More on CPP Changes
By now most readers of yesterday’s post on sweeping changes to CPP have figured out that it was an April Fools’ joke. However, with the exception of very low income Canadians who are reasonably well served by the existing CPP+OAS+GIS system, I think such changes would be positive for Canadians.
Many people would be thrilled to be able to just put their savings in CPP rather than try to learn how to invest well. Further, Canadians struggle with how much they need to save for retirement because of the uncertainty of how long they will live.
Suppose that CPP payments started at age 75 and were large enough that no other savings would be needed from then on. Figuring out how much you need to save to live on from the time you retire until you’re 75 would be much simpler.
For example, if you know you’ll be fine from 75 on, and you want $30,000 per year (on top of OAS) starting at age 65, you know you’ll need to save up about $300,000 less any interest you earn from 65 to 75.
A side effect of this kind of change is that the thundering herd of people who earn their livings in financial services would be thinned dramatically. Former financial service workers would be forced toward less important pursuits like contributing to producing food or curing diseases.
With a few tweaks to make the system work well for both those with low incomes and middle class incomes, such a system is sustainable and desirable. We can cling to the vain hope that CPP payments starting at age 60 can ever be enough, or we can create a more realistic system.
Many people would be thrilled to be able to just put their savings in CPP rather than try to learn how to invest well. Further, Canadians struggle with how much they need to save for retirement because of the uncertainty of how long they will live.
Suppose that CPP payments started at age 75 and were large enough that no other savings would be needed from then on. Figuring out how much you need to save to live on from the time you retire until you’re 75 would be much simpler.
For example, if you know you’ll be fine from 75 on, and you want $30,000 per year (on top of OAS) starting at age 65, you know you’ll need to save up about $300,000 less any interest you earn from 65 to 75.
A side effect of this kind of change is that the thundering herd of people who earn their livings in financial services would be thinned dramatically. Former financial service workers would be forced toward less important pursuits like contributing to producing food or curing diseases.
With a few tweaks to make the system work well for both those with low incomes and middle class incomes, such a system is sustainable and desirable. We can cling to the vain hope that CPP payments starting at age 60 can ever be enough, or we can create a more realistic system.
It's no joke giving us all that false hope that the CPP would actually be changed to benefit everyone :) (except a few advisors who would have to start making a contribution to a worthwhile cause)
ReplyDelete@Richard: Maybe you should be the one to take up the cause and get things changed. I'm more of an ideas guy :-)
DeleteCPP expansion is good in theory, but getting all the provinces to sign on is easier said than done. The government needs to face the facts that RRSPs aren't working. With less than 25% of Canadian contributing, a lot are going to be in store for a bleak life in their golden years.
ReplyDelete@Sean: You're right. I'd be fine with creating some new system as long as it makes sense. It shouldn't transfer more money from young to old, and it shouldn't pay out more money before age 75 to non-savers.
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