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Delay CPP & OAS until 70? – Some case studies

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By Ed Rempel

Special to the Financial Independence Hub

Planning the income for seniors often has the coolest opportunities to increase after-tax income.

The government pensions, CPP [Canada Pension Plan] and OAS [Old Age Security], are full of opportunities, because:

  • Seniors often have flexibility in taking taxable and non-taxable income.
  • OAS is subject to several “clawbacks” in addition to income tax.

To see these opportunities, you need to think creatively about pensions, tax and investments.

For example, in my recent article “Should I start my CPP early? – Real-Life Examples,” I found the single most important factor in whether to take CPP early before age 65 is how you invest.

Here you will see that the single most important factor in deciding whether to delay CPP after age 65 is: Will you withdraw more from your investments if you delay starting?

A quick review of the facts:

Delayed CPP Rules

  • The maximum CPP benefit in 2016 at age 65 is $1,092.50 per month, or $13,110 per year.
  • You can delay starting up to age 70 and you get 8.4% more for every year after age 65. If you start at age 70, you get 42% more for life, so the maximum is $18,616 per year.
  • New rules in 2012 allow you to start CPP even if you are still working.
  • If you are over 65 and still working, you can choose whether or not to pay into CPP.
  • Your 8 lowest earning years since age 18 (plus years when you had kids under age 7) are “dropped out” in calculating how much CPP you get.

Delayed OAS Rules

  • The maximum OAS benefit in 2016 at age 65 is $578.53 per month, or $6,942 per year.
  • You can delay starting up to age 70 and you get 7.2% more for every year after age 65. If you start at age 70, you get 36% more for life, so the maximum is $9,442 per year.

Continue Reading…

Americans worried about Retirement, unlikely to save more in 2017

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While 70% of Americans say they saved for retirement in 2016, many are anxious about the level of their savings and the need to direct money towards other goals and expenses, says a Harris Poll of 2,000 American adults conducted by the personal finance site NerdWallet. You can find the full results here.

Other major financial concerns include lack of emergency funds (cited by 35%), health care expenses (also 35%)and credit-card debt (27%). Retirement remains the most commonly cited savings priority (mentioned by 28% surveyed) but only 29% feel confident they saved enough in 2016, while one in three aren’t saving for retirement at all (including 43% of Millennials aged 18 to 24). Lesser forms of financial anxiety in 2016 include making mortgage or rent payments (19%), stock market volatility (17%), student debt (14%), and paying income taxes (13%).

Next year may not be much better: of those with workplace pensions, only 32% plan to increase their contributions in 2017. Older Americans aged 45 to 54 are most likely to report concern about lack of retirement savings (40% surveyed), while only 20% are confident they saved enough this year.

Savers should favour tax-advantage accounts over savings accounts

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How to be wealthy & healthy, starting this Holiday Season

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Piggy bank balancing on seesaw over a bottle of pills
You can balance Health & Wealth with advisors on both

By Sandy Cardy

Special the Financial Independence Hub

The Holiday season is a very personal balancing act.  Every year we experience the same thing – multiple events featuring gut-bloating menus and Boxing Day blow outs followed by crash dieting for both your waist-line and your bottom line. How do you find that sweet spot between making the season joyful and memorable while avoiding the perils of two to three weeks of over-eating and spending followed by a blizzard of credit card debt?

It’s no secret that Canadians, particularly Baby Boomers in their sixties, are doing a poor job of managing their retirement savings, falling well short of amassing enough retirement funds. Canadians still find it difficult to apply one of the simplest financial planning principles: pay yourself before you pay for anything else.

If, like many boomers, your retirement plan is increasingly looking like harnessing yourself to a full-time job as long as possible, what happens if you fall sick? And when you gaze with furrowed brow at your bloated credit card balances in January, not only are you even further from any savings goals, the sheer shock of the amount owing can add an unwelcome dollop of stress to already overtaxed minds and bodies.  Never knowing when enough is enough, there aren’t any checks and balances on our impulse to over-consume.

