Longevity & Aging

No doubt about it: at some point we’re neither semi-retired, findependent or fully retired. We’re out there in a retirement community or retirement home, and maybe for a few years near the end of this incarnation, some time to reflect on it all in a nursing home. Our Longevity & Aging category features our own unique blog posts, as well as blog feeds from Mark Venning’s ChangeRangers.com and other experts.

Another emotional reason to take CPP early

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By Michael J. Wiener

Special to the Financial Independence Hub

 

For some reason, people seem wired to want to take their CPP and OAS benefits early, myself included. They grasp for reasons to justify this emotional need even though a rational evaluation of the facts often points to delaying the start of these pensions to get larger payments. I recently read about another emotional reason to justify taking CPP and OAS early.

We can choose to start taking CPP anywhere from age 60 to 70, but the longer we wait, the higher the payments. Less well known is that we can start taking OAS anywhere from age 65 to 70 with higher payments for waiting loger. It’s hard for us to fight the strong desire to take the money as soon as possible, and we tend to latch onto good-sounding reasons to take these pensions early.

But the truth is that most of us have to plan to make our money last in case we live long lives. Taking CPP and OAS early would give us a head start, but the much-higher payments we’d get starting at age 70 allow us to catch up quickly. If we live long lives, taking larger payments starting at age 70 is often the winning strategy.

Here I examine reasons to take these pensions early, ending with a longer discussion of the reason newest to me. Many of these reasons are inspired by other writing, such as a Boomer and Echo article on this subject. However, you’ll find my discussion different from what you’ll see elsewhere.

Let’s start with the best reason.

1.) You’re retired and out of savings

This is a good reason to take pensions early if you’re really running out of savings other than a modest emergency fund. However, just wanting to preserve existing savings isn’t good enough on its own. It makes sense to do a more thorough analysis to see what you’re giving up in exchange for trying to preserve your savings.

2.) You have reduced life expectancy

If you’re sufficiently certain that your health is poor enough that you’d be willing to spend down every penny of your savings before age 80, then this is a good reason to take pensions early. This is very different from “I’m worried I might die young.” If as you approach age 80 you would try to stretch out your savings in case you live longer, this has repercussions all the way back to how much you can safely spend today. Almost all of us have to watch how we spend now in case we live a long life. In this case you need to do a thorough analysis to see what you’re giving up in exchange for taking pensions early.

3.) You have long periods before age 60 with no CPP contributions

If you don’t work after age 60, but delay taking CPP until 65, the 5 years without making CPP contributions can count against you. Everybody gets to drop out the lowest 17% of their contribution months in the CPP calculation. So, if you never missed a year of CPP contributions from age 18 to 60, you can just drop out the years from 60 to 65, and you won’t get penalized. But if you had many months of low contributions over the years, then having additional low months from 60 to 65 will reduce your CPP benefits.

I am in this situation. However, from 60 to 65 you go from receiving 64% to 100% of your CPP plus any real increase in the average industrial wage. Taking into account all factors, I expect my CPP to rise by about 47% by delaying it from 60 to 65. This is less than it could have been without the penalty of not working from 60 to 65, but it is still a significant increase.

Delaying CPP further from 65 to 70 is a simpler case. There is a special drop-out provision that allows you to not count the contribution months between 65 and 70. CPP benefits increase from 100% of your pension at 65 to 142% at 70.

CPP benefits rise significantly when you delay taking them. Even if you can’t use your 17% drop-out for all the contribution months from age 60 to 65, you may still benefit from delaying CPP.

4.) You want to take the CPP and OAS and invest

People don’t generally get this idea on their own. It often comes from a financial advisor. You’re unlikely to invest to make more money than you’d get by delaying CPP and OAS, particularly if you pay fees to a financial advisor.

5.) The government might run out of money to pay CPP and OAS

The government might introduce wealth taxes on RRSPs too. Despite what you might have heard from financial salespeople, CPP is on a strong financial footing. Many things may change in the future. It doesn’t make sense to overweight the possibility of cuts to CPP or OAS.

6.) You want the money now to spend while you’re young enough to enjoy it

My wife and I are retired in our 50s. When I analyze how much we can safely spend each month, the number is higher when we plan to take both CPP and OAS at 70. That’s right; we can spend more now because we plan to delay these pensions. It works out this way because CPP and OAS help protect against the possibility of a long life. Continue Reading…

Mapping your Aging Journey: Review of Options Open

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By Mark Venning, ChangeRangers.com

Special to the Financial Independence Hub

Over umpteen years, my ideal number, working as a career consultant, the most significant rewards came about in one to one conversations, notably with clients seeking new career directions in later life, with the unique pleasure of meeting my oldest client who on the day we met was two months shy of turning ninety.

