# CD Howe report: Are Canadians saving too little?



## janus10 (Nov 7, 2013)

They argue that it is a media generated Myth supported by incorrect conclusions from experts.

http://www.cdhowe.org/pdf/commentary_428.pdf


----------



## sags (May 15, 2010)

Interesting that this CD Howe report refutes an earlier CD Howe report by former Bank of Canada's David Dodge.

This report looks like an "if all the stars align at the right time" type of retirement plan.


----------



## RBull (Jan 20, 2013)

A lot more jargon than my head could stand. I skimmed through about 1/3 of it before losing interest. 

Basically save 5% and spend 70% of your working income in retirement and the world is your oyster. Seems like an attempt to baffle with bullshiet.


----------



## pwm (Jan 19, 2012)

I've always thought there was no problem with retirement planning by Canadians, and that it was just a myth perpetrated by the financial institutions and CARP. This report confirms that fact. Good response by Margaret Wente in the G&M today regarding this report:

http://www.theglobeandmail.com/glob...good-so-why-is-that-bad-news/article24826152/


----------



## My Own Advisor (Sep 24, 2012)

I dunno...I know for my cohort (Gen X) we are not richer than we think. Mortgage debt has a vice around us.

"Trends in home ownership are alarmingly rosy, too. Between 1999 and 2012, home ownership among households led by 35-year-olds to 44-year-olds increased by three percentage points, to 65 per cent, and the average value of their homes increased by 101 per cent after inflation."

Ok, fine, but you have to live somewhere.  This has nothing to do with retirement savings. I wish reporters would not make this relationship...it drives me a bit nuts. Sure, if you want to sell your multi-million dollar home in Vancouver and move somewhere else then yes, your home is your retirement plan but owning an expensive home is not a retirement plan. Am I missing something?

"Among couples aged 55 to 64, 86 per cent own their homes." - I should hope so! 

"The widely quoted household saving rate of 5 per cent is, for a variety of reasons, misleading. The actual saving rate is 14 per cent, he notes." 

For who? 20- and 30-somethings? I doubt it. Maybe for 40+ it is once their careers are established but you're half-way to "retirement" by then.

"Sales of Beemers, Benzes and other luxury cars have more than doubled since 2000, and have spread far beyond the wealthiest 1 per cent of the population."

Again, I don't know many folks under age 50 that can afford these cars. Maybe I hang with the wrong crowd 
I suspect it's mostly boomers who can afford these toys but I don't know for sure. 

Am I missing something with her counter-argument?


----------



## OurBigFatWallet (Jan 20, 2014)

Every week there's a new report that contradicts the old one. I agree with Mark above in that home ownership is different than retirement savings. Unless of course the plan is to sell the home when retiring and move somewhere totally different (cheaper) and live off the built up equity. But most people don't do that (understandable) so there should be no direct correlation between home ownership and retirement savings. People who are retired still need somewhere to live.

On the topic of luxury cars, there are lots of them around here (Calgary) and likely more than the average Canadian city. But that doesn't mean the owners are savings for retirement - quite the opposite. I'm willing to bet they skipped the TFSA contributions to put a down payment on a new luxury vehicle, which is usually financed at a high rate of interest. Just because someone has a Mercedes doesn't mean they are (a) wealthy and (b) saving enough for retirement


----------



## sags (May 15, 2010)

The credit reporters have all the financial information on people, and it is interesting that they note personal debt has been increasing and is predictable.

The debt is primarily on HELOC, which would indicate that home debt has simply been transferred from mortgages to HELOCs.

The cycle is well known..........and would support the "crowded malls" theory.

People charge up their credit cards..........pay them off with a HELOC.......charge up their credit cards.........pay them off with a HELOC.

I know a guy who used to brag to everyone at work that his mortgage was "paid off", but he never told people he owed $200,000 on a HELOC.

Apparently he didn't think of his HELOC as a mortgage.


----------



## sags (May 15, 2010)

In most geographical areas of Canada, people won't have a $1 million dollar home to sell.

More likely, they will be selling a home for $240,000 that they paid $150,000 for in 1980. After real estate and moving costs there won't be much left for retirement savings.

For people in Toronto or Vancouver, it might work out well for them..........but everyone else isn't going to get rich from their home sale.


----------



## fraser (May 15, 2010)

I really do not know what to think.

Had coffee with 2 former colleagues last week both of whom retired or were retired. Discussion came around to insurance. It seems both still have debt, one keeps a life insurance policy active on order to cover debt load...which he assumes will be eliminated in a few year by an anticipated inheritance. I was quite surprised. Both had steady employment, a DB pension plan, etc.

Lately, we see relatives and friends reaching that age. Half of my inlaws have saved nothing for retirement, no pensions, and they still have mortgages (and low equity) on homes that they will no longer be able to afford. The other half is fine. It seems a mix of poor spending habits and lack of financial planning has done in the former. One relative who always earned a good living with his professional designation recently sold his home to move to a lower cost area. Not because he wanted to but because he had to. 

We know others, like us, are financially independent. But not that many. Perhaps it is our circle of friends/acquaintences/relatives. I would say that 50 percent are having financial challenges for one reason or another.

So I find the numbers and the stats at variance with what we see. I tend to believe the numbers because I am a numbers person at heart. But as the old saying goes...figures lie and liars figure.


----------



## el oro (Jun 16, 2009)

RBull said:


> Basically save 5% and spend 70% of your working income in retirement and the world is your oyster. Seems like an attempt to baffle with bullshiet.


The report doesn't say this at all. It states most are saving more than 5% and most need less than 70% income replacement, among other things.


----------



## janus10 (Nov 7, 2013)

sags said:


> I know a guy who used to brag to everyone at work that his mortgage was "paid off", but he never told people he owed $200,000 on a HELOC.
> 
> Apparently he didn't think of his HELOC as a mortgage.


A person gets an unsecured loan and uses it to buy dividend producing equities.
A person gets a secured loan and uses it to buy dividend producing equities. The loan is secured via his home equity.

Does the second scenario mean he has a mortgage or has he just been smarter to secure an investment loan at typically a lower interest rate than an unsecured one?


----------



## uptoolate (Oct 9, 2011)

It means he has a mortgage. Granted he can discharge it anytime he wants as long as his equities have held their value.


