Savings and pensions

[Argus]

So my brother attended this course the other day, a pre-retirment course the government offers its employees of all ages. One of the points the teacher tried to make continually was that in order to save properly for the future, people really did need to get involved with the stock market.

In Canada, from what I've read and what I've encountered, there is a vast, vast ignorance about the stock market, and a lot of fear. This stands in the way of people saving for retirement, and opens the way for so many 'advisors' to make rich profits steering people into expensive mutual funds and the like. It also has Canadians pouring their savings into GICs and bonds, which for the last couple of years, earn very little, not even keeping up with inflation.

Here's the thing. If your investment isn't keeping up with inflation, it's not going to let you retire very easily.

A lot of the conservatives here, particularly those who have adopted American type conservatism, are advocates for people managing their own pensions. In my opinion, that would be a recipe for disaster for most people. And ultimately, it would harm the country, for either we let a lot of penniless seniors die on the streets, or we uses taxes to support them. Since we're unlikely to do the former, that leaves these hapless people being supported by the government.

There is also an undeniable feature of the human character which worries far more for today than tomorrow. People in their twenties aren't thinking about saving for retirement, which seems almost unimaginably far off. People in their thirties and into their forties are harrassed and raising kids. And it's oh-so-easy to say "I don't have the money" when every dime you get is spent.

They do have the money to save, if only a little, but don't. That money goes on coffees at work, on movie rentals, on a new Iphone, on a vacation down south, on nice Christmas presents for the kids, and piano lessons and video games. But they often don't see it that way. To them, savings have to be large. They can't spare a thousand dollars or two, so don't try.

This is why I'm all in favour of the government greatly increasing CPP contribution rates as well as payouts. It forces people to do not only what is in their own interest, but in the country's interest, by putting money away for when they can't support themselves any longer. Doing it en masse leaves the investment industry out of things, depriving them of the immense profits they would otherwise receive, and that money will go to the investor instead. CPP is an excellent system, very well-managed, and cheap by any standard. You couldn't find anyone to manage your savings as well at anything like their tiny fee.

I think the cap on CPP contribution rates should be removed. People should be permited to put as much money into their CPP fund as they can (bearing in mind a minimum set by the government). Force people to make bigger contributions, and allow those who can afford it, and who want to, to make even larger contributions. The larger contributions would, naturally, result in larger individual payouts in the end, and so CPP would take the place of so many mutual fund organizations and financial advisors, and handle the retirement savings of almost all Canadians. It would also pretty much eliminate RRSPs, since it would, in effect, replace them.

[cybercoma]

As long as the federal government is prohibited from touching CPP funds for any other purpose, regardless of how dire the situation is, and people are guaranteed their investment returned to them upon retirement, I can agree with you. The problem I foresee is that opening up CPP and allowing it to grow will tempt future governments into "borrowing" from it with promises to repay that they can never keep. Those promises are usually kicked down the line to successive governments, who will argue that they should not be bound by agreements they did not make. It gets messy quickly (well, actually not quickly at all over many years).

[Bonam]

No. Or at least not unless there's an option to opt out. Maybe some people want the government holding their money for them and trusting into their promises. Myself, I'd rather have access to that money myself and decide how best to save or use it.

The reality is for young people these pension schemes are a total scam. 50 years down the road the laws may have changed, you may be dead, you may be living in a different country, the government may be bankrupt, the government may have been taken over by another which has no interest in keeping old promises, you may be rich and not need extra retirement funds and would have much rather been able to spend that money in your youth, the nature of the economy may be totally different and money as we know it may not exist, we might all be slaves to our alien overlords, etc. The chance that I'll be drawing a CPP or Social Security check 40 years down the road, is, in my estimation, about the same that I'll be killed by a meteorite. So why should I have to pay into these systems, other than to fund current retirees for which the government did not properly set up pension funds when they made the promises decades ago?