Rare this was and I wish I could tell more here, but to say the least, his was an adventuresome journey, not without challenge but certainly lived with sociability, creativity and curiosity.

So imagine how startling it was, with all my years of listening to hundreds of stories of later life journeys suddenly in mind, that I began the new book Options Open by Sue Lantz hearing an invitation call in the first chapter to “start with curiosity.” The Options Open book subtitle is “The Guide to Mapping Your Best Aging Journey,” and so serves as an artfully laid out roadmap using travel planning as a relatable metaphor, useful in practical conversations with partners, friends or even an eclectic mix in a Zoom group.

Skillfully promoting self-reflection, practicality and of course curiosity, this later life travel planning guide works with an interconnected “Five Strategy Framework” that charts a course taking you through your: Health, Home, Social Network, Caregiving Team and Resources (financial and otherwise). This is the book I wish I had to supplement all those later life career conversations, when many people saw a road ahead through a narrow lens; eying a fated future as a so called Retirement, almost like a vanishing point.

Book does not restrict itself to the word Retirement

Two positive overall attributes of this book instantly drew me into it. First, Sue Lantz thankfully does not hinge the book on that restrictive word Retirement, which is certainly not a travel planning guide destination I’ve ever seen. If travel can be metaphoric for our aging journey, I agree with Sue when she says from the onset, “Successful aging is a process that involves making several transitions.” That goes for all our trips through airports or train stations in our life course; we are much on foot in transition.

However, it can’t be escaped: reference to Retirement plops quietly in a few places in this book. Try as we might over the last twenty years, other books have made multiple contemporary rewrites to recast the vocabulary for a dated concept or social construct Retirement, while still casting it as a state you reach in later life. Most of these attempts miss the mark or leave gaps that Options Open addresses sagaciously.

The second prominent point to make about Options Open is that in the category of aging and longevity, it is the first book I have read, published in 2020, written with a consideration to the context of a COVID world. In the book’s Preface, Sue positions the relevance of working with this book in our current time:

“Our world changed dramatically during the global COVID-19 crisis. We realized what is essential to our daily life … We directly experienced the link between how prepared and proactive we are as a society, and how this plays out in terms of our individual risks, and whether or not our own health (and life) is maintained.”

Still further, Sue confirms something I have often reflected upon after many conversations I have been part of this year: “… our worst fears were amplified during the COVID-19 pandemic. Yet, if we let our fears stop us from thinking about our own aging, we are actually discriminating against ourselves.” As I write this post, COVID world continues unabatedly, but if you are leaning to a hermit’s way, perhaps the curious pilgrim in you might emerge to make time to explore your options.

If you have been at home more this year, it is somewhat fitting that one of the strategy areas in the Options Open framework covers the topic of Aging in Place. This might be as good a time as any to think forwardly about the right place, and as Sue Lantz accurately puts it in the section Consider YOUR choice of place, “Your best housing plans will be guided by how well this sets you up to achieve the other four Strategies, including your healthcare access, social networks, and caregiving resources.”

Two coincidental thoughts come full circle in my mind that underscore for me how timely this book is and why I recommend it as one that makes you think realistically and therefore one you can actually use.

It was three years ago this week in 2017, that I heard Sue Lantz speak at the National Institute on Ageing (NIA) where she talked about acting like Pixar – “animating aging in place” – animating the options that is, by co-creating, co-locating to build as a whole, what I prefer to call age inclusive communities. As Lantz went on to say, we are dealing with a diversity of issues across the board, which are interconnected. Looks like the concept of her book grew shoots back then.

Most hauntingly, I also recall when in Chicago, 2004 – I heard William Bridges, author of Transitions: Making Sense of Life’s Changes – a book that stands the test of time, (first published in January 1980) speak on “Finding Your Own Way”. At the end of his talk, you could hear a pin drop. The Bridges Transition model is classic and stemming from it is a statement he made that lingers still from that day: “Uncertainty is a fluid state that allows for openings”.

We are in a fluid state these very days, so as that allows – why not find our Options Open.

Review Part 2: Continue Reading…

Retired Money: RRSP must start winding down after you turn 71 but TFSA is a tax shelter that lasts as long as you do

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My latest MoneySense Retired Money column has just been published and looks at the twin topic of RRSPs that must start to be converted to a RRIF after you turn 71, and the related fact that the TFSA is a tax shelter you can keep adding to as long as you live. You can find the full column by clicking on the highlighted headline: How to make the most of your TFSAs in Retirement.

