My latest MoneySense Retired Money column looks at a rare 10% boost of Old Age Security (OAS benefits) Ottawa recently confirmed for seniors aged 75. As you’ll see there are plenty of implications and points to consider for those who are younger and contemplating deferring OAS to 70, or indeed CPP.
The National Institute for Aging (NIA) confirmed OAS payments for Canadians aged 75 or older will be hiked 10%: the first permanent increase in almost 50 years. The NIA’s Director of Financial Security Research, Bonnie-Jeanne MacDonald, and Associate Fellow Doug Chandler said in the release the best way for retirees to maximize this boost is to defer OAS benefits for as long as possible, either by working longer or by using their savings to fund the delay.
By now, most retirees are aware they can boost Canada Pension Plan (CPP) benefits by 42% by delaying the onset of benefits from age 65 to 70, or 0.7% for each month of deferral after 65. What’s less well known is that a similar mechanism works for OAS. Unlike CPP, OAS is never available before age 65, but by delaying OAS benefits for 5 years to age 70, you can boost final payments by 36%, or 0.6% more for each month you delay benefits after 65, according to the NIA. Before the August increase at age 75, the NIA said average Canadians would “leave on the table” $10,000; but after factoring in the new increase, they would now lose out on $13,000 by taking OAS at 65.
MacDonald and Chandler noted there are three other reasons to postpone OAS benefits: Reduced clawbacks of the Guaranteed Income Supplement (GIS) after age 70; Better OAS benefits despite clawbacks for those with more retirement income: and Increasing residency requirements. On point one, it says lower-income seniors wishing to avoid GIS income-tested clawbacks could draw down on RRSP savings to defer and boost OAS benefits, thereby preserving GIS payments after 70. On point 2, those subject to OAS clawbacks may find the age 75 boost in combination with delaying benefits may increase benefits but not the clawback. And on point 3, waiting may mean more years of residency for those who have not lived their entire years in Canada: to qualify for OAS you need to have been a Canadian resident for at least 10 years after age 18, so the five extra years of waiting for benefits could add to the payout.
However, on the first point retired actuary and retirement expert Malcolm Hamilton says it’s true deferring OAS until 70 and drawing more from your RRIF to compensate, means your RRIF income after 70 will be smaller and OAS pension larger. “However, by not drawing OAS until 70, low-income seniors will forfeit the full GIS benefit before 70. This doesn’t look like a good plan to me.” Continue Reading…
It’s been awhile since I reviewed any political books here on the Hub. The last time was this time a year ago when I surveyed what were then the latest books on the Trump presidency (at one point in 2021, 3 of the top 6 New York Times bestselling books were on Trump: see here).
I occasionally wade in on this topic on the grounds that investors need to be on top of this seemingly unique political situation. That’s despite the fact that when Trump first won his shock victory in 2016, markets briefly cratered, only to quickly recover.
The particular pair of mini-reviews below has no real financial angle but you can see I explicitly covered that a few years ago in a MoneySense column that evaluated the implications of the Trump presidency for the Boomers’ collective retirements: see here.
Over the long weekend, I finished reading two recently published books that some may find of interest, whose covers are illustrated on this blog. One is Thank You for Your Servitude, Mark Leibovich’s entertaining summary of all the Republican enablers who made the Trump presidency possible in the first place, and may yet facilitate a dreaded second term. The other is This Will Not Pass [Simon & Schuster) by Jonathan Martin and Alexander Burns, subtitled Trump, Biden, and the Battle for America’s Future. The co-authors are both New York Times writers and CNN political analysts, neither known as MAGA-friendly outlets.
Save your money and borrow these from the library
I might add that, despite being an author myself, I generally refuse to buy any of these US political books: I either read ebooks from the Toronto Library’s excellent Libby app, or download ebooks or audio books from the paid SCRIBD service. Libby often involves waiting a few weeks or months for popular bestsellers; however, if you can read quickly, you may be able to luck into the occasional Skip the Line service, which lasts only a single week. SCRIBD sometimes has books not yet on Libby, often in audio format, and unlike the library, you can keep them beyond the normal three-week limit.
There’s been a fair bit of press and YouTube clips on both these books. Formerly with the New York Times, Leibovich is perhaps best known for his bestselling This Town, about 21st century Washington. Thank You for Your Servitude [Penguin Press, New York, 2022] is subtitled Donald Trump’s Washington and the Price of Submission. While the author admits that many of the anecdotes will be all too familiar to anyone following the daily press, he manages to provide a fresh perspective on them while simultaneously apologizing for making readers relive the worst of these moments. Many of them center around Trump’s Washington-based Trump Hotel, which is where the book begins and ends. There you meet such familiar characters as Rudy Giuliani, Reince Priebus, Kevin McCarthy, Mitch O’Connell, William Barr, Jeff Sessions, Lindsay Graham, Marjorie Taylor Greene, Kellyanne Conway and the whole sordid collection of Trump toadies and sycophants, or the so-called MAGAts.