[Just Me]

Argus,

While having government managed pensions (CPP) is certainly a good thing as a fall back to provide a minimum level of income, or for those that don't want to manage their own pension, there is a number of reasons that I'm against forcing everyone to make it their main sorurce of funding for retirement:

1) It's managed very conservatively. This is a good thing given it's purpose, but given it's conservative nature, the contributions would have to be rediculously high to allow it be the only source of retirement income. Given that I have no pension plan from the private companies I've worked for, I need to be able to put my money somewhere with higher growth to support me in retirement.

2) The stocket market is not really very risky of difficult to take advantage of as long as you think long term. A balanced porfolio of mutual funds won't provide the best return, but is almost guranteed to beat inflation over the longer run. While mutual fund advisors will not recommend the best funds, most of them will build a reasonable portfolio.

3) There are other ways of taking advanage of the stock market, such as ETFs and index or passive investing that again are almost garunteed to do better than inflation in the long term, very low risk

In other words, keep the CPP, let people increase how much they put in if that is their preference, but don't force all of us into a crappy retirement funded onlly by CPP.

Edited January 17, 2014 by Just Me

[Topaz]

Right now, there are boomers, that have company pensions and also getting CPP and depending on the company pension, some of those boomers may not be as well off as they thought they would be. An example is, when a union make deals with companies to take back CPP and OAS for FUTURE workers, those workers may find themselves in hard times financially, especially, if those workers lost their jobs in the down turn of 2008 and I think more companies will try to deduct the CPP and OAS, so the company won't have to pay out more pensions. Forty years from now, how many people are going to have a pensions outside of CPP? IF wages are generally, 500.00 weekly, there's no way with the cost of living going up, workers can save for retirement, they be lucky to pay for their bills . In retirement, the more money one makes, the more the government will take in income taxes.

[Argus]

Argus,

While having government managed pensions (CPP) is certainly a good thing as a fall back to provide a minimum level of income, or for those that don't want to manage their own pension, there is a number of reasons that I'm against forcing everyone to make it their main sorurce of funding for retirement:

Just Me, CPP WILL be the main source of funding for the retirment of millions of Canadians. There is simply no question about that. Only about a quarter to one third of Canadians make a contribution to an RRSP or TFSA in a given year, and the average size of savings tends to be in the thousands or tens of thousands. Canadians were eligible to contribute about $800 billion into RRSPs last year. They actually contributed closer to $40 billion.

1) It's managed very conservatively. This is a good thing given it's purpose, but given it's conservative nature, the contributions would have to be rediculously high to allow it be the only source of retirement income. Given that I have no pension plan from the private companies I've worked for, I need to be able to put my money somewhere with higher growth to support me in retirement.

Well, as I've said, though I want bigger payouts and bigger contributions, and ALLOW higher contributions, I don't say that last part would be mandatory. For those with the ability, there's nothing wrong with going it alone on the markets. It's just that most don't have the confidence and knowledge to do so, to say nothing about the ability to actually put aside enough money to make playing about in the stock market meaningfully better than a CPP savings plan.

2) The stocket market is not really very risky of difficult to take advantage of as long as you think long term. A balanced porfolio of mutual funds won't provide the best return, but is almost guranteed to beat inflation over the longer run. While mutual fund advisors will not recommend the best funds, most of them will build a reasonable portfolio.

But will it beat what you will get from CPP over the long run once you include the management fees? Doubtful. A huge chunk of the profits in mutual funds (presuming there are any) go to mutual fund company, not the investor. Of course, you could choose to go all out on equities, and even all out on riskier equities, and might do well, short term, but every investment pro I've written say that long term returns are better with solid investments.

3) There are other ways of taking advanage of the stock market, such as ETFs and index or passive investing that again are almost garunteed to do better than inflation in the long term, very low risk

But again, the majority of Canadians won't go near such things. They're afraid of the stock market, and don't even know what an ETF is! They'll invest in GICs and Canada Savings Bonds. I know. I've talked to many people, educated people, and they're very wary of the stock market at all. As for poorer people, less educated people, forget it. They don't have money for such things.