Here are some tips to get re-balanced for 2017:

Every money decision you make, even the little ones, will have an impact on your retirement. Perhaps what you need now is a qualified advisor to help you achieve your goals: someone you trust wholeheartedly. A good advisor will ensure you are realizing all cost savings, and applying tax minimization strategies to build your net worth. Put it this way: it’s much more difficult to neglect simple investment principles when a financial planner is looking over your shoulder.

Healthcare advisors as important as financial advisors

Similarly, having one or more health care advisors available is essential. Whether you encounter a health crisis or want to pursue preventative health,  it’s key to find  nurturing and optimistic healers, either conventional or alternative, ones that involve you in your health care discussion.

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Commission-based advice & suitability: a dangerous combination

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Smiling confident businessman giving an handshake, agreement and recruitment conceptThe average Canadian investor has little clue how their financial advisor gets paid, or that their advisor is only obligated to provide advice and product recommendations that are suitable, but not necessarily in the best interests of their clients.

Commission-based advice

Why does this matter? Commission-based advice leads to conflicts of interest. Namely, advisors who sell mutual funds are motivated by trailer fees (aka trailer commissions), which is a commission paid by the mutual fund company to the advisor.

According to a recent study by York professor Douglas Cumming, there are three ways that trailer fees cause harm to investors:

1.) More money is steered towards mutual funds that have higher trailer fees;

2.) Money is less likely to be taken out of mutual funds with poorer performance among funds that pay higher trailer fees, and;

3.) Mutual funds that raised their trailer fees experienced a drop in performance, while funds that lowered their trailer fees experienced a rise in performance.

Canadian securities regulators have been mulling a ban of trailer fees or embedded commissions for over two decades. The mutual fund industry, as you can imagine, is vehemently opposed to such a ban.

Why, you may ask? Canadian investors hold more than $1 trillion in mutual fund investments and pay over $5 billion in trailer fees every single year.

Suitability vs. Best Interest

 

What about suitability versus a best interest standard? Most advisors in Canada are held to a suitability standard, which means before recommending an investment he or she must demonstrate that it’s appropriate based on their client’s risk tolerance, goals, and experience.

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What happens to your TFSA upon death?

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Human mortality seems to be the Hub’s theme today. This morning we posted Lorne Marr’s 20 tips on getting life insurance without having to take a medical exam first.

Subsequent to that, my latest MoneySense Retired Money blog looks at the topic of estate planning as it related to Tax-free Savings Accounts (TFSAs). To access the full blog, click on the highlighted text here: Why your TFSA needs a Successor Holder.

We had mentioned in an earlier blog that TFSAs were excellent vehicles for estate planning and minimizing tax of families as a whole. See How TFSAs can aid your Victory Lap.

We also said that it’s by far preferable for couples to name each other Successor Holders on their respective TFSAs. Otherwise, things get pretty complex, which is what the MoneySense blog goes into in some depth.

TFSA succession planning often not well understood 

Sandy Cardy

The blog is based largely on input from Mackenzie Investments and a brochure it published entitled What happens to your TFSA at the time of death?, which you can access in full by clicking on the link. It also quotes regular Hub contributor Sandy Cardy, who was the head of tax and estate planning at Mackenzie when that brochure was published. In that role, she was responsible for educating the financial advisors who sell mutual funds on estate planning, including its role in TFSAs. As she notes in the MoneySense blog, this topic of TFSAs at death is not well understood even by some financial professionals.

These days, following her own brush with cancer in 2012 (she’s fine now) Cardy blogs as much on health as she does on Wealth. See for example, a recent Hub blog titled The Mind-Body Connection: How Stress Affects Your Health. Her website can be found here, and you can find her estate planning “novel” by clicking on this  highlighted title: The Cottage The Spider Brooch and The Second Wife.