Question About CPP

[socialist]

I have a question about the CPP. Let's say someone who has paid into CPP all his/her working life dies at 64. What happens to all of their CPP contributions? Does the family or beneficiary get a large lump sum?

[Big Guy]

There are some death benefits. I believe that the pay out schedule is compiled on the assumption that many contributors will die before they qualify to collect and many will live for well after that day.

[msj]

A death benefit of $2,500 (which is taxable to either the beneficiary of the will or on the T3 Trust Estate - which in BC is a minimum of $501).

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ETA: Sorry, not thinking this morning - I think the person may get a part of this death benefit which is a maximum of $2,500. If the person was collecting CPP early then it would be $2,500, if the person wasn't collecting at all then it may not be the full amount.

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I'm not sure how the survivorship rules work in this situation if at all.

Too bad for Jim Flaherty, who died at 64, but since he added 2 years for me to collect my OAS pension I find it a kind of justice that he died before collecting CPP (I assume he did not take it early) and OAS.

Edited September 4, 2015 by msj

[socialist]

A death benefit of $2,500 (which is taxable to either the beneficiary of the will or on the T3 Trust Estate - which in BC is a minimum of $501).

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ETA: Sorry, not thinking this morning - I think the person may get a part of this death benefit which is a maximum of $2,500. If the person was collecting CPP early then it would be $2,500, if the person wasn't collecting at all then it may not be the full amount.

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I'm not sure how the survivorship rules work in this situation if at all.

Too bad for Jim Flaherty, who died at 64, but since he added 2 years for me to collect my OAS pension I find it a kind of justice that he died before collecting CPP (I assume he did not take it early) and OAS.

I woud be better off investing the money I'm forced to pay into CPP. What a scam.

[Civis Romanus sum]

I woud be better off investing the money I'm forced to pay into CPP. What a scam.

It is a necessary program, because many people would not save nor would they invest, and if they did invest would likely do so poorly.

[Civis Romanus sum]

I'm not sure how the survivorship rules work in this situation if at all.

http://www.servicecanada.gc.ca/eng/services/pensions/cpp/survivor-pension.shtml

[segnosaur]

I woud be better off investing the money I'm forced to pay into CPP. What a scam.

In the past, money collected for the CPP was basically used by the government (similar to Canada Savings Bonds.) Payouts were made through money that was collected.

Several years ago, the government changed the plan, and collected money was invested, much of it globally, to provide diversification and better growth. Investment decisions are done through a crown corporation. (I do have to give credit to the previous Liberal government for that.)

It is true that some people will benefit more than others; some may even see no (or almost no) benefits. But, its the same with any insurance scheme. I have no problem with such a program, as long as deductions are kept relatively small.

[socialist]

In the past, money collected for the CPP was basically used by the government (similar to Canada Savings Bonds.) Payouts were made through money that was collected.

Several years ago, the government changed the plan, and collected money was invested, much of it globally, to provide diversification and better growth. Investment decisions are done through a crown corporation. (I do have to give credit to the previous Liberal government for that.)

It is true that some people will benefit more than others; some may even see no (or almost no) benefits. But, its the same with any insurance scheme. I have no problem with such a program, as long as deductions are kept relatively small.

Putting the CPP contribution into an RRSP or TFSA would be much better.

[segnosaur]

Putting the CPP contribution into an RRSP or TFSA would be much better.

It depends on the particular RRSP...

The current rate of return for the CPP fund is 6.2%/year (over the past 10 years). The TSX may be beating that, but not everyone has their RRSPs in the stock market. Some use bond funds (safer but lower rate of return) or T-bills.

As someone else pointed out... not everyone saves for their retirement. And even those that do don't always invest wisely. So, we have an option of either: 1) Use the CPP program to enforce savings, 2) Having the non-savers supported on government assistance when they retire, or 3) letting the non-savers starve to death.

[msj]

I woud be better off investing the money I'm forced to pay into CPP. What a scam.