[overthere]

This is why I'm all in favour of the government greatly increasing CPP contribution rates as well as payouts. It forces people to do not only what is in their own interest, but in the country's interest, by putting money away for when they can't support themselves any longer. Doing it en masse leaves the investment industry out of things, depriving them of the immense profits they would otherwise receive, and that money will go to the investor instead. CPP is an excellent system, very well-managed, and cheap by any standard. You couldn't find anyone to manage your savings as well at anything like their tiny fee.

Why not allow both: increased CPP contributions mandatory, contribution to tax schemes like self managed RRSPS? Not all people pay big fees for their investments, and you can trade in equities and do many things from within a self managed RRSP. Why would you not allow that?

[jacee]

No. Or at least not unless there's an option to opt out. Maybe some people want the government holding their money for them and trusting into their promises. Myself, I'd rather have access to that money myself and decide how best to save or use it.

The reality is for young people these pension schemes are a total scam. 50 years down the road the laws may have changed, you may be dead, you may be living in a different country, the government may be bankrupt, the government may have been taken over by another which has no interest in keeping old promises, you may be rich and not need extra retirement funds and would have much rather been able to spend that money in your youth, the nature of the economy may be totally different and money as we know it may not exist, we might all be slaves to our alien overlords, etc. The chance that I'll be drawing a CPP or Social Security check 40 years down the road, is, in my estimation, about the same that I'll be killed by a meteorite. So why should I have to pay into these systems, other than to fund current retirees for which the government did not properly set up pension funds when they made the promises decades ago?

Ah! The arrogance of youth! "I'll never get old ... may die young .. or I'll be rich and won't need it and why should I pay for losers!"

Or ... you might lose everything in a market crash at 60 years of age when no one wants to hire you.

Do you insure your house, contents, car, boat, etc against unforseen losses?

Or do you just think 'It'll never happen to me'?

Canadians have chosen to 'insure' themselves collectively and efficiently for old age 'basic necessities of life' ... so when YOU lose everything at 60, through no fault of your own or even if it is your fault, we don't have to look at your sorry scrawny old face panhandling on the street in the snow.

Love it or leave it!

.

Edited January 19, 2014 by jacee

[GostHacked]

Many do not know where the CPP money is being invested in. Does it get invested in the stock market? Do we have control over where it gets invested? The government can't keep their own finances in check or keep the debt down, so how confident are you that money will be there for your retirement?

I am not confident that many will be able to retire in the next 20 years.

[Argus]

Why not allow both: increased CPP contributions mandatory, contribution to tax schemes like self managed RRSPS? Not all people pay big fees for their investments, and you can trade in equities and do many things from within a self managed RRSP. Why would you not allow that?

Who says I wouldn't allow it? I do it myself. And talking to my friends is one of the ways I've come to understand how wary and ignorant so many Canadians are about the stock market. Of all the people I've spoken to, at work or among friends, only one guy is in the market. And these are all people with family incomes over $100k. But even those who are saving (many aren't) are putting it into secure things like GICs, or letting other people mismanage their savings for them (at high costs).

In fact, I'm willing to concede that if someone WANTS to manage their own funds, and IS actually putting those funds aside, they could be exempt from higher CPP contributions. But they would have to actually be putting that money into an RRSP. And every year CPP should send out a sheet to all people who contribute informing them of how the fund has done with its investments in the previous year. Those who are managing their own retirement funds would then have something to compare. Presumably, if they found they were constanty underperforming they'd switch over.

[Argus]

Many do not know where the CPP money is being invested in. Does it get invested in the stock market? Do we have control over where it gets invested? The government can't keep their own finances in check or keep the debt down, so how confident are you that money will be there for your retirement?

I am not confident that many will be able to retire in the next 20 years.

The CPP funds are, from all reports, very well-managed. Their reports are available on-line. Yes, they're invested in the stock market, in bonds, in real estate and other things. You won't have much difficulty finding out.

http://www.cppib.com/en/our-performance/financial-results.html

[Bonam]

Canadians have chosen to 'insure' themselves collectively and efficiently for old age 'basic necessities of life' ... so when YOU lose everything at 60, through no fault of your own or even if it is your fault, we don't have to look at your sorry scrawny old face panhandling on the street in the snow.

