Part of being a smart skeptic is being able to recognize that some things are actually what they seem.
The Canada Pension Plan is an example. Once you retire, the CPP pays a monthly benefit for as long as you live and adjusts that amount each year for inflation. The CPP has been certified as healthy for the next 75 years by actuaries, who can best be described as the engineers of the financial world. When they stress test something, you can be confident it was sliced, diced and julienned.
The CPP has its doubters, though. For a full summary of their thoughts, check out a recent thread on the social media platform X that was initiated by portfolio manager Ben Felix. Mr. Felix is the chief investment officer at PWL Capital and has an interest in helping to educate people about money and markets.
In a calm and informational way, Mr. Felix addresses the many concerns people have about CPP. He explains that it’s financially healthy, which means it can be relied on when you plan for a retirement many years down the road. He points out that CPP assets are separate from federal government revenues and thus off limits to finance ministers scavenging for money. He also notes the CPP’s annual inflation adjustments, which help you maintain purchasing power in retirement.
Mr. Felix also acknowledges the limitations of the CPP, notably that benefits will not on their own be enough to support people in retirement. CPP recipients will likely have Old Age Security benefits as well, but additional savings and/or a company pension may also be needed.
A skeptical mind is a huge asset in managing your finances. Be a doubter in situations like these:
- You’re told you’re getting the best possible rate while borrowing or buying a guaranteed investment certificate;
- You can’t find a full accounting of the cost of a financial product;
- Someone at your bank branch tries to sell you a financial product;
- An adviser won’t address your investment returns head on, with benchmarks as a point of comparison;
- You see a pitch for an investment product that offers stock market returns with little or no risk.
It’s fine to be a CPP skeptic as well, but don’t close your mind. As Mr. Felix points out, the CPP is actually what it seems. It works.
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Rob’s personal finance reading list
The $1 airline ticket
The ultra low-cost carrier Flair Airlines has a deal going – base fares of $1 for people flying back to Canada from southern sun spots. Yes, there are add-on fees for things like checked bags, picking seats and more.
18 flavours of senior’s discount
A survey of restaurants offering discounts for people aged 65 and up for the most part, but also 55 and up in some cases.
Three overrated credit cards
While there’s an unlimited supply of “best” credit card roundups, few websites dare to offer lists like this one. It targets the three most over hyped credit cards.
The world’s oldest man
Meet John Alfred Tinniswood, age 112. He’s still managing his own finances, which is amazing. You may recall a newsletter from back in July in which I looked at options for people who like managing their own money but worry about what aging will do to their decision-making. That newsletter seems to have resonated with readers. I’m still getting e-mails about it.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Ask Rob
Q: Have you considered doing an article about specific ongoing costs faced by home purchasers?
A: Here’s some guidance on home maintenance costs gathered from a survey conducted in a Carrick on Money newsletter survey a few months ago. Roofs, furnaces, toilets and more.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
Best rates on savings accounts for U.S.-dollar cash.
In the social sphere
Social Media: A quick comparison of financial planning terms and types of accounts in Canada and the United States.
Listen: The Globe and Mail’s Decibel podcast on how inflation is messing with benefits and pensions.
Money-Free Zone: The song Empty Trainload of Sky opens a new album from country artists Gillian Welch and David Rawlings, and it’s a classic of the Welchian dark, austere style.
ICYMI
- Did your spending get a little out of hand this summer? Minimize interest charges by off-loading your credit card debt
- Yes, couples can income-split the CPP – in a way
- A new normal in parenting is to give your child a credit card
- The best no-fee credit cards for students to take their first financial step