One early chapter is entitled “The Joke,” which apparently is how even how Trump’s closest enablers seem to view his rise to the top of the political pyramid:
It would be risky, obviously, for a Republican member of Congress to declare, explicitly, that “Donald Trump is a complete ignoramus,” even though that’s what they really believed. But none of this had to be spoken because the truth of this scam, or “joke,” was fully evident inside the club …. Everyone … got the joke.
Covers Ukraine invasion but not January 6th hearings
The book is recent enough that it includes an epilogue about the Russian invasion of Ukraine in February. The book ends on a despairing note of pessimism about the prospects of anyone stopping Trump in 2024. Of course, it was published months before this summer’s high-profile January 6th hearings, nor does he spend much time addressing any of the other multiple investigations into Trump’s businesses and political shenanigans.
The following telling snippet is one of many that may not be widely known. I was struck by the revelation in the epilogue that within a day of Trump’s “Be there, will be wild” tweet promoting the January 6 rally, the cheapest room in the Trump Hotel immediately jumped from US$476 to US$1,999.
Donald Trump didn’t just inspire the Jan. 6 riot … He seems to have made money off it.
That pretty much says it all. Leibovich ends with an ominous foreshadowing of Trump’s possible triumphant return in 2024. His final sentence is “And who’s going to stop him?” A few sentences earlier, he quotes a former Republican congressman who confessed that the party’s only real plan for dealing with Trump in 2024 involved a darkly divine intervention: “We’re just waiting for him to die .. That was it, that was the plan. He was 100 percent serious.”
Can Joe Biden extract the US from its “political emergency?”
Simon & Schuster
Those who are thoroughly sick of Trump — as I am — may find This Will Not Pass more to their liking, as roughly half the content is devoted to Trump’s successor, Joe Biden. The focus is what it describes as the “political emergency in the United States: the story of how the country reached and survived a moment when carrying out the basic process of certifying an election became a mortally dangerous task.”
It recounts how the country “sort of” survived but like Leibovich, leaves readers pretty nervous about what may yet occur in the 2022 mid terms this fall and ultimately in 2024. As Martin and Burns remind us (as if we needed it!):
Donald Trump has not been banished from national life, but instead remains the dominant force in his party and is bent on purging those few Republicans who won’t bow to him … The former president’s delusions about a stolen election … have lingered with corrosive force, warping his own party and catalyzing a wave of red-state voting restrictions aimed at cracking down on election fraud that did not happen. The fantasies of a Trump restoration have only deepened since his departure from the White House.
The book is arranged in three parts: the year before the 2020 election and Trump’s mismanagement of Covid; the tumultuous months between the contested 2020 election and Inauguration Day, and everything that has transpired since:
… As President Biden attempted an acrobatic feat of leadership: pushing a liberal policy agenda of titanic ambition with the thinnest of majorities … Far from quickly erasing the Trump era, leaders in both parties have found the shadow of the last presidency has been longer and darker than they anticipated, colouring every major political decision and legislative negotiation of the Biden administration and shaping even the perceptions of American democracy overseas.
Ambitious, yes: One chapter nicely summarizes the dominant question before Biden as “How Big Can We Go?”
Unlike Servitude, This Will Not Pass was published too soon to cover much of the events of 2022. Oddly, for an American book, it closes with an observation by a Canadian, Bob Rae (at one point Canada’s ambassador to the United Nations.) He calls Trump an “authoritarian … I don’t believe the Republican Party believes in democracy.” And he warned that the threat to American democracy was far from defeated: “America,” he said, “is a very important battleground.”
They Want to Kill Americans
(Added subsequently). There’s a third and even scarier book that I only began to read the day this blog initially was published. They Want to Kill Americans by Malcolm Nance, describes Trump’s brownshirts and the ongoing assault on American democracies by Americans. Here’s a link to Goodreads’ entry on it. And here’s a Kirkus review.
Jonathan Chevreau is Chief Financial Officer of the Financial Independence Hub, author of the financial novel, Findependence Day, co-author of the non-fiction Victory Lap Retirement, and columnist and Investing Editor at Large for MoneySense.ca.
My latest MoneySense Retired Money column looks at how the last two years of the Covid pandemic may have caused many older workers to find themselves suddenly retired, whether by their choice or not. You can find the full column by clicking on the highlighted text: Does it make sense to retire when we’re still in a pandemic?
Depending on when you had originally planned to retire — typically the traditional Retirement age in Canada is around 65 — the unexpected loss of Employment income may create any of several possibilities.
A major one is Semi-Retirement: a sort of half-way house between full employment and traditional full-stop Retirement. They may embrace a so-called Portfolio Career, generating multiple streams of income: employer pensions, government pensions, investment income, annuities, self-employment income; rental income, book royalties, speaking fees and the like.
Those in their early 60s may decide re-employment is not in the cards, which means a severance package may be your ticket to launching an encore career and becoming self-employed.
While self-employment may seem scary to those who spent more of their careers as salaried employees, self-employment doesn’t necessarily mean starting a business and employing others. Freelancing or consulting is typically a one-person gig; it may even just mean cobbling together several part-time jobs.