I understand the necessity for a safety net that provides the basic necessities of life for the elderly. And I fully support the existence of such a safety net. I think that is ALL that CPP/OAS should be: providing the basic necessities of life. Beyond that, people should be saving for their own retirements.

If CPP really was an "investment", where people could see how much money they put in, how it's done over the years, etc, that'd be one thing. But it's not. Rather, it is a system that imposes a fee on current workers to pay obligations to current retirees. The moment you pay money into CPP, it's not your money any more, it's money that the government (through an "independent board") can and does use however it wants, and it can change laws about how CPP money is invested and paid out at any time. Our government may or may not have done a decent job with CPP to date, but we have only to look around to see countless examples of similar government pension plans in deep trouble due to underfunding, overpromising, mismanagement, corruption, or blatant raiding to fill gaps in the budget. Canada is not immune to such things.

Edited January 20, 2014 by Bonam

[jacee]

I understand the necessity for a safety net that provides the basic necessities of life for the elderly. And I fully support the existence of such a safety net. I think that is ALL that CPP/OAS should be: providing the basic necessities of life. Beyond that, people should be saving for their own retirements.

That is all CPP and OAS provide for - basic necessities ... a cheap slum room and Kraft dinner, my friend. Maybe $1,000 a month altogether.

You didn't know that? I hope you weren't planning to retire to the high life on just CPP/OAS.

If CPP really was an "investment", where people could see how much money they put in, how it's done over the years, etc, that'd be one thing. But it's not.

Look it up. Start with Argus' link above.

Rather, it is a system that imposes a fee on current workers to pay obligations to current retirees. The moment you pay money into CPP, it's not your money any more,

You get it back ... sometimes more than you paid in if you live long after 60.

it's money that the government (through an "independent board") can and does use however it wants, and it can change laws about how CPP money is invested and paid out at any time. Our government may or may not have done a decent job with CPP to date,

Look it up and learn.

but we have only to look around to see countless examples of similar government pension plans in deep trouble due to underfunding, overpromising, mismanagement, corruption, or blatant raiding to fill gaps in the budget. Canada is not immune to such things.

Examples?

Links?

Your opinions would be more credible if you checked the basic facts first.

Edited January 20, 2014 by jacee

[jacee]

In fact, I'm willing to concede that if someone WANTS to manage their own funds, and IS actually putting those funds aside, they could be exempt from higher CPP contributions. But they would have to actually be putting that money into an RRSP. And every year CPP should send out a sheet to all people who contribute informing them of how the fund has done with its investments in the previous year. Those who are managing their own retirement funds would then have something to compare. Presumably, if they found they were constanty underperforming they'd switch over.

CPP is good to have, and contributions and benefit do need to increase with cost of living. However, I would assume that people who are working would have some kind of retirement savings plan through their employer or also do RRSP's or something else.

CPP/OAS alone don't provide a pleasant retirement.

[Bonam]

That is all CPP and OAS provide for - basic necessities ... a cheap slum room and Kraft dinner, my friend. Maybe $1,000 a month altogether.

You didn't know that? I hope you weren't planning to retire to the high life on just CPP/OAS.

Correct. And that's why CPP/OAS are fine roughly as they are (in terms of benefit levels), with increases to benefits over time to match inflation. Expanding the scope of the program, as Argus suggests, is not necessary.

Examples?

Links?

Your opinions would be more credible if you checked the basic facts first.

You need links for examples of government pension schemes in trouble? Where have you been the last few years, Pluto?

However, I would assume that people who are working would have some kind of retirement savings plan through their employer or also do RRSP's or something else.

CPP/OAS alone don't provide a pleasant retirement.

Sounds like we are in agreement regarding the nature and scope of CPP/OAS.

Edited January 20, 2014 by Bonam

[cybercoma]

If there's a pervasive situation where people aren't or can't save enough for retirement, then Argus's idea is a good one. One way or the other the government is going to pay. It's better that they force savings through CPP than pay through social programs that redistribute wealth, no? Unless you don't care about little old ladies without heat, eating cat food. Then the govt doesn't have to do anything.