----------



## sags (May 15, 2010)

Business Lobby Groups 101..........

1) Produce articles showing lots of statistics to prove Canadians are already saving enough and no changes to CPP are needed.

2) Produce articles showing lots of statistics that mandatory contributions aren't needed and will cost millions of jobs.

3) Repeat #1 and #2 

The business lobby groups are losing the public relations battle.

The Liberals support expanding the CPP. The NDP support expanding the CPP. And now the Conservatives are forced to say they will consult about expanding the CPP.

I don't know who they will consult with though. This has been discussed over and over with panels of experts.........who support expanding the CPP.

The business groups are all in a tither that the CPP will be expanded, contributions will be mandatory for employers, and the financial industry won't have access to all that cash.


----------



## janus10 (Nov 7, 2013)

uptoolate said:


> It means he has a mortgage. Granted he can discharge it anytime he wants as long as his equities have held their value.


The interest is calculated differently for a LOC than a mortgage and I don't think you can just pay interest on a mortgage, which you can with a LOC.

So, technically it is not a mortgage, although I can understand why some would see it that way (semantically).


----------



## Eclectic12 (Oct 20, 2010)

OurBigFatWallet said:


> My Own Advisor said:
> 
> 
> > ... I wish reporters would not make this relationship...it drives me a bit nuts. Sure, if you want to sell your multi-million dollar home in Vancouver and move somewhere else then yes, your home is your retirement plan but owning an expensive home is not a retirement plan.
> ...


Personally ... until it's the time to sell & downsize to another "retirement" location - I don't see counting an the value of a home. 

Even if the value stays high ... who knows what the desired location costs/expenses will be?


Cheers


----------



## Eclectic12 (Oct 20, 2010)

sags said:


> In most geographical areas of Canada, people won't have a $1 million dollar home to sell.
> 
> More likely, they will be selling a home for $240,000 that they paid $150,000 for in 1980. After real estate and moving costs there won't be much left for retirement savings.


This seems low ... having sold a 900 square foot house in Waterloo for $190K in 2005. Waterloo average save house price in 2012 was $315K. Cambridge was a more modest $275k.

Manitoba, Newfoundland and Saskatchewan are all showing average houses that are around $40K over that mark.

Windsor, ON according to this 2012 link came in most affordable at $171K, Welland at $218K, Niagara Falls at $228K ... Cornwall was tenth place at $239K.
http://www.ctvnews.ca/canada/windso...ity-in-which-to-purchase-dream-home-1.1057187


Cheers


----------



## Eclectic12 (Oct 20, 2010)

janus10 said:


> ... So, technically it is not a mortgage, although I can understand why some would see it that way (semantically).


The interest and choices may be different plus certainly the assets are more liquid ... but I recall the contract states it's a "re-advanceable mortgage".
So I'm not sure it's semantics.


Cheers


----------



## CalgaryPotato (Mar 7, 2015)

Eclectic12 said:


> Personally ... until it's the time to sell & downsize to another "retirement" location - I don't see counting an the value of a home.
> 
> Even if the value stays high ... who knows what the desired location costs/expenses will be?
> 
> ...


In fairness owning a paid off home does offer some options. Sell and rent. Sell and downsize. Sell and move in with family. Take out a heloc to pay other expenses.

I don't think anyone should use their primary residence as their main form of retirement income by any means. But if you took two people at retirement age, with the exact same savings and exact same expected retirement income. One owns a million dollar home, one owns nothing it's clear that one person has a lot more options for security in retirement than the other.


----------



## janus10 (Nov 7, 2013)

Eclectic12 said:


> The interest and choices may be different plus certainly the assets are more liquid ... but I recall the contract states it's a "re-advanceable mortgage".
> So I'm not sure it's semantics.
> 
> 
> Cheers


Readvanceable mortgages do exist, but they are definitely separate beasts. I've had standard and readvanceable mortgages, and I'm sure that all readvanceable mortgages are not the same, just like some lenders have more flexible standard mortgages (eg higher percentage lump sum payments and / or higher percentage increase in periodic payments without penalties).

The other thing is that mortgage interest is not deductible. So, at least in the eyes of the CRA, when you borrow money to invest, if you want to write off the interest, it better not be a mortgage.

Frankly, I'm not sure why someone would get hung up on what someone else calls their LOC. The original comment was inferred by me to have the snort of derision, as in you are fooling yourself if you don't call the HELOC balance a mortgage.

I'd applaud someone if they ended up taking a sound financial decision that included reduced carrying costs.


----------



## Eclectic12 (Oct 20, 2010)

janus10 said:


> ... The other thing is that mortgage interest is not deductible. So, at least in the eyes of the CRA, when you borrow money to invest, if you want to write off the interest, it better not be a mortgage.


You have have CRA link for this?

The links I've read through make no mention of what the interest charges are coming from *but* what the money can be traceable shown to be used for and if there is any co-mingling of use. 

Then too, there are a lot of web sites all saying in order to setup a Smith Maneouvre or similar variant ... to get a re-advanceable mortgage.


> First of all, in order to properly execute a Smith Manoeuvre, you need to have a readvanceable mortgage ...


http://canadianfinanceblog.com/the-basics-of-the-smith-manoeuvre/



Cheers


----------



## CPA Candidate (Dec 15, 2013)

The bread and butter of the financial media is to spread fear and uncertainty. What generates clicks and reads more than scary articles with dire predictions. Nobody wants to read "everything is cool".

Look no further than the Globe and Mail that has been an absolute tear scaring people about debt problems that are overblown and the state of everyone's retirement.

Finally, we get a report by a real research expert that refutes much of the baloney circulating. Wealth is way up across the board.

Of course, left leaning folks hate to heard about this because it shuts down most of their arguments for sweeping changes in face of a looming catastrophe.


----------



## Eclectic12 (Oct 20, 2010)

CalgaryPotato said:


> In fairness owning a paid off home does offer some options...
> But if you took two people at retirement age, with the exact same savings and exact same expected retirement income. One owns a million dollar home, one owns nothing it's clear that one person has a lot more options for security in retirement than the other.


I'd think even a $300K one would provide options but again, IMO it's better well down to the list compared to depending on it.


Cheers


----------



## Eclectic12 (Oct 20, 2010)

CPA Candidate said:


> ... Finally, we get a report by a real research expert that refutes much of the baloney circulating. Wealth is way up across the board.