The column also addresses the possibility of downsizing to a smaller or less expensive place in the country, which many sudden retirees have done during the Covid era. Of course, the whole WorkfromHome phenomenon has shown how new technologies like Slack and Zoom make it possible to work remotely from anywhere with a reliable Internet connection. Two years into living with the pandemic, such technologies seem to have become permanent fixtures of working, whether remotely or a hybrid of commuting and telecommuting.
Those who were already near retirement and who enjoy good employer pensions and/or solid nest eggs from RRSPs, TFSAs and other savings, may decide they can get by without finding new employment or braving the waters of self-employment.
Time may be worth more than money
The column quotes financial marketer Darin Diehl, laid off at age 60 before Covid: “Even before Covid, my wife and I were thinking about whether we’d stay in our Mississauga home for the transition years into retirement, or downsize and relocate out of the city … Covid caused us to think about our options more thoroughly.” Continue Reading…
With rising inflation driving up the costs of goods and services, a Scotiabank survey released Monday reveals over half [53%] of Canadians are worried about their ability to pay for day-to-day expenses. The majority (78%)of expect to be spending more on basic necessities like groceries and food, or gas (71%), and 53% expect to spend more on utilities (53%). 47% say these issues are impacting their ability to save for longer-term financial goals and 37% feel it’s impacting their current standard of living. Scotia Economics expects inflation to peak later this summer before starting a slow descent to 3.6% in 2023 and back to target by 2024.
“Canadians are feeling heightened levels of anxiety as a result of inflation: especially younger people and women who were also hardest hit by the pandemic,” said D’Arcy McDonald, Senior Vice President of Retail Payments and Unsecured Lending at Scotiabank via a press release. “The cost of everything is on the rise and Canadians are worried about their ability to afford the essentials such as food and gas. At the same time, there have never been so many jobs in the Canadian economy, wages are picking up, and inflation will come down over time.”
Financial stress hits differently across the country
Where Canadians live dictates how much they believe rising costs will impact their finances and ability to pay their bills. 49% of residents in the Atlantic think inflation is having a major impact on their ability to set and stick to a budget, compared to 36% of residents of British Columbia and Quebec.
When it comes to feeling financial anxiety, 57% of Quebecers are least likely to be concerned about their ability to pay for day-to-day expenses, compared to residents of Alberta (45%), Manitoba/Saskatchewan (44%), Ontario (43%), and the Atlantic (39%).
The young are most impacted and most concerned
Women, younger Canadians, and those with lower household incomes are significantly more concerned about their financial situation over the next few months. Women (44%) are more likely than men (35%) to say inflation and the rising costs of goods and services is having a major impact on their ability to set and stick to a budget.
Canadians between the ages of 18-34 (45%) and 35-54 (46%) say inflation and the rising costs of goods and services is having a major impact on their ability to set and stick to a budget, compared to Canadians 55+ (30%). Continue Reading…
My latest MoneySense Retired Money column looks at whether the multiple interest rate hikes of 2022 means its time for retirees to start adding annuities to their retirement-income product mix. You can find the full column by clicking on the highlighted headline here: Rising rates are good news for near-retirees seeking longevity insurance.
The Bank of Canada has now hiked rates twice by 50 basis points, most recently on June 1, 2022. That’s good for GIC investors, as we covered in our recent column on the alleged death of bonds, but it’s also welcome news for retirees seeking longevity insurance.
As retired actuary Fred Vettese recently wrote, retirees may start to be tempted to implement his suggested guideline of converting about 30% of investment portfolios into annuities. As for the timing, Vettese said it is “certainly not now: but it could be sooner than you think.” He guesses the optimal time to commit to them is around May 2023, just under a year from now.
After the June rate hikes, I asked CANNEX Financial Exchanges Ltd. to generate life annuity quotes for 65- and 70-year old males and females on $100,000 and $250,000 capital. The article provides the option of registered annuities and prescribed annuities for taxable portfolios. It also passes along the opinion of annuity expert Rona Birenbaum that she greatly prefers prescribed annuities because of the superior after-tax income. Of course, many retirees may only have registered assets to draw on: in RRSP/RRIFss and/or TFSAs.
For a 65-year old male investing $100,000 early in June 2022, with a 10-year guarantee period in a prescribed (non-registered) Single Life annuity, monthly income ranged from a high of $548 at Desjardins Financial Security with a cluster at major bank and life insurance companies between $538 and $542. (figure rounded). Comparable payouts on $250,000 ranged from $1299 to $1,390. Because of their greater longevity, 65-year old females received slightly less: ranging from around $500/month to a high of $518, and for the $250,000 version from $1238 to $1319.
Here’s what Cannex provides for comparable registered annuities (held in RRSPs):
For a 65-year old male (born in 1957), $100,000 in a Single Life annuity nets you between $551 and $571 per month, depending on supplier; $250,000 generates between $1,399 and $1,461 a month. For 70-year old males (born 1952), comparables are $625 to $640/month and $1,578 to $1,634 a month. Continue Reading…
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My latest MoneySense Retired Money column looks at a rare 10% boost of Old Age Security (OAS benefits) Ottawa recently confirmed for seniors aged 75. As you’ll see there are plenty of implications and points to consider for those who are younger and contemplating deferring OAS to 70, or indeed CPP.