Unlike RRSPs, which must start winding down the end of the year you turn 71, you can keep contributing to TFSAs for as long as you live: even if you make it past age 100, you can keep adding $6,000 (plus any future inflation adjustments) every year. Also unlike RRSPs, contributions to Tax-free Savings Accounts are not calculated based on previous (or current) year’s earned income.  Any Canadian aged 18 or older with a Social Insurance Number can contribute to TFSAs.

Once you turn 71, there are three options for collapsing an RRSP, although most people think only of the one offering the most continuity with an RRSP; the Registered Retirement Income Fund or RRIF.  More on this below but you can also choose to transfer the RRSP into a registered annuity or take the rarely chosen option of withdrawing the whole RRSP at one fell swoop and paying tax at your top marginal rate.

Assuming you’re going the RRIF route, all your RRSP investments can move over to the RRIF intact, while interest, dividends and capital gains generated thereafter will continue to be tax-sheltered. The main difference from an RRSP is that each year you must withdraw a certain percentage of your RRIF and take it into your taxable income, where it will be taxed at your top marginal rate like earned income or interest income. This percentage start at 5.28%  the first year and rises steadily, reaching 6.82% at age 80 and ending at 20% at 95 and beyond.

Some may be upset they are required to withdraw the money even if it’s not needed to live on. After all, you’re gradually being forced to break into capital, assuming you abide by some version of the 4% Rule (see this article.)

in 2020 only, you can withdraw 25% less than usual in a RRIF

For 2020 only, one measure introduced to cushion seniors from the Covid crisis was a one-time option to withdraw 25% less than normal from a RRIF; so if you turned 72 in 2020 you can opt to withdraw 4.05% instead of 5.4%. Continue Reading…

CPP survivorship benefits (and OAS Allowance for low-income Survivors)

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By Mark Seed, MyOwnAdvisor

Special to the Financial Independence Hub

Long-time readers of this blog will know I remain many years away from full-on retirement – so I have tons of time to consider when to take our Canada Pension Plan (CPP) benefit and our Old Age Security (OAS) benefit.

For those who might be closer to retirement age and/or you want to know when to take CPP or OAS, make sure you read these posts below!

These are the best options when to take CPP.

Should you defer CPP to age 65 or even age 70? Here’s when to consider that.

One factor rarely covered on many blogs or financial forums is the subject of survivorship benefits for either program. It can be a major factor when determining when to take CPP or OAS for some.

What are the pros and cons of taking CPP or OAS early or late, when you factor in survivorship benefits?

Doug Runchey; DRPensions.ca

Like other financial subjects, I have my own ideas based on our financial plan but I wanted to talk to an expert. I reached out again to Doug Runchey, a pension specialist who has more than 30 years of experience working with both CPP and OAS programs.

In our latest discussion, we tackle the survivorship subject and what general rules of thumb apply.

Doug, welcome back.  Good to chat again and I hope you’ve been well …

Thanks for having me back again Mark.

I always appreciate the outreach for a take on this important subject. I agree, this isn’t talked about enough: how survivorship factors into government benefits decision-making.

For those folks not familiar with the benefits of CPP, can you remind them about the factors they should consider – when to take CPP?

The most important thing is to know exactly what your real choices are, because the numbers on your SOC or online at the MSCA website are not always very accurate. Once you have accurate numbers, you should consider factors like life expectancy, taxation, impact on other benefits (e.g., GIS), estimated expenses and other income streams.

When to take your CPP should be integrated with your overall financial retirement plan.

As we discussed in a previous post, there are some reasons to take CPP or OAS as early as possible:

  1. you need (and want) the money to live on now (probably the biggest reason)!
  2. you have good reason to believe that you have a shorter-than-average life expectancy; take the money now and spend as you please.
  3. you already have a good reliable defined benefit pension with full indexing and the CPP and OAS are “gravy”;
  4. you want to delay taking your portfolio withdrawals since you may wish to maximize the amount of money in your estate; and/or
  5. you are a “bird in hand” investor so you take Canada Pension Plan money now while you can.

Great reminders. So, what about the survivorship benefits of CPP? How are these calculated? Should that play into the decision, when to take CPP?

They should Mark.

CPP survivor’s pensions are based on two different formulas, depending on the age of the surviving spouse.