Yes, dying prior to collecting any CPP is the major risk with the program. As is dying while only collecting it for a short period of time.

But let me put it to you this way:

As an accountant with a corporation I used to take dividends rather than wages so I would not pay into CPP.

At the time the math worked - my company paid tax, I paid a little bit of personal income tax, and no CPP was paid. I was able to save enough in tax/CPP that I would save it and would have been satisfied not receiving much CPP when I retired.

Over the past several years the tax rates have changed (on dividends) as to make me change my mind.

I now take out wages instead of dividends. My company deducts the wages and pays less corporate tax. I pay more personal income tax and I (and my company) pay the CPP at the full self-employed rate of 9.9%.

In the end, the math basically is this: I can pay something like an extra $2,000 ish more per year in income taxes and CPP and get CPP at age 65 of approximately $10 or $11,000 per year.

That is not great, but if I live to a decent age (the risk part of this strategy) it is good enough that I do it.

I see it as forced savings/diversification that would allow me to eat dog food in my retirement if TSHTF in my own portfolio.

[socialist]

Yes, dying prior to collecting any CPP is the major risk with the program. As is dying while only collecting it for a short period of time.

But let me put it to you this way:

As an accountant with a corporation I used to take dividends rather than wages so I would not pay into CPP.

At the time the math worked - my company paid tax, I paid a little bit of personal income tax, and no CPP was paid. I was able to save enough in tax/CPP that I would save it and would have been satisfied not receiving much CPP when I retired.

Over the past several years the tax rates have changed (on dividends) as to make me change my mind.

I now take out wages instead of dividends. My company deducts the wages and pays less corporate tax. I pay more personal income tax and I (and my company) pay the CPP at the full self-employed rate of 9.9%.

In the end, the math basically is this: I can pay something like an extra $2,000 ish more per year in income taxes and CPP and get CPP at age 65 of approximately $10 or $11,000 per year.

That is not great, but if I live to a decent age (the risk part of this strategy) it is good enough that I do it.

I see it as forced savings/diversification that would allow me to eat dog food in my retirement if TSHTF in my own portfolio.

I understand, but I think it is wrong to give very little to a beneficiary. They should get a lump sum of the total the deceased person put in.

[msj]

I understand, but I think it is wrong to give very little to a beneficiary. They should get a lump sum of the total the deceased person put in.

Well, if the CPP can afford to do that then sure.

If not, then TFB.

If I have to suck it up and wait to 67 to get my OAS (because it "is not sustainable") then we all can live with the risk of not getting much out of CPP if we die too young.

Or you can arrange your affairs to use a corporation to avoid paying CPP if this principle is so important to you.

[The_Squid]

I must say that MSJ is a wealth of knowledge on these topics (pun intended)! Thanks...

[cybercoma]

I must say that MSJ is a wealth of knowledge on these topics (pun intended)! Thanks...

It's amazing what difference it makes when you have people who know what they're talking about addressing issues.

[socialist]

Well, if the CPP can afford to do that then sure.

If not, then TFB.

If I have to suck it up and wait to 67 to get my OAS (because it "is not sustainable") then we all can live with the risk of not getting much out of CPP if we die too young.

Or you can arrange your affairs to use a corporation to avoid paying CPP if this principle is so important to you.

I'm forced to pay for 40 years but family can't benefit if I die early. How can you favour that?

[Topaz]

I went searching and here's one answer on it and let's say, what a rip off. http://financialcrooks.com/pension-planning-what-if-my-partner-spouse-dies-young/

[msj]

I'm forced to pay for 40 years but family can't benefit if I die early. How can you favour that?

Well, the CPC have had years to change it haven't they?

But instead they have changed the rules to make it so that if you take CPP early and want to continue to work then you still pay into it until age 70 unless you fill out a form and mail it to Winnipeg once you are 65.

They have increased the penalty for taking CPP early while hiding behind the increase to CPP if you choose to take it later because they know more people will take it early than take it later.