[jacee]

Correct. And that's why CPP/OAS are fine roughly as they are (in terms of benefit levels), with increases to benefits over time to match inflation. Expanding the scope of the program, as Argus suggests, is not necessary.

Let's look at what Argus is saying:

Argus said:

I think the cap on CPP contribution rates should be removed. People should be permited to put as much money into their CPP fund as they can (bearing in mind a minimum set by the government). Force people to make bigger contributions, and allow those who can afford it, and who want to, to make even larger contributions.

Given that employer pension plans are disappearing fast, and CPP/OAS currently only provides severe poverty living for seniors who have worked most or all of their lives, I agree that a significant increase in contributions is warranted to provide more adequate benefits down the road. How big that increase is, is a matter for discussion.

Also because of disappearing employer pensions, and the efficiency of CPP, I agree that it would make sense for people to be able to contribute more voluntarily.

Your payout reflects your payin, so you get it back at a time you will need it.

You need links for examples of government pension schemes in trouble? Where have you been the last few years, Pluto?

Yes I'd like you to provide examples to support your claim. Then we can see if CPP is protected against whatevef went wrong there.

Sounds like we are in agreement regarding the nature and scope of CPP/OAS.

OAS is different than CPP.

Upon reflection, I think Argus' suggestions re CPP have a lot of merit.

I paid into CPP, an employer plan and RRSP's to afford a pleasant retirement. It's much more complicated now, but nonetheless working is about supporting yourself, for the 30 years or so that you are working AND for the 30 years or so after you retire.

When you're young, it may seem more important to be able to "spend" the money now, but that's irresponsible as you'll end up a burden on society. You may think you can invest your money better, so do that with other money afteryou've paid your CPP.

CPP will never buy you the high life in retirement, but it may protect the rest of us from having to take care of you later.

You get it back.

Edited January 20, 2014 by jacee

[Argus]

Well, as was suggested earlier in this thread, huge numbers of Canadians are not saving enough and are hoping CPP will look after them when they're old. According to this survey, though, the numbers are much higher. It seems 90% of Canadians are counting on CPP, some of them heavily. This reinforces my understanding of how little savings a lot of Canadians have, and the need to strengthen and enhance the CPP in order to avoid a disaster in the future where the government is basically forced to look after a massive segment of the population which has very little money after retirement. As we move along things are only going to get worse, with fewer companies offering pensions, and those pensions being more miserly, and people not being able to rely on their numberous children to take care of them. When you've got six kids you probably won't wind up on welfare. When you have 1 or none, odds are considerably higher that you will.

http://business.financialpost.com/2014/01/30/almost-90-canadians-say-they-are-counting-on-cpp-for-retirement-while-a-third-hope-to-win-the-lottery-poll-finds/

[cybercoma]

The problem is that we look at unemployment numbers as if everyone else is better off. However, there's still a bigger chunk of people that are underemployed or working full=time at such measly salaries that there's nothing left to save afterwards. We're talking a sizeable chunk of the workforce here. That's why retirement packages were part of working somewhere. As they scrap them without increasing people's wages to compensate the situation will only get worse.

[overthere]

So my brother attended this course the other day, a pre-retirment course the government offers its employees of all ages. One of the points the teacher tried to make continually was that in order to save properly for the future, people really did need to get involved with the stock market.

Wow, that is generally wretched advice. Equating 'savings' with 'involved with the stock market' might be right for fund managers and investment pros but for a room full of civil servants?

Civil servants put a whack of their incomes into mandatory pensions-their own and CPP- and usually don't have much left in contribution ceilings for RRSP contributions. They also are unlikely - like the vast majority of people- have any clue about how to make money on equities. It's almost a given that management fees will make whatever little they can squeeze into mutuals will make very little, if anything.

So I guess this 'teacher' will be telling them to invest aftertax savings into an area where they know squat. Did he or she work for a brokerage by any chance?