The most common Canada Pension Plan question I am asked is: “Is it smart to take my CPP early?”
A quick review of the facts:
The maximum CPP benefit in 2017 at age 65 is $1,092.50 per month, or $13,110 per year.
You can start as early as age 60, but you get 7.2% less for every year before age 65. If you start at age 60, you get 36% less, so the maximum is $8,390 per year.
New rules in 2012 increased the penalty for starting early, but you can start CPP even if you are still working.
The simple breakeven calculation misses many important factors. For example, if John starts receiving $8,390 per year at age 60 and Jane starts receiving $13,110 at age 65, it will take her nine years to catch up. The simple breakeven is age 74. John gets more before age 74 and Jane gets more after.
This implies that if you expect to live past 74 (and most people will), you should delay your CPP. But this is not the full answer.
In today’s real estate market, buying a house is less a traditional rite of passage and more a Herculean feat, especially for Millennials scraping together a down payment in Toronto or Vancouver. To them, the concept of owning a detached dwelling, complete with yard and picket fence, is a faded – and financially unfeasible – memory.
But it was a reality for Canada’s 9.6 million Baby Boomers, many of whom bought in their early 20s, and are still living in the family home. And, given the explosive surge of housing prices over the decades, a fair share of those Boomers have seen their investment grow by hundreds of thousands of dollars. Consider this – according to the Toronto Real Estate Board, the average Toronto home sale price was $75,694 in 1980, compared to September 2016’s average of $755,755 – an 898% increase!
These homeowners face a choice: sell while the market is hot (especially as new mortgage rules designed to cool demand go into effect), or stay put. For many, it’s not an easy decision. They may feel cashing out isn’t worth parting with the beloved family abode. Others may wish to sell, but dread navigating bidding wars and other competitive tactics when buying their next home. For some, “downsizing” may just be a dirty word. So, what options do these Boomers have?
Sell and Lease-back agreements offer an option
To address this conundrum, some seniors have turned to what is traditionally a commercial real estate practice: buy- and sell-back agreements. In these transactions, a home is sold to an investor buyer while the previous owner continues to live in it as a leased tenant. It’s a method growing in popularity, and can seem the best of both worlds, but it certainly comes with its pros and cons. Here’s what Boomers should keep in mind if considering a sell and lease-back agreement:
The older we get the more important it becomes to look after not only our own financial situation but that of our parents as well. No matter what they’ve saved and tucked away for retirement, those funds may be at risk due to cognitive declines as they age.
The Huffington Post reports that over $36 billion is scammed in senior fraud and financial abuse every year. This is only the tip of the iceberg when it comes to these types of elderly scams: law enforcement officials estimate that only about eight per cent of crimes are reported ever year.
CNBC reports that women are also twice as likely as men to become a victim of fraud. They are considered easier targets, especially if they are in their 80s and living alone.
While knowledge goes a long way towards combatting these scams, obviously it’s not going far enough. Here are five ways to help protect your loved ones from scams, frauds, and financial ruin in their naive older years:
1.) Know the scams
The first line of defense is to know more about the common scams. This will help you anticipate and expect certain fraudulent activity, give you an edge heading them off from the first contact.
Why can’t investment management firms share the risk with their clients? Why does it always feel like it is stacked in favour of the investment managers and not the clients?
The answer to those questions is that investment managers CAN share the risk with clients, but they don’t want to. TriDelta Financial launched in 2005 and has charged traditional fees since the beginning. Today, we felt that we had the right investment management and infrastructure in place, and it was time to introduce a new approach.
I know that we wanted to be known as a firm that thinks differently and acts differently. It was time to put our money where our mouth is. As a result we have just launched the TriDelta Partnership Fee. At a high level, if your investment returns are negative, your management fee is credited back to you. If your 12 month return is between 0% and 3%, you will have 0.5% credited back to you. If your 12 month return is over 7%, there will be a performance fee charged to your account.
For the longest time, the investment industry was set up in a way that was tilted in favour of the industry. In fairness, every industry works that way to some degree. What is interesting about the investment industry is that there is a lot of discussion about risk and reward. Of course, this is only in relation to the clients’ portfolio. For the investment firm the only risk has been ‘don’t do too poorly or you will lose clients’.
Sharing gain and pain
If a client is down 5% on their portfolio, the portfolio manager will still make their 1% to 2.5% fee. If a client is up 15%, the portfolio manager will still make their 1% to 2.5% fee. There is no question that all investment managers would prefer a higher return for their clients. Having said that, the clear disconnect is the sharing of gain or pain.
Even worse is the traditional hedge fund industry. The fees of 1% to 2% are considered a weak year for a hedge fund. They decided that if they do ok or well, they should get a ‘performance fee’. If they do poorly, they don’t give back anything. Essentially their fee model is “you do poorly, we do well, you do well, we do great”.
If a manager can deliver something truly exceptional they deserve to be rewarded. The problem is when the truly average are simply charging very high fees.
Our new Partnership Fee truly shares the risk. In fact, if you lose money in a year, your management fees will be returned to you. On the other hand, if you earn 7% or more, you will pay a performance fee.
In addition to being a model that better shares the risk, it also lowers the clients overall volatility, essentially lowering their downside risk.
No other Canadian firm has this kind of fee-sharing model
Donald Trump has claimed the US presidency. While this may be another “unthinkable,” no one should be surprised. Rising populist sentiment has been a defining feature of the post-crisis world.
While a confluence of factors are driving discontent, an overriding theme is the perception that gains since 2008 have accrued to a wealthy few. Trump successfully tapped into those views and won. Clearly, America has sent a message to the political elite: “you’re fired.”
Where to from here? Not to be denied is that market volatility is set to rise. Trump’s anti-trade rhetoric could particularly create instabilities and imperil prosperity. But in a globalized world defined by a move toward closer interconnectedness, the “biggest loser” would undoubtedly be the United States.
Trump and Dump? Not Yet
Volatility should also be viewed opportunistically. Our Investment Team has written extensively on “Trump proofing” client portfolios. The first line of defense is wide global diversification with exposures to longer-running megatrends. For example, commodities are stuck in a grinding sideways market. Politics cannot change that meaningfully.
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By Ed Rempel, CPA, CMA, CFP 