For now, let’s just consider the formula for survivors over age 65 and that is 60% of the deceased contributor’s “calculated CPP retirement pension.”. By “calculated,” I mean prior to applying the age-adjustment factor if they started receiving their retirement pension before/after age 65. This 60% is reduced however, if the surviving spouse is also in receipt of their own CPP retirement pension, under what are known as the “combined benefit” calculation rules.

These combined benefit calculation rules should definitely be a factor in deciding when to take your CPP if the survivor’s pension is in play prior to making that decision, but probably not otherwise.

Shall we look at an example, from a couple that prefers the “bird in hand” income?

To demonstrate these combined benefit calculation rules, let’s use an example where the husband’s calculated CPP was $1,000 and the wife’s calculated CPP was $700.

If they both took their CPP early at age 60, they would each receive 64% of their calculated CPP, which would be $640 for the husband and $448 for the wife.

If the husband passed away at age 70, the wife would normally be eligible for 60% of his calculated CPP, which is $600. Under the combined benefit rules though, that amount is reduced by 40% to $360.

As a result, the survivor’s retirement pension is increased by a “special adjustment” in the amount of $86.40 (36% of the $240 reduction to the survivor’s pension). The net combined benefit that the wife would receive is then $894.40 (her original retirement pension of $448, the reduced survivor’s pension of $360 and the “special adjustment” increase to her retirement pension of $86.40). Continue Reading…

CPP timing: A case study for taking benefits at age 70

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By Michael J. Wiener

Special to the Financial Independence Hub

There are many factors that can affect your decision on whether to take CPP at age 60 or 70 or somewhere in between.  Here I do a case study of my family’s CPP timing choice.

Both my wife and I are retired in our 50s and had periods of low CPP contributions because of child-rearing and several years of self-employment.  So, neither of us is in line for maximum CPP benefits.  If we both take CPP at age 60, our combined annual benefits will be $11,206 (based on inflation assumptions described below).

The “standard” age to take CPP is 65.  If you take it early, your benefits are reduced by 0.6% for each month early.  This is a 36% reduction if you take CPP at 60.  If you wait past 65, your benefits increase by 0.7% for each month you wait.  This is a 42% increase if you wait until you’re 70.

However, there are other complications.  If you take CPP past age 60, any months of low CPP contributions between 60 and 65 count against you unless you can drop them out under a complex set of dropout rules.  If my wife and I take CPP past age 65, we won’t be able to use any dropouts for the months from 60 to 65, so we’ll get the largest benefits reduction possible for making no CPP contributions from 60 to 65.  Fortunately, CPP rules don’t penalize Canadians any further if they have no contributions from 65 to 70.

Inflation indexing

Another less well-known complication is that before you take CPP, your benefits rise based on wage inflation.  But after your CPP benefits start, the payments rise by inflation in the Consumer Price Index (CPI).  Over the long term, wage inflation has been higher than CPI inflation.  So, when you start taking CPP benefits, you lock in lower benefit inflation.

In this case study, I’ve assumed 2% CPI inflation and 3% wage inflation.  These assumptions along with the CPP rules and our contributions history led to our annual benefits of $11,206 if we take CPP at 60.

If we wait until we’re 70, our combined annual CPP benefits will be $29,901.  However, don’t compare this directly to the figure at age 60 because they are 10 years apart.  If we take CPP at 60, it will grow with CPI inflation for those 10 years.  The following table shows our annual CPP benefits in the two scenarios: early CPP at 60 and late CPP at 70.

Age Early CPP Late CPP Age Early CPP Late CPP
 60    $11,206  75    $15,081   $33,013
 61    $11,430  76    $15,383   $33,674
 62    $11,658  77    $15,690   $34,347
 63    $11,891  78    $16,004   $35,034
 64    $12,129  79    $16,324   $35,735
 65    $12,372  80    $16,651   $36,449
 66    $12,619  81    $16,984   $37,178
 67    $12,872  82    $17,324   $37,922
 68    $13,129  83    $17,670   $38,680
 69    $13,392  84    $18,023   $39,454
 70    $13,660   $29,901  85    $18,384  

 

$40,243
 71    $13,933   $30,499  86    $18,752   $41,048
 72    $14,211   $31,109  87    $19,127   $41,869
 73    $14,496   $31,731  88    $19,509   $42,706
 74    $14,785   $32,366  89    $19,899   $43,560

It would certainly feel good to start collecting CPP benefits when we’re 60, but by the time we’re 70, we’d never notice that our payments could have been 119% higher.  That’s why we plan to wait until we’re 70 for our CPP benefits. Continue Reading…