And then there is OAS where they have claimed it is unsustainable so people like me must wait until I'm 67 while the pension split they gave seniors years ago saves the guy getting the $110,000 per year Air Canada pension a $10,000+ savings in income tax and OAS clawback each year.

So hey, if you want this type of change then go ahead and vote for the same party that does this rather than increase CPP premiums to implement the changes that you are proposing here because that is what you are really asking for.

[socialist]

Well, the CPC have had years to change it haven't they?

But instead they have changed the rules to make it so that if you take CPP early and want to continue to work then you still pay into it until age 70 unless you fill out a form and mail it to Winnipeg once you are 65.

They have increased the penalty for taking CPP early while hiding behind the increase to CPP if you choose to take it later because they know more people will take it early than take it later.

And then there is OAS where they have claimed it is unsustainable so people like me must wait until I'm 67 while the pension split they gave seniors years ago saves the guy getting the $110,000 per year Air Canada pension a $10,000+ savings in income tax and OAS clawback each year.

So hey, if you want this type of change then go ahead and vote for the same party that does this rather than increase CPP premiums to implement the changes that you are proposing here because that is what you are really asking for.

My topic was non-partisan, and leave it to you, a hyper-partisan to politicize a federal program. I didn't say anywhere that I'm happy about the CPP.

The difference between you and me is simple. You want the state to hold your hand through life while I want the state to leave me alone.

[socialist]

I went searching and here's one answer on it and let's say, what a rip off. http://financialcrooks.com/pension-planning-what-if-my-partner-spouse-dies-young/

Thanks for the link. YUe, the CPP as a scam that hurts more than it helps.

[cybercoma]

My topic was non-partisan, and leave it to you, a hyper-partisan to politicize a federal program.

Explaining to you the changes the government made and the effects of those changes isn't politicizing a federal program.

[msj]

My topic was non-partisan, and leave it to you, a hyper-partisan to politicize a federal program.

The difference between you and me is simple.

The difference is that I put up facts while you reply with empty rhetoric.

[August1991]

...

But let me put it to you this way:

As an accountant with a corporation I used to take dividends rather than wages so I would not pay into CPP.

At the time the math worked - my company paid tax, I paid a little bit of personal income tax, and no CPP was paid. I was able to save enough in tax/CPP that I would save it and would have been satisfied not receiving much CPP when I retired.

....

I see it as forced savings/diversification that would allow me to eat dog food in my retirement if TSHTF in my own portfolio.

IOW, the CPP is a State insurance scheme that replaces the family badly.

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If you want good care in retirement, here's my advice: marry well, have kids and raise them well. The kids will care for you.

Edited September 5, 2015 by August1991

[msj]

IOW, the CPP is a State insurance scheme that replaces the family badly.

Given the saving rate in Canada, and the way people tend to save (no risk/ low return assets) the CPP is a forced savings plan that is better than nothing.

It replaces the nothing that people are saving.

[August1991]

Given the saving rate in Canada, and the way people tend to save (no risk/ low return assets) the CPP is a forced savings plan that is better than nothing.

It replaces the nothing that people are saving.

msj, you mistake money for real assets, and contracts for genuine trust.

[msj]

msj, you mistake money for real assets, and contracts for genuine trust.

No, people mistake real estate for real assets while ignoring the fact that upon retirement one needs liquidity to pay the bills.

You would be shocked how many clients I have who are house rich but are "cash" poor.

And I'm talking retired people who thought it was a good idea to take CPP early but only have $100,000 in savings (tucked away in some GIC earning nothing).

I've seen what happens as they move into their late 60's: they sell the house if they are smart and downsize to defer the inevitable until their 80's if they are unlucky to live that long.

If they are dumb they do the reverse mortgage which defers the inevitable until their late 70's.

At least they have their CPP, OAS, and GIS in some cases. It's better than nothing.

Without it there would be a crisis.