Geezernomics

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What’s worth more, time or money? One can be replaced, the other cannot.

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Some people lose money, like in the 2008-9 market mess, then spend years lamenting it – time feeling sad, cheated and bitter that they’ll never get back.

You can easily be young, poor and happy. Being old and poor sucks. The young who think it’s a waste of time worrying about retirement money have no idea what awaits. A third of your life can happen after gainful employment – and income – stops. Never before have humans lived so long. Or been so unprepared.

Some days ago on this pathetic blog we briefly discussed retired folks who shop all day. Not that they’re buying stuff. They visit six grocery stores trying to find the cheapest price. For them, a dollar’s more important than an hour – which is a weird way for an old person to think. I said that’s sad, which it is. Failure to prepare for the twenty or thirty years you’re not working is a massive mistake, and if you think the government’s going to save your sorry grasshopper ass, think again.

The average CPP payment is $529 a monthly, or $6,348 a year. The average OAS, paid to everybody over 65 (soon, over 67, and a few years after that to nobody) is $514.74 monthly. Combine them and you get $12,500 annually. Nobody can live a happy life on that. Meanwhile 72% of Canadians have no work pension, and more than half have no savings at all. But seven in ten own houses, upon which we have $1.2 trillion in debt.

If you’re thinking, holy crap, a lot of people must be planning on selling their homes to get money to live on, you get it. Recent studies show about three million Boomers – a third of that miserable wrinkly demo – plan on doing exactly that. Govern yourself accordingly.

But let’s dig into the CPP thing for a minute. Here’s Robert, with a question I hear often:

Garth, as I approach that age (60) I am certainly considering taking CPP early  while it is still “intact”. My family health history is good and most of my mom’s side is well into their nineties. On my dad’s side not quite as good but certainly the see eighties.

I have not crunched all the numbers to the nth degree but understand I  have probably contributed to the maximum that age 76 is kind of a break even point. I figure I am good for late eighties all things being considered(I am 59)

So what is your opinion kind sir?

In case you didn’t know (and just to irritate anyone under 30), Boomers can now claim a public pension at age 60 even if still gainfully employed. That’s right – gone is the provision that you have to stop working to suckle the public retirement teat. It means many people will be pocketing this for thirty years or more, a decade of which they could also be collecting a salary.

But there’s a price for signing up early.

The full CPP benefit you’re entitled to (based on your working career and contributions made) is reduced by about a third for starting to collect at age 60. What’s more, by waiting until age 70, you can actually get a third extra in your monthly cheque. And this is probably just the start. While the CPP is sustainable for the next 75 years, according to the gnomes who run it, you can certainly expect more of this kind of tinkering.

Anyway, what about Robert’s question: should he have his hand out next year or not?

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Yes. Here’s why:

  • Any time the government gives you money, take it. Handing over pensions five years before most people think of retiring is idiocy. This could be changed on a whim. Go for it.
  • But what about the 30% more if you wait five years? If you absolutely know you’ll live to 95, wait. And don’t play in the traffic. But for most of us it makes way more sense to collect the largesse as soon as possible, and invest it. Sixty monthly payments of $500, for example, equal $30,000. That amount invested for a 7% return becomes $60,000 in ten years, tax-free if inside your TFSA. That sure beats waiting to get an extra $150 a month.
  • Delaying until 65 or 70 to get more CPP income might also edge you into a higher tax bracket if you’re also drawing from RRSPs. That would pretty much wipe out any benefit.
  • Finally, you’ve contributed to this sucker your entire working life, so why not start sucking cash out the moment you have a chance? That way you’ll drain far more from the plan than you ever contributed, which is excellent revenge for being, like, old.

After all, nobody is handing out days.

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avatarGarth Turner - The Greater Fool posted Wednesday, November 14th, 2012.

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