Every article has an angle so until I've had to chance to read how reasonable the research is ... I'll reserve judgement.

On one hand, I know people with assets who don't fit the doom & gloom retirement scenario but I also know folks who spend/take out loans at the drop of hat who would. As always, the question is where the balance sits.


Cheers


----------



## sags (May 15, 2010)

Actually the statistics used in the article are being bent a little bit..........

The author disregards inflation altogether which has a bigger impact on the low end of the wealth scale.

From what I have read......the upper percentiles of wealth increased their wealth by 80%.........and the bottom by 38%...........so they both increased their wealth.

But inflation over the same time period was 32%............which left the wealthy with a net gain of 48% after inflation and the low income 6% after inflation.

In this scenario the wealth gap continues to widen.

As it is with home sale prices..........."average" doesn't mean a lot.

New homes are considerably more expensive than older homes and are rising in price.

The "average" is brought up by new homes which are increasing in price..........but there is no offset at the bottom of the scale where homes are dropping in price.

The result is continually higher "average" prices are reported.

In our area.......and most areas of Canada.........you would be buying a much nicer than "average" home for the stated average Canadian home price of $440,000.

Go to Realtor.ca..........plug in $440,000 and see what kind of homes a person can buy in various parts of Canada for that amount of money.

I think most retirees selling their homes won't be getting a $1 Million dollar windfall...........or even a $440,000 windfall.

Maybe the home they paid $100,000 to buy is worth double that today..........maybe ?

Point being..........$100,000 equity......$200,000 equity.........nice to have but it won't last long in retirement withdrawing $25,000 a year.


----------



## My Own Advisor (Sep 24, 2012)

CPA Candidate said:


> The bread and butter of the financial media is to spread fear and uncertainty. What generates clicks and reads more than scary articles with dire predictions. Nobody wants to read "everything is cool".


"Everything is fine" doesn't sell papers or ads 

Agreed. You need a bit of hysteria to sell stuff; create a buzz; spin a story.


----------



## CalgaryPotato (Mar 7, 2015)

sags said:


> New homes are considerably more expensive than older homes and are rising in price.
> 
> The "average" is brought up by new homes which are increasing in price..........but there is no offset at the bottom of the scale where homes are dropping in price.
> 
> ...


I get what you're saying, but I'm not sure I agree with a lot of it.

Most people in Canada live in the biggest cities which have the most expensive real estate. Toronto, Vancouver, Calgary, Edmonton, Montreal... So the majority of people retiring in places like that with a home, will have high value homes.

Also you are saying newer homes are more expensive, which isn't necessarily the case. Most of the seniors live closer to the center of cities (generally). While the houses are older and not as nice, the land is bigger and the property values are higher. Seniors are sitting on a lot of the highest value properties in Canada, because they were able to buy it when it was affordable. 

Again, I think you can't discount your home if you own it, when considering your retirement, but you can't look at it in isolation. And of course you have to look at the value of your house. If you own a home in a small town, and your house has very little value, you shouldn't take it into consideration. However if you own a home you know has a lot of value, you shouldn't ignore that either.

Newer homes get sold and older homes get sold. While the market is probably going to get a correction soon, typically the term average means exactly what is says. I'm not sure what you are referring to as the low end homes dropping in price.


----------



## sags (May 15, 2010)

Thanks for the all the comments.

It is an interesting debate and a very important one for Canadians to have. Time is running and the issue can't be avoided any longer.

The dilemma for seniors owning their homes could be and perhaps already is, to sell their home to finance their retirement or live in their home and collect GIS.

Garth Turner has featured several stories about home sales that belonged to indigent seniors for very high prices in Toronto.

The homes were virtually falling apart. The seniors were living in poverty and collecting GIS...........but the land under the homes was worth $1,000,000

I read that 35% of all retirees collect GIS. If that is accurate..........we need to figure out something before the big retirement tsunami wave hits full force.


----------



## CalgaryPotato (Mar 7, 2015)

But if the doom and gloom about young Canadians being over indebted and under prepared for retirement is true (and I believe it is mostly true.) That'll be the wave of people due to retire in 20-40 years.

I'm not saying that we won't have baby boomers retiring poor, but it'll be a minority. Those are the people who bought houses when they were still affordable and if they foolishly saved their money in nothing but GICs they still gained interest on those GICs for many years.

There will always be seniors who don't want to move and would rather eat cat food rather than move to a condo in the suburbs and live well... that is their choice. No different than young people who buy houses they can't afford and do the same thing to themselves.


----------



## lonewolf (Jun 12, 2012)

For money to come into circulation it has to be borrowed. If there is savings in the system there also has to be IOUs somewhere.

Some Canadians might think they have a lot of money in the stocks & bonds due to high bids being caught in the market of late. When stocks & bonds start catching bids that are worth far less they will not feel as wealthy.


----------



## My Own Advisor (Sep 24, 2012)

If most Canadians, and I mean most adults, were able to save 10% of their NET income (not gross) every year then I would have no problem saying Canadians are saving enough for retirement.

Anything else is not sufficient since:
a) you have no idea what the future holds for you, your family, etc.
b) you cannot rely on recent house-price run-ups to fund your retirement (because you have to live somewhere and anywhere to live is an expense), and
c) as much as you'd like to think you can, you cannot control the future when it comes to market returns, interest rates or inflation. 

So, the best course of action is to save some money and by saving some money you are at least assuring yourself you have _some_ money for your retirement.


----------



## janus10 (Nov 7, 2013)

Hey MOA,

Would you consider the portion of mortgage principal that is paid as saving for retirement? If not, would you count any lump sum payments, accelerated payments, percentage increase in payments?

For me, the baseline is a 25 year amortization. If your principle pay down exceeds a 25 year amortization schedule, then that delta is saving for retirement. Which necessarily follows that I consider a housing asset part of ones retirement portfolio. Although illiquid, it can be a substantial portion of a retirees net worth.


----------



## Daniel A. (Mar 20, 2011)

At a time when all studies show that 65% of Canadians lack retirement savings and only have CPP & OAS to depend on with meager RRSP savings it may give people some comfort or justification for their decision not to have saved for retirement.
Depending on the value of selling the family home for retirement living is I think a harder decision than some might think.
So many other issues come up, leaving a community that one has spent 30 or 40 years in, access to medical care, all the convenience we grow accustomed to, possibly moving away from extended family.

