How retirement helped an Ontario woman go from being time-poor to more spontaneous – and Fred Vettese on a CPP quirk for 2022

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Carolyn Young, 62, of Grand Bend, Ont. retired in April, 2021, after a career at University of Western Ontario in London, Ont., mostly in the continuing studies department.

“It was very rewarding and fulfilling, but then COVID-19 hit and all the programs had to move online. It was a lot of hard work making the adjustment,” says Ms. Young in the latest Tales from the Golden Age feature in the Globe. “I had planned to work until age 65, but like many people in higher education, I started to run out of steam.”

She took some part-time contract work for about another year, and may take on more contracts in future, but is content with retirement so far. “I’m keeping busy doing volunteer work, taking trips and spending more time with my kids and grandkids,” she says.

Read the full story here, including how Ms. Young and her husband are coping with inflation and why she finds retirement so freeing.

Deferring CPP until age 70 is still best for most people. But here’s another quirk for 2022, when inflation is higher than wage growth

If you are over 65 and were planning on starting your CPP pension in early 2023, you will probably be better off starting it instead in December, 2022, writes Frederick Vettese, former chief actuary of Morneau Shepell and author of Retirement Income for Life.

“This is because of yet another quirk in the Canada Pension Plan that only reveals itself in years like 2022, when price inflation is higher than wage inflation,” he writes.

To illustrate the problem and the opportunity, Mr. Vettese discusses the situation of Janice, who plans to start her CPP pension in April, 2023, the month after her 68th birthday. Because of her contribution record, she is entitled to 90 per cent of the maximum CPP pension, which he notes works out to $17,415 a year if she starts her pension in April, 2023 – assuming the 2023 CPP earnings ceiling will be $66,500.

If this amount looks high, it is because it includes an actuarial adjustment, which is a boost in pension that the CPP gives to encourage people to postpone the start date of their pension. So in the case of Janice, who would be starting her CPP pension 36 months after turning 65, the actuarial adjustment would be 25.2 per cent.

But what if Janice decided to start her CPP in December, 2022, instead? In that case, the actuarial adjustment would be only 22.4 per cent because it is just 32 months after she turned 65. As a result, her starting CPP pension would be $16,441 versus the $17,415 calculated above. This is where the quirk comes into play.

Read the full story here

Can Ezra, 52, retire early without jeopardizing the lifestyle he and Daphne want in retirement?

Ezra was diagnosed with prostate cancer and underwent surgery recently. He is 52. As of now he’s in good health, Daphne, his wife, writes in an e-mail, but they can’t help but worry that the cancer will return.

Rather than working until the traditional retirement age, they should be enjoying life more, Daphne writes. She is 51 and does occasional contract work. Ezra earns $120,000 a year in his management job. They have two teenage children who they expect will be financially dependent on them for some time yet. So the big question is, can the family afford for Ezra to hang up his hat? His target retirement age is 55.

“I think we will be fine financially, but maybe that’s just wishful thinking,” Daphne writes. “I don’t want hubby to keep working if he doesn’t need to,” she adds. But shifting from saving to spending their savings might be difficult. “He’s a worrier and says that the thought of spending down our savings is a bit anxiety-inducing.”

They also ask about tax-efficient withdrawals from their substantial savings and investments and when they should start taking government benefits. Their retirement spending goal is $75,000 a year after tax.

In the latest Financial Facelift column, Gordon Stockman and Gregor Daly of Efficient Wealth Management Inc. of Mississauga, to look at Ezra and Daphne’s situation.

In case you missed it:

Beyond inflation and high rates: Three financial threats facing young adults, homeowners and retirees

The No. 1 risk in personal finance for the next year is that high inflation and rising interest rates give way to a recession, writes Globe personal finance columnist Rob Carrick.

Things really get interesting after that. The accelerated pace of change lately suggests we will not have a period of financial calm where there’s opportunity to reflect and regroup. Other threats to your financial well-being are out there and likely to become more concerning.

In this article, he looks at three of them.

Thanks to a rare event, deferring CPP until age 70 may no longer always be the best option

The Canada Pension Plan contains endless subtleties that can trip up even the experts from time to time, writes Frederick Vettese, former chief actuary of Morneau Shepell and author of Retirement Income for Life.

His usual advice, to defer CPP until age 70 to get the most out of the plan, doesn’t work in 2022, at least not for seniors who are closing in on 70. The problem? High inflation coupled with mediocre wage gains.

Read his full article here

Ask Sixty Five

Question:

We are a 65 and 66-year-old couple from Alberta. We are taking our Canada Pension Plan (CPP) and my wife will join me in retirement in a few months. I am receiving Old Age Security (OAS) and she will apply upon retirement. She has a $1,100 monthly pension from work and I don’t. We are trying to hold off on touching our registered retirement savings plan (RRSP) investments until the markets recover a bit. Is there a way to move these funds into high-interest registered investment certificates to avoid the 1.7-per-cent investment fees that are still eating away at our principal? Our funds are sitting at $1-million and invested 60 per cent in equities and 40 per cent in fixed income.

We asked Jason Heath, a certified financial planner and managing director of Objective Financial Partners in Markham, Ont., to answer this one:

It has not been a very good year for investors. The Toronto Stock Exchange is down 12 per cent and the S&P 500 is down 24 per cent year-to-date, as of Oct. 7. Technology has weighed heavily on U.S. markets, while energy has been the bright spot in Canada. However, bonds have not protected stock investors from losses. Bonds fall when interest rates rise, which they have done in earnest this year. The FTSE Canada Universe Bond Index is down 12 per cent in 2022 as a result. This has been one of the worst years on record for balanced investors (60 per cent stocks and 40 per cent bonds) like you.

You mention wanting to move your RRSPs into high interest GICs to avoid your investment fees but also not wanting to withdraw from the accounts until markets recover. You can currently buy GICs that pay 4.5 per cent to 5 per cent and avoid your investment fees but that also limits your potential to recover your losses when – not if – markets turn around. It also bears mentioning that 1.7 per cent is a relatively high fee for a $1-million portfolio. There may be lower cost options available in the range of 0.75 per cent to 1.25 per cent.

I think it’s a good idea to wait until your wife retires to start her OAS pension. If her income for this year is more than about $82,000, she will be subject to an extra 15-per-cent tax on her OAS in addition to her marginal tax rate, often referred to as an OAS clawback. If her health is relatively good, you might even consider deferring her OAS to as late as age 70. It will increase at 7.2 per cent per year of deferral, with an inflation adjustment. The inflation adjustment will be larger this year and likely next year than it has been in about 40 years.

Retiring in a down market can be scary but I think the important thing to remember is if you are only withdrawing 3, 4, or 5 per cent from your investments in the year ahead, 1 per cent to 3 per cent will probably come from dividends and interest. That means only a small portion will come from the principal, and more than 95 per cent of your money will still be invested to bounce back in the year or years ahead.

And though we may be heading toward a recession, we will not know until after it has already started. A recession is two consecutive quarters of economic decline, so it is a lagging indicator. Stock markets are forward-looking – a reflection of expectations for six months from now. As such, by the time a recession is announced, stocks could already be rising.

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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.