The Globe and Mail

February 23, 2024
Ashley Fraser/The Globe and Mail

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Malcolm and Laura retired relatively young – he was 57 and she was 54 – and they’re wondering if they made the right decision.

Nearly three years have passed since Malcolm left a successful career in sales. He is now 60 and just starting to take early Canada Pension Plan (CPP) benefits. Laura is now 57. They want to help their daughter, who is 25 and living at home, with a down payment on a first home. They have a mortgage-free house in small-town Ontario and substantial savings and investments, including Malcolm’s locked-in retirement account, or LIRA, a type of employer pension plan.

Their target retirement cash flow is $90,000 a year after tax, including a $15,000-a-year travel budget.

“Will we have enough to live comfortably for the rest of our lives?” Malcolm asks in an e-mail.

In this Financial Facelift, Warren MacKenzie, a certified financial planner and chartered accountant, looks at Malcolm and Laura’s situation.

Want a free financial facelift? E-mail finfacelift@gmail.com.

Here’s what you should do with $1,000, $10,000 or $1-million

We’ve all thought about it: How would landing a bit of unexpected cash change our lives? Could $1-million buy an early retirement and the car you always wanted? Could $10,000 allow you to buy a house now instead of a year down the road? Should you put $100 in a savings account or toward a fancy dinner? In this article, Report on Business reporter Salmaan Farooqui posed these questions to financial experts.

It may seem like a thought experiment to imagine what you’d do with an unexpected lump sum, but the thing is, it does happen – whether it’s a surprise inheritance from a distant relative or a five-figure work bonus you didn’t see coming.

Given current demographic trends, planning for lump sums isn’t always a hypothetical exercise. One projection from CPA Canada estimates that $1-trillion of wealth transfers will pass from baby boomers to Gen Xers and millennials from 2023 to 2026 – in what would be the largest generational transfer in Canadian history.

So Farooqui decided to do a bit of daydreaming and asked Clay Gillespie, managing director of RGF Integrated Wealth Management, and Evan Parubets, head of the advisory services team at Steadyhand Investments, to come up with the best uses of unexpected cash from $100 to $1-million. For the purpose of this exercise, it is assumed that each cash amount would be tax-free and that it couldn’t be used toward debt.

Why men (probably) shouldn’t take their CPP early

If you are trying to decide when to start taking your CPP, a major factor is figuring out which age makes you better off financially, says Frederick Vetesse in this Charting Retirement article. Vetesse, former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca), assesses the merits of one starting age versus another here.

In case you missed it
What’s the bigger risk to your retirement – cuts to the CPP or declines in stocks and real estate?

An opportunity to relieve a bit of your financial stress has presented itself, says personal finance columnist Rob Carrick in this Globe and Mail Opinion article.

A recent report from the National Institute on Ageing, he adds, reveals the top worries of people aged 50 and up are inflation, running out of money and a reduction in payments from the Canada Pension Plan or other government benefits.

Please stop worrying about the CPP, it’s solid, says Carrick. If you don’t believe him, check out the roster of financial planners and advisers who backed the CPP in a LinkedIn discussion Carrick started a little while ago. Or, try the fact-based, emotion-free thread that portfolio manager Benjamin Felix produced on the CPP recently on the social media platform X.

The institute report is called Perspectives on Growing Older in Canada and its findings are based on a survey of 5,875 people aged 50-plus. These participants were presented with a list of nine financial issues and asked to pick the ones of concern to them. Inflation came up in 70 per cent of the responses, which sounds about right because rising living costs are a stunner for a lot of people.

Running out of money came up in 46 per cent of responses, which is likewise easy to understand. If you’re financially stretched today, it’s normal to worry about having enough money over the long term.

Cuts to the CPP and other government benefits were mentioned in 37 per cent of responses. Cuts to some government programs will be needed to eliminate the federal deficit, and Old Age Security costs will have to be looked at in the years ahead. But concerns about the CPP, adds Carrick, are mislaid.

Be aware of the key changes that could affect your 2023 tax filings

People that cheat on their taxes should be ashamed, says Tim Cestnick, in this Tax Matters column. There’s no excuse for lying on a tax return – but it’s common today. Granted, some of the inaccuracies on a tax return can be the result of not knowing the rules or understanding what’s changed, he adds.

Since tax season is drawing near, Cestnick looks at what’s new for taxpayers as we all prepare to file our 2023 tax returns here.

Retirement Q&A

As part of the Globe’s series, Planning for the CPP, in which Globe Advisor explores the decisions behind the timing of when to take CPP retirement benefits and reviews different aspects of the plan, we have invited readers to ask questions and find experts to answer them. This week, we are featuring a Q&A from the series.

Q: Does it make sense to consider CPP and OAS benefits jointly, or are they separate conversations? Does delaying OAS impact health benefits?

We asked Chris Warner, wealth advisor at Nicola Wealth Management Ltd. in Victoria, to tackle this one.

This is an insightful question as CPP and OAS benefits often are lumped into one conversation. While they certainly share similarities and can even complement one another, I’d recommend we first consider them individually and then assess how they interact with one another afterward.

Let’s first summarize the two programs for clarity:

  • The CPP operates as a true pension in that workers pay into the program during their working years and are entitled to benefit payments – proportionate to their contributions – in retirement.
  • OAS is a federal benefit designed more as a basic income supplement. It pays automatically to retirees who meet Canadian residency requirements. OAS is also income-tested and reduced for higher-income retirees. It’s known as an OAS clawback and applies above taxable income of $90,997. At $142,609 or above of annual income, OAS is $0.
  • The standard age to take both CPP and OAS benefits is 65. With both programs, you can defer the income to 70 (or 72 for Quebec Pension Plan recipients as of 2024). Every month you defer your CPP benefits after 65, your payment increases by 0.7 per cent, to a maximum of 42 per cent if you wait until 70. OAS benefits increase by 0.6 per cent every month they’re deferred, up to 36 per cent at 70. CPP benefits are reduced by 0.6 per cent every month they’re taken before 65, up to a maximum reduction of 36 per cent. You can’t take the OAS until you are 65, so there’s no reduction.
  • For lower-income earnings, the OAS has a supplementary benefit called the Guaranteed Income Supplement (GIS). A single individual earning less than $21,624 annually will receive up to $12,786 in GIS a year.
  • OAS doesn’t have any health benefits. However, it is taxable income, so for any income-tested health programs, such as low-income provincial drug plans, it could impact eligibility.

What does this all mean on a practical basis? Generally, the CPP is flexible whereas the OAS tends to be most useful for those with lower taxable incomes.

I recommend the CPP be matched to a person’s anticipated life expectancy. If financially possible, and if a person’s health history is good, deferral benefits are strong at 8.4 per cent a year, plus inflation indexing. This also protects against longevity risk. If the health history is weaker or the income is much needed, taking the CPP earlier than 70 is fine.

The OAS should match lifetimes also, but with caveats. The $90,997 clawback limit can work for many retirees, but high-net-worth individuals can often find this limiting. In such a case, the $8,560 benefit isn’t usually worth restricting one’s retirement.

For couples, this is a key opportunity for planning. If a couple can split their taxable incomes efficiently, that gives them a household budget of $181,994 before clawback. That’s typically more manageable.

If you have any CPP questions, story suggestions or feedback on this series, please e-mail us at globecpp@gmail.com. We can’t respond to every e-mail or question, but we’ll do our best. The answers will appear on Tuesdays. Find more articles in the series here. For more from Globe Advisor, visit our homepage.

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. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement Newsletter.

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