In a 60 Kilometer radius of Vancouver house costs are anywhere from 400,00.00 and up, smaller communities away ie 200 - 300 Kilometers a house can be had for between 100,00.00 & 200,00.00 sounds good until one needs to look for a family doctor or complex medical.


----------



## Eclectic12 (Oct 20, 2010)

^^^^

I'd want to review the studies (especially for bias) before I'd put too much confidence in what is needed. 

The "all studies" seems to be a stretch considering:


> A financial survey of 12,000 households by consulting firm McKinsey & Co. shows 83 per cent of Canadians are on track to maintain their standard of living after they stop working


http://www.theglobeandmail.com/repo...h-for-retirement-survey-says/article22880582/


Then too, without looking at the details ... is the cup half full (ex. six of ten *are* saving for retirement)? Or half empty (ex. feel they are not saving enough)?
http://www.thestar.com/business/per...saving_enough_for_retirement_study_finds.html


And that's before getting into how appropriate the "rule of thumb" or calculator estimates are. I can recall being dumbfounded that the retirement calculator was saying that on a $28K salary *plus* a pension plus CPP, I'd need to have saved $6 million to retire.


Cheers


----------



## My Own Advisor (Sep 24, 2012)

Hey Janus10, 

I guess I would consider lump sum payments, in addition to a "regular" mortgage payment schedule (interest + principal) as savings although I struggle with that because a home is a home and retirement savings is something I consider much more liquid - that's just my frame of mind.

So, I think anything that exceeds a homeowner's baseline payment schedule is technically "savings".

In the end, I hope our home as part of net worth is a small(er) % of liquid assets. I mean, we have to live/own/rent somewhere


----------



## RBull (Jan 20, 2013)

There's a lot of variation in perceptions of what retirement is. Some think it's stopping all work. Some think it's cutting down to part time or working on contract, or self employment. Some think its stopping one main career and starting something easier likely on a part time basis. 

All of this variation greatly affects what people will "have" or "need" in retirement. To me its hard to define just what will happen because of this. 

My definition is likely different than many- stop working- "retiring" from the work force. Anything else seems to be semi-retirement or not really retiring to me. I semi retired 4 years ago at age 52 and fully retired one year ago. However I didn't call it semi retired or retired as many people would- just working PT.


----------



## HaroldCrump (Jun 10, 2009)

sags said:


> Business Lobby Groups 101..........
> 1) Produce articles showing lots of statistics to prove Canadians are already saving enough and no changes to CPP are needed.
> 2) Produce articles showing lots of statistics that mandatory contributions aren't needed and will cost millions of jobs.
> 3) Repeat #1 and #2
> ...


It is not a surprise that the top 2 tax-and-spend political groups are in favor of expanding CPP.
Both of them stand for big govt., more regulation, and higher taxes (i.e. more aggressively progressive taxation than what we already have).

The Conservative proposal is different - they are proposing voluntary CPP.
To me, that is a non starter.
Just like the PRPP, it will be DOA.
CPP expansion needs to be mandatory, if at all.

The issue is further appropriation of personal financial freedom for individuals.
Mandatory CPP expansion will not magically increase savings - it will simply redirect existing savings from DIY to a govt sponsored savings plan.
There was a recent study on this as well, showing that imposition of mandatory savings plan do not increase aggregate propensity to save, simply re-allocates savings.

Add in the Ontario ORPP, which is another 2.8% of income.

Assume for one minute the horror scenario of a Liberal or NDP led federal govt. in Ottawa this fall.
Mandatory expansion of CPP
Ontario ORPP imposed in 2017.
A typical Ontario resident will experience a minimum of 4.8% of take-home income erosion (assuming CPP expansion is at least 1% employee & employer).

You think that will not affect financial well-being and independence?

On the business side, this is tantamount to a mandatory wage hike.
What do you think most corporations will do?
They will (1) reduce existing retirement plan contributions (Group RRSP or DCP) to account for the increased govt plan contributions, (2) reduce hiring, and/or (3) slow down wage growth further.

These types of politicians do not understand that business and economy is a dynamic system - there are consequences for such actions.
Instead of improving retirement security, this will end up further weakening wage growth, increase unemployment, cause forced part-time/seasonal employment, and many other socio-economic side effects.

The only way I can see the effects of a mandatory CPP expansion neutralized is to offset it with significant concomitant tax cuts - personal as well as corporate.
Such as a 2% across the board cut to all income tax tiers, another 2% cut to corporate taxes, another 1% cut in GST, etc.

All 3 levels of govt. can also cooperate to dissolve public sector pension plans (which are funded from taxes) and merging all govt. employee plans into the expanded CPP.
Currently CPP provides approx. 25% income replacement of average wages.
Say mandatory expansion increases it to 33%.
Public sector employees can be brought under the same umbrella and the savings can then be used to fund the tax cuts mentioned above.

Income replacement over and above the 33% limit (if desired) should be funded by personal savings (RRSP, TFSA, home equity, etc.)


----------



## sags (May 15, 2010)

CPP and ORPP contributions would be tax deductions for both the employer and employee in any event, so the "cost" is somewhat muted to both.

Perhaps the contributions should be deducted from taxes payable at 100%, which would effectively transfer the cost from the employer/employee to the government.

But then.............politicians would have a smaller bag of goodies to bribe us voters with.


----------



## HaroldCrump (Jun 10, 2009)

sags said:


> CPP and ORPP contributions would be tax deductions for both the employer and employee in any event, so the "cost" is somewhat muted to both.


Not at all - Ontario has _*already*_ preemptively raised income taxes well in advance of ORPP implementation.
Those that truly need guaranteed pension-style income i.e. the higher income professionals have been preemptively penalized.

On the federal side, Liberal leader pretty-haired-boy has already promised to raise taxes similarly, in addition to attempting CPP expansion.
NDP has not yet made a formal commitment, but it is probably a safe assumption that they stand for higher income taxes, higher corporate taxes, and CPP expansion.

Now that Alberta has an NDP govt., the opposition to CPP expansion is watered down.

