Readers don’t want to wait till 70 to double their CPP

November 12, 2011
By

National Post-
May 4, 2011

The previous blog and a version of it that appeared in today’s paper headlined Work till 70 key to better CPP has generated some heated responses from readers who don’t like the idea of having to work till 70.

Well, I hope I don’t have to stay in harness that long either. Even so,  70 or Bust! was the theme of a recent special report in The Economist, reprised in this blog here. Fact is governments around the world would love to raise the retirement age to 70 if they think they can get away with it. Die upon reaching the biblical three-score-and-ten and governments win!

The point of yesterday’s articles was only to remind readers who voted NDP or Liberal because they hoped for expanded or doubled CPP benefits that the mechanism is already in place to double benefits — the catch is you have to work till 70.

Consider the Time Value of Money 

Reader RP points out something I’ve written about in the past: you have to consider how much those years of deferred CPP benefits might be worth:

So by waiting to age 70, you could make $1,363 a month, more than double the $614 you would get at 60, says BMO’s Tina Di Vito.

It wouldn’t have been too difficult and definitely should factor into the calculation to mention the lost income from waiting 10 years equals about $73,600 and therefore it would take you to age 78.2 to break even in total dollars received from CPP. I for one would rather have my money up front to enjoy in the younger years in my 60′s when I will be more active.

Also consider the Time Value of Life

Reader BC also addresses the time value of money, not to mention the time value of life: all those years of lost leisure time:

I’ve got to say that this article is really missing out on some key concepts.  It is focusing entirely on the nominal amount of money you will receive  at 70 and then comparing it to nominal amounts of money at other ages, 65 and 60.

There are two things in particular in this article that are being left out.

First of all, Working 5 more years — regardless of the “trend” — is NOT the key to a better CPP.  Retirement is about not working.  It is about enjoying life in your old age.  The average lifespan is near 85, thus currently people get 20 years to live their life without having to work.  In what world does losing 25% of your golden years equate to a better CPP?  Also, years in the 60′s are far more valuable than years in the 70s and 80s, as bodies begin to degrade and living standards along with it.  You are implying that giving up the best years of retirement for some nominal amounts of money is somehow beneficial to Canadians.

Secondly, you are comparing nominal dollars in different years.  To say they receive a 42% hike in premiums by waiting until 70 is just plain incorrect. At the long term risk free interest rates of around 5%, $1 today is worth $1.276 in 5 years.  And in this environment of rapidly increasing inflation, this number is surely higher than the long term average.  So there is no “gain” by waiting, it is purely paying more premiums for 5 years so you can get slightly more during years of your life that are less active and enjoyable.

The only thing that working till 70 is the key to, is making it easier for the Canadian government to pay off its massive CPP debt by shortening the total years payable from 20 (age 65) to 15 (age 70).

You can retire earlier by saving but don’t expect Big Government to bail you out if you didn’t

These readers make some good points but seem to me to reveal a bit of a disconnect: those offended by the notion of having to work till 70 to get more CPP are really saying they want the greater benefits without having to pay for it, or perhaps without having to save and invest.

The reason many people have built up registered and non-registered savings is precisely because they don’t wish to work till 70 either. But they don’t expect an instant doubling of benefits merely because some politician waves his magic tax wand.

A few weeks before the election I wrote an editorial for FP Comment that reminded savers and investors just how mercilessly they are taxed outside tax shelters. In other words, savers are punished so those who don’t save can reap the benefits through various wealth redistribution programs.

 

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