when to start CPP.
But on the all-important matter of providing reliable, inflation-adjusted income for life, the CPP is there for you. You don’t have to lift a finger to save for retirement with the CPP because some very smart people decided long ago to have premiums paid by employees through automatic deductions off their paycheques. The matching employer contributions are more of the same. Imagine trying to get employers to kick in today. Forget about it.
CPP benefits are guaranteed for life, unlike income paid through your own investing via tax-free savings accounts and registered retirement plans or real estate. One of the less talked-about retirement risks is that the stock market crashes just ahead of your retirement. Your pool of savings could be sharply reduced at a time when you have to start drawing down on it.
In the NIA study, just 12 per cent of people said they were worried about a major real estate or stock crisis. Are people really such savvy, confident investors, or has it been a while since they’re tasted the fear of a full-on stock market crash? Every time stocks fall sharply, I get e-mails from seniors worried about their retirement savings. I also get admissions from readers about selling at market lows – usually years after they did so.
The volatility of stocks, real estate and other assets makes the stability of the CPP all the more valuable and comforting, even with its flaws. Why are people are so worried about it, then?
One reason lately could be the Alberta government exploring the idea of pulling out of the CPP to start a provincial pension plan. However, not a single planner in the LinkedIn discussion expressed any concern that this would affect people receiving benefits.
Feelings about the CPP may also be affected by feelings of skepticism about government, although these are misplaced. The CPP is run separately from the federal government and cannot be raided by politicians.
In finance, it’s healthy to be a doubter who questions people who tell you not to worry about things. But it’s just as important to accept what is proven so you can direct your attention to more important things.
The CPP is proven. Your stocks and real estate are as well, but not with the same zero-drama reliability.
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