Just to be clear - I am not principally against CPP expansion.
My only issue is that there should be offsetting tax cuts - both personal income tax cuts as well as corporate tax cuts.


----------



## janus10 (Nov 7, 2013)

HaroldCrump said:


> Mandatory CPP expansion will not magically increase savings - it will simply redirect existing savings from DIY to a govt sponsored savings plan.
> There was a recent study on this as well, showing that imposition of mandatory savings plan do not increase aggregate propensity to save, simply re-allocates savings.
> 
> Add in the Ontario ORPP, which is another 2.8% of income.
> ...


you painted a pretty gloomy picture through your post but I wanted to look at these items.

If mandatory CPP expansion merely substitutes contributions to ones own RRSP, how is this really going to affect ones discretionary income? Instead of putting an extra $200 a month into my RRSP I don't have to because $200 month is going into this new CPP expansion.

Also, wouldn't employers be able to decide to reduce or eliminate any DC plans if this expansion was enacted? And wouldn't this then level the playing field with smaller employers who can't offer DC plans?

Once it is been underway for a generation, what benefits do you see if more Canadians were retiring with more inflation adjusted income? This is assuming that CPP does a better job managing that arbitrary $200 month than DIY investors.


----------



## HaroldCrump (Jun 10, 2009)

janus10 said:


> If mandatory CPP expansion merely substitutes contributions to ones own RRSP, how is this really going to affect ones discretionary income? Instead of putting an extra $200 a month into my RRSP I don't have to because $200 month is going into this new CPP expansion


The trade off is between flexibility vs. guarantee.
Mandatory ORPP (or CPP) contributions remove flexibility, and replace with some (real or perceived) guarantee.
Individual RRSP (and even GRRSP) has significantly more flexibility than ORPP/CPP, such as ability to withdraw, leveraging for continuing education, home ownership, etc.
People can defer contributions during hard times, and catch up during good times, etc.
Lots and lots of flexibility.

I think it is important to understand that the supposed "guarantee" of ORPP etc. come with a cost.

And speaking of guarantees, people need to understand that the total benefit they will receive is most certainly *not *guaranteed.
Eligibility age can be increased at any time, penalties for early retirement can be increased (and have been), etc.



> Also, wouldn't employers be able to decide to reduce or eliminate any DC plans if this expansion was enacted? And wouldn't this then level the playing field with smaller employers who can't offer DC plans?


It is not really leveling the playing field.
From the small business perspective, this is just another form of tax, like EI and CPP contribution.

If anything, this further disadvantages small & medium scale businesses vis-a-vis large corporations.
Most large corporations with DCP (or DBP) plans will be exempt from this new tax.

It also disadvantages Canadian companies vis-a-vis their southern neighbors (not just American, but Mexican and other competing companies).

If/when Canada enters trade deals like TPP, TTIP, CETA, etc. these additional payroll taxes will exacerbate Canadian uncompetitiveness.


----------



## sags (May 15, 2010)

The trouble with the anti-CPP expansion lobby is that they offer no alternative solutions.

Doing nothing isn't an option, as retirement social costs (OAS/GIS) would rise rapidly.

Eliminating employers from contributions cuts the working capital by 50% and makes achieving the goals dubious at best.

Telling people not to worry..........because they can muddle along on a lot less, is non productive mumbo jumbo, still reliant on the public purse.

All of the solutions by the anti-CPP lobby seek to raise profits for the financial institutions who handle the capital, while transferring the cost to taxpayers.

Privatize the profits and socialize the liabilities............is at the source of all their solutions.


----------



## fraser (May 15, 2010)

Fred Vatesse has an article in the Financial Post today on this subject.

He argues that Canadians are actually saving more for retirement than they did ten years ago. Part of the issue appears to be how the saving numbers are calculated. He has some interesting information in the article. Clearly, there are some differences between experts in this field.


----------



## HaroldCrump (Jun 10, 2009)

^ yes, I read the article yesterday.
It is excellent analysis, and also the theme of his book "The Real Retirement", co-authored with Bill Morneau of Morneau Sheppel

Here is the *link to the FP *article.

And here is the *link to the book*


----------



## Beaver101 (Nov 14, 2011)

fraser said:


> Fred Vatesse has an article in the Financial Post today on this subject.
> 
> He argues that Canadians are actually saving more for retirement than they did ten years ago. Part of the issue appears to be how the saving numbers are calculated. He has some interesting information in the article. *Clearly, there are some differences between experts in this field*.


 ... and some ... so which experts' are Canadians to believe in to be useful when planning for their retirement?


----------



## HaroldCrump (Jun 10, 2009)

sags said:


> The trouble with the anti-CPP expansion lobby is that they offer no alternative solutions.
> Doing nothing isn't an option, as retirement social costs (OAS/GIS) would rise rapidly.
> Eliminating employers from contributions cuts the working capital by 50% and makes achieving the goals dubious at best.
> Telling people not to worry..........because they can muddle along on a lot less, is non productive mumbo jumbo, still reliant on the public purse.


Speaking for myself, I am not part of the anti-CPP expansion lobby.
I do, however, believe that expanding the CPP without compensating tax cuts to corporate and personal income tax will have bad effects on the economy and personal financial health for people.

Do we as a society believe that retirement savings are the one and only paramount objective of savings?
If so, then fine, go ahead and tax away all disposable income, massively expand the CPP and provide everyone with $100K income in retirement.

But retirement savings is not the only claim on disposable income for vast majority of people.
People need to save for buying homes, kids' education, travel, hobbies, supporting aging parents/other family members, and a whole variety of reasons.

Increasing mandatory CPP contributions simply takes away those choices and freedoms.
It makes people slaves to their own retirement.

Similarly for businesses, it imposes an additional "cost of doing business" here in Canada
Take it, or leave it.
And the evidence loud that clear that businesses are leaving it.
I don't think there can be any doubt regarding the message that business community is sending to Canada these days.

Therefore, I am perfectly okay with increasing CPP contributions by both individual and businesses, however, those need to be accompanied by (fairly significant) tax cuts to both corporate and personal taxes.



> All of the solutions by the anti-CPP lobby seek to raise profits for the financial institutions who handle the capital, while transferring the cost to taxpayers


This is just pure rhetoric.
Pension plans are also a player in the capital markets - any investing they do raises profits for the money center banks, primary dealers, investment brokers, etc.
How do you think they buy their bonds?
How do you think they trade their shares?
They need to hire the same banks, law firms, etc.
Financial institutions are the infrastructure of the modern economy.

You can ask for more regulation, etc.
But it is not true that pension plans can bypass all those institutions.

On the other hand, the investing costs for the individuals have fallen off a cliff in the last 10 years.
Any DIY investor with even an iota of savvy, anyone that has not been hiding under a rock for last 10 years, knows that most trading commissions are in the $4.99 - $19.99 range.
No need to pay 2.50% MERs any more.
Investors are becoming more and more savvy, and it is possible to replicate a lot of the same investments that hitherto used to be available only to large pension funds.
Even private equity investing is becoming more and more available to retail investors, although we have quite a ways to get there fully.



> Privatize the profits and socialize the liabilities............is at the source of all their solutions.


That is true for pension plans, in fact - both public sector as well as private.
Billions in under-funding liabilities, decades long pension holidays, taxpayer bailouts, etc.

Latest report from ex-Government Motors Corporation shows *$3.6B in unfunded liabilities*, this is after $5B in direct pension bailouts.

Many public sector pension plans are in deficit and require constant injections of taxpayer cash via increased contributions.


----------



## fraser (May 15, 2010)

I am not certain what the solution is, whether or not we really have a pension crisis, or how a solution should be implemented.

But I do feel very strongly that there is an ever growing trend for people to blame everyone else for their problems...including any gap in their retirement income/lifestyle change. At some point one needs to take responsibility for one's own self. 

We frequently see people complain about their lack of retirement income, or heavy consumer debt burden, and other financial issues. Not saying this is not a challenge. But in general I think people need to take some personal responsibility for their financial well being and do a modest amount of planning for their future.

Our first three years of marriage were spent in a one bedroom rental unit furnished with hand me down furniture and second hand bits and pieces. No car because we could not afford one. It was TTC, our bicycles, or for an occasional treat a weekend car rental special from Tilden @$9.95 a day. My sister in law/husband on the other hand married, bought a car, furnished the house with furniture on the 'don't pay a dime' plan etc. They thought dining out at MacDonalds was cheaper than eating at home. Guess who declared personal bankruptcy within a few years? And guess who, 40 years later, is facing retirement with very few financial resources? Not us. This is not the fault of the Government.


----------



## nathan79 (Feb 21, 2011)

fraser said:


> I am not certain what the solution is, whether or not we really have a pension crisis, or how a solution should be implemented.
> 
> But I do feel very strongly that there is an ever growing trend for people to blame everyone else for their problems...including any gap in their retirement income/lifestyle change. At some point one needs to take responsibility for one's own self.
> 
> ...


That's just the reality of a society that bases success and self worth on how much you can consume. Shifting individual behaviour is more about shifting group behaviour because we as a species place a great deal of importance on other people's perception of us.

Most people would simply rather go into debt than risk falling behind their peers. It not enough to own a reliable car, it has to be new with all the bells and whistles. Not just any cell phone will do, it has to be this year's model, iphone, etc. You might have to settle for a condo instead of a house, but it better have granite countertops and high end appliances. You don't want to be embarrassed when your friends and family come over.

On the other hand, if people slow their consumption the economy falters, so that's not really a complete solution either.


----------



## NorthernRaven (Aug 4, 2010)

HaroldCrump said:


> Many public sector pension plans are in deficit and require constant injections of taxpayer cash via increased contributions.


Which public-sector pension plans did you have in mind? I think this may be misstating the case generally. Public pension plans typically revisit their assumptions annually, recalculating their liabilities and projected circumstances. This may require the government to notionally transfer sums into the plan's books. For instance, the main federal employee pension plan recently received special payments of around $1 billion over a two-year period, and depending on changes in estimates of long-term interest rates, inflation, and longevity may require additional transfers in future. On the other hand, from 2001-2004 the government took out about $28 billion in "surplus" on the books for its own use. In a fully-funded, segregated plan, that previous "surplus" would be available to cover the current "deficits". Unless the design and the assumptions of the plan are faulty and produce a need for net unexpected injections, there isn't necessarily any issue of unsustainability. 

The federal plan changed for new hires around 2012, extending the base superannuation and early retirement ages up by 5 years (from 60 to 65, and from 55 to 60, respectively), and is ramping up employee contributions so they match the employer. I don't know what sort of sustainability analyses they've done, but presumably this should help compensate for greater longevity and whatnot since the last revamp.

The plan also has some scary number like $150 billion as an "unfunded liability". This is, I believe, related to the fact that prior to 2000 the government was not funding its obligations directly (there was notional bookkeeping), but instead feeding in cash as required by operations and payouts. This was an intentional part of the original design. As of 2000, its required contributions were actually transferred in to the investment fund, but obligations for service prior to 2000 are an "unfunded liability", and are paid from current tax revenue as anticipated. I believe the government is looking the option of actually funding this liability (by, say, issuing bonds and directing the proceeds into the investment fund) if it feels it would be advantageous.

There may be some public plans that really are in an unsustainable state. Certainly in the US certain governments and unions seem to have used unrealistic assumptions and underfunding as a way of providing attractive benefits in collective agreements without immediate hits to budgets, and some of these are blowing up. I don't know that this is the case in Canada generally.


----------



## Eclectic12 (Oct 20, 2010)

janus10 said:


> ... If mandatory CPP expansion merely substitutes contributions to ones own RRSP, how is this really going to affect ones discretionary income? Instead of putting an extra $200 a month into my RRSP I don't have to because $200 month is going into this new CPP expansion.


For those that follow through - one loses control and gets what CPP pays. However, there are lots if people choosing to spend their discretionary income on boats, cars, houses, vacations etc. For them, it would redirect that money into something efficiently invested that pays a retirement income.




janus10 said:


> ... Once it is been underway for a generation, what benefits do you see if more Canadians were retiring with more inflation adjusted income? This is assuming that CPP does a better job managing that arbitrary $200 month than DIY investors.


Hopefully, less of a draw on gov't assistence programs. 

As for whether CPP can do better ... based on what most of those around me at work have done/discussed with me ("it's year 2000, I have sell all my investments before the computers lose track of it", "I know tech so that's all I will invest in" or "better to sell in Feb 2009 to save something as I know dividends are about to be slashed"), the number who would do better seems small.


Cheers


----------



## janus10 (Nov 7, 2013)

^^^^ Your thoughts are very similar to mine.

I don't have that much faith that the average Canadian, left to their own devices, will do what they can to ensure a comfortable retirement. As the DB Pension becomes less common, people will need to take advantage of TFSAs and RRSPs. Readers here may do well to remember we are generally more financially literate than the average Canadian and our mindset and experiences aren't necessarily representative of the whole.


----------



## yupislyr (Nov 16, 2009)

fraser said:


> Fred Vatesse has an article in the Financial Post today on this subject.
> 
> He argues that Canadians are actually saving more for retirement than they did ten years ago. Part of the issue appears to be how the saving numbers are calculated. He has some interesting information in the article. Clearly, there are some differences between experts in this field.


The article is just a quick rehashed version of the report in the OP. Just go to the source, which is still available here: https://www.cdhowe.org/sites/default/files/attachments/research_papers/mixed/commentary_428.pdf


----------



## sags (May 15, 2010)

On the campaign trail, PM Harper has reinforced his adamant opposition to an expanded CPP and the introduction of the ORPP.

He doesn't believe Canadians need any more retirement income.

He certainly doesn't, considering he will receive $212,000 a year public pension. It was reduced from almost $300,000 because he seeks another term, whereas many of his comrades have hit to road to preserve their pension before the changes take affect. 

But still...........$212,000 a year is just a tad more than most Canadians will get.


----------



## RBull (Jan 20, 2013)

Harper has not said or indicated Canadians do not need any more retirement income. What was said is:


"There are Liberal and NDP governments whose major ask of the federal government is that we hike taxes on workers and small businesses for the Canada Pension Plan.

"Workers and small businesses in Ontario and across this country reject that policy," Harper said. "They do not want that, they want options like the tax-free savings accounts that we created and doubled, like the registered pooled pension plan and other benefits.

"Canadians want to make their own decisions on savings, they do not want to be taxed by governments in this country," Harper said.

You may choose to infer this means he believes Canadians do not need any more retirement income. I choose to see it as the current government isn't going to make the decision to force businesses and workers to save more. The can do this themselves. Many workers could save more - the same way I saved most of what I needed for retirement, but some don't or won't. I would support taking more from a workers paycheque into a mandatory expended CPP but don't agree with either business or govt putting more funds into it. This might impact our countries competitiveness. 

Politicians have generous pension plans, but the generosity and real cost of public service pensions should be a far bigger concern to Canadians. 

https://www.cdhowe.org/ottawas-secret-debt-the-burden-and-risks-of-federal-employee-pensions/29470


----------



## HaroldCrump (Jun 10, 2009)

sags said:


> He doesn't believe Canadians need any more retirement income.
> 
> He certainly doesn't, considering he will receive $212,000 a year public pension. It was reduced from almost $300,000 because he seeks another term, whereas many of his comrades have hit to road to preserve their pension before the changes take affect.
> 
> But still...........$212,000 a year is just a tad more than most Canadians will get.


You realize, right, that he is the Prime Minister, and even if he loses this election, he would still have served for 9 years as PM and 13+ as an MPP.
Compare vis-a-vis ex Bloc leader, Gilles Duceppe, currently drawing $141K federal pension.

Anyhow, Harper's pension at $212K will be less than many OPG, OPP, Hydro One, and other public sector fatcats, some of whom will be drawing $500K+ pensions, after having made $1M+ salaries.


----------



## GPM (Jan 23, 2015)

I'm with Janus10, except I'd take it a step further. I don't think the average person is even able to do more for themselves. Most are financially illiterate and a lot don't have the the time, energy, or sometimes the "smarts" to take care of retirement. I have followed a long time before joining, and the forum members are way more literate than even some of the smartest people I know. 1/2 of people would likely be better without RRSP's and more CPP. Likely
better than mutual funds at banks. Cpp is pretty well diversified.

I like the idea of the of the unmatched contributions. For the average person this is a no brainer - they are getting an "annuity" when they retire. No pressure on the businesses or changes in taxes. It also gives the DIYer a chance to opt out. I know a lot of guys skip the cpp period with personal corps. Some have never paid any cpp or have any rrsp room. All real estate. I'd actually like to see cpp, oas, and gis wrapped into cpp. Not tax funded. Cut the staff and keep it simple. Likely can't happen for many reasons I don't understand.


----------



## My Own Advisor (Sep 24, 2012)

I agree with GPM. The majority of Canadians don't visit CMF or similar forums. They don't have the time or interest in financial matters. Being interested in personal finance and investing is viewed as a geek-squad thing. 

I believe some CMFers border on experts, even more so than many folks with a professional designation I've met.

Also, like RBull mentioned, I don't see the role of our government to make financial decisions for its citizens. The best the government can do is provide a minimum "social safety net" for everyone, ensuring a minimal standard of financial assistance is provided and deliver programs that educate Canadians on financial matters. That's it.

If that social safety net must be expanded, CPP, based on demographic shifts or lower expected returns going forward then so be it.

"Many workers could save more - the same way I saved most of what I needed for retirement, but some don't or won't."

Agreed.


----------



## sags (May 15, 2010)

It would require more than a modicum of financial or investment knowledge to build enough capital to pay for an extended retirement period.

There is a myriad of investments "strategies" to choose from, with different tax strategies attached to each of them, diversification to apply or reject, and at the very least a basic accounting ability.

Putting money into a HISA isn't going be nearly enough, simple indexing a couple of mutual funds will likely fall short, and there are plenty of sharks swimming in the investment waters awaiting the partially informed.

To believe that individuals could match the investment returns the CPPIB accomplish year after year is extremely optimistic.

Lacking the expertise, access to experts, capital and opportunities of a large fund such as the CPPIB...........it wouldn't happen.

A model that I think would work is a basic mandatory CPP..........with contributions by both the employer and employee, with the additional opportunity to increase the final benefit with self funding.

Think of it as selecting the level of life insurance a person wants to pay for............$100,000, $200,000, $1,000,000.

As far as I know the CPPIB have never been asked if it is possible to set up and administer such an option. As they stay out of politics, their thoughts on expansion have been limited to stating they are confident they could administer any changes.

What I find troubling is the current government's adamant outright rejection of any proposal to changing the CPP, resting on their ideology that a few boutique tax cuts solves everything......and then dispatching their lobby groups to convince people they already have more than enough, or that any changes to the CPP would be a tax on them and businesses.

The Harper government unfortunately is convinced that tax cuts solve all problems, from job creation to retirement funding.

At the very least, the question could be asked of the CPPIB experts..................what if ?

One wonders as well.........if the financial industry doesn't look longingly at $240 Billion.....(rising to $300 Billion in the near future) in the CPP fund, beyond their reach and ability to collect fees, and lobby the government not to direct any more capital away from them.

Banks, stock brokerages, insurance companies would have much to lose.......and their counter idea is pooled pensions, increasing TFSA contributions they hope to manage, and annuities they hope to sell.


----------



## sags (May 15, 2010)

It is interesting to note that Doggers thread answering questions about the CPP is the longest thread in the retirement section.

The CPP is obviously an important retirement component for a lot of people.......even on CMF.


----------



## fraser (May 15, 2010)

I agree with GPM. The majority of Canadians don't visit CMF or similar forums. They don't have the time or interest in financial matters. Being interested in personal finance and investing is viewed as a geek-squad thing. 


....could not agree more. This is one reason why our Canadian banks/bank stock has performed so well. Canadians have been getting hosed by bank fees and bank investment MERs for years.

But it is not excuse. You snooze, you loose.


----------



## sags (May 15, 2010)

Harper has been opposed to the CPP since 1995. 

He has called it a boondoggle, tax grab, unnecessary and has called for the CPP's elimination or privatization at various points in his career.

The overwhelming financial success and popularity of the CPP must chafe Harper immensely.

He has been wrong since 1995 and continues to be wrong.

If Harper wins the election, CPP expansion won't happen and Ontario will go ahead with their own pension plan, as they said they would do in the election campaign.

Vote PC and CPP expansion won't happen. Vote either Liberal or NDP and CPP expansion will likely proceed.

Canadians have an opportunity to decide what they want.

http://www.thestar.com/news/canada/...pension-plan-that-harper-dislikes-walkom.html


----------



## OldPro (Feb 25, 2015)

A couple of thoughts come to my mind as someone who has been retired for 26 years now (I retired at age 43).

There is a saying I like to apply in regards to retirement, it isn't where the saying originated but it is very appropriate nevertheless. The saying is, 'you can't see there from here.' Think of it as an event horizon. You can't know what will happen in the future. No one has a crystal ball that can tell them if where they will be financially when they retire will see them through comfortably to their grave or not. When I retired 26 years ago, what I knew was that I could generate enough passive income to live on for the next year. Anyone that thinks they know anything beyond that is kidding themselves.

I've also learned that retirement is not an end. It is simply the start of a new phase in your life. Think back to when you left school and got your first job. You went from being a student and a lifestyle you understood, to a new lifestyle that you had to learn about. You had no idea where your life was headed and if you did think you knew, chances are that since then, things have happened you never anticipated and where you are now is a result of those things that happened along the way.

I have no doubt that most people do little if any retirement planning. I also have no doubt that no matter what anyone does to try and educate them or change their behaviour is a waste of time. What needs to change is the assumption that everyone should be able to achieve a decent life in retirement. They won't, it's as simple as that. So whether it is a government or some pundit writing a report or whatever, they need to accept reality. A whole lot of people can't or won't take care of themselves. Nor can any kind of forced savings take care of them either. 

One factor stands out for me. The number of people who reach retirement age and are in debt. That one factor alone tells me that people won't learn. They have obviously not lived within their means, what makes anyone think they will suddenly learn how to do so when they retire next week? Behaviour doesn't change that way. They will continue to spend more than they earn and will continue to go into debt, even in retirement. You can't change how someone behaves, only they can and so my view is, let them go. I am not my Brother's keeper. What is the alternative, to tax others in order to bail the spendthrifts out of debt?

So the only people worth spending time talking about are those who *are *trying to plan a retirement. Those are the ones who have indicated a willingness to work at it. People such as yourselves who post here. Forget the rest. 

To those people, I go back to my first comments. You can only plan how you will start your retirement financially. After that, you will need to adapt and change according to the events that impact your life. Just as you have always done before. If I look back at where I was 26 years ago and where my life is now, there is no way I could have anticipated the changes that have occurred in my life and finances. Does everyone expect to retire at 65 and drop dead on the golf course at 67? If so, you can probably plan your retirement. But other than that, it will be like any other part of your life, ups, downs, uncertainty, good luck, bad luck, etc.


----------



## HaroldCrump (Jun 10, 2009)

sags said:


> Harper has been opposed to the CPP since 1995.
> He has called it a boondoggle, tax grab, unnecessary and has called for the CPP's elimination or privatization at various points in his career.


To be fair, his characterization of CPP and OAS as "fictitious obligations" was not entirely incorrect *at that time*.
Remember that this was before the establishment of the CPPIB and the changes to CPP that "fixed" its deficits problems (by increasing contributions and reducing benefits).
Up until that time, CPP & OAS were indeed general obligations.

Is Harper a thumping supporter and vocal advocate for the CPP? No, obviously not.
But his views from 1995 reflect the reality of the CPP from that period of time.



> Vote PC and CPP expansion won't happen. Vote either Liberal or NDP and CPP expansion will likely proceed.


My opinion is that neither the Liberals nor the NDP will expand the CPP if actually elected.
At least, not the way they are now claiming to, and definitely not in this type of economic climate.

All this _double the CPP_ is just pre-election rhetoric.
Even the hard-left, borderline communist NDP know in their heart of hearts, that the type of changes that are required for doubling the CPP (or expanding in any significant way) cannot be undertaken at this time.

If elected, they will at the most set up a committee to "study" it, prepare a report of some sorts, and then shelve it.
On paper it will be "ready to implement" at a moment's notice.
But in reality, they will not do it.

Coming back to ORPP, Wynne has decided to *further stagger the implementation* over a period of additional 2 years.
This is clear admission that ORPP will impose financial burden on income earners, and SME businesses.

Anyhow, going back to your point above, anyone voting NDP or Liberal with the hope that they will be able to collect a significantly larger CPP cheque in retirement is likely to be sorely disappointed.


----------

