chemgal's picture

chemgal

image

Saving for Retirement

I'm feeling a little conflicted on the possibility of pushing back the OAS age.  It actually used to be older than what it is now.  If you don't save enough, you have to work a little longer.  I think it's good for those in good health, not so much if they have issues working at 66.

 

In general, I'm not sure if people are being encouraged to save enough.  If you don't save any money before starting post secondary, you get an interest free loan.  That loan is probably bigger than if you saved any money, but it's ok, some of it will be forgiven afterward.

 

Sure, you can save money for retirement, but you're taxed on interest.  RRSPs you get a tax deferral, but then you are taxed on all of it when you withdraw in the future.  If you save too much, you won't get OAS or GIS.  TFSAs are probably the biggest incentive to save as you're never taxed on them.

 

I'm all for helping people who need the help.  If there are 2 people in 2 similar situations is it wrong that one may scrimp and save, put money into an RRSP and get less money from the government when they retire.  The other lives it up, then gets more from the goverment later on.

 

Is there more the goverment could be doing to encourage people to save?  Maybe only tax people on the principal of RRSPs (when withdrawn from an RRIF) and not the compounded interest?

Share this

Comments

Hilary's picture

Hilary

image

chemgal wrote:

If you don't save any money before starting post secondary, you get an interest free loan.  That loan is probably bigger than if you saved any money, but it's ok, some of it will be forgiven afterward.

 

How I wish this was true in all places.  Sadly, not the case in Ontario.

chemgal's picture

chemgal

image

Hilary, is it just certain provincial loans that are forgiven?  I'm more ok with the new plan for the Alberta ones, it's for a specific amount known ahead of time.  I would still prefer to see a tuition grant, or reimbursement once a course is passed, rather than being a forgiven loan amount.

 

 In the past, I know people who may have not used them in the most responsible way, but had a decent amount of the loan just forgiven.  I was never aware of what was provincial and what was federal.  I assume all government loans are interest free as long as you're in school, is that part at least correct?

seeler's picture

seeler

image

Chemgal - you state that if you save too much you won't get OAS.   I thought that OAS was universal, that everyone who reaches 65 and applies receives it.   Of course it is reported as income and people are taxed on it the same as any other income - but everybody over 65 receives it.   

 

Saving for retirement, or for hard times and unexpected expenses definitely should be encouraged, but lets face it, not everyone has the opportunity to save.  People working at minimum wage, with periods of unemployment.  People who are chronically ill or handicapped.   People who are seasonally employed.  People living at or below the poverty line spend every pay cheque for necessities like food and shelter, transportation and raising their children.   If they do manage to save a little during a season of full employment with perhaps a little overtime, that is when the old car breaks down, or they need a root canal, or they new glasses - or their wife loses her job, or the septic tank needs replacing.   When you are living from hand to mouth, saving for retirement is something you can only dream about.

 

These are also the people who will be hard hit if the age for receiving OAS is raised.   

 

I know a woman (once referred to as a 'slow-learner') with about grade six education level.  Every morning she gets up early, dresses warmly, and walks to a busy street corner, where she stands for two hours in rain, or snow, or bitter cold as a school crossing guard, responsible for the safety of the children, while many drivers ignor her signals or shout at her.   Then she goes home until near noon when she goes back to her place.   And again in the middle of the afternoon.   She gets paid minimum wage for the hours she actually works - not for the time between, yet this is hardly long enough for her to do anything else.    Nor does she get paid for school holidays, summer and Christmas vacation time, or storm days.  (Is she supposed to be thankful that she doesn't have to work in a blizzard or ice storm while worrying about how to stretch her grocery money to the end of the month?)     She looks forward to retiring at 65.    Does the Canadian government really expect her to save so she can pay for her own retirement, or do they (we) want her to work a few more years. 

 

Or a man who works independantly in the woods - in the heat of summer and the cold of winter.   Sometimes he hires one or two others during the busy season - pays them wages and contributes to their EI, CPP, etc.  so that by the time he meets expenses he is paying them more than he takes home himself.  The rest of the time he works alone.   The work is hard and dangerous.   Not yet fifty he can point to the places where he's broken bones when a branch broke or a tree fell the wrong way.  He has arthritis in his hands and feet.   He comes home at night flybitten, dirty, soaked in sweat in summer - or half frozen in winter.   But he keeps his kids in school, pays his taxes, clears building lots, provides wood for stoves and fireplaces, and logs for lumber.   Does the government think he will still be able to keep up much past 65?  

 

Not everybody works in an air conditioned office, sitting at a desk.  We still have people picking up garbage, cleaning bathrooms, selling coffee and donuts, driving trucks and heavy equipment, climbing ladders, clearing snow, building roads, and doing a heck of a lot of heavy, dangerous, dirty work.    And often these jobs pay the least or are the least reliable.   Often they don't have pension plans, and don't have any extra to save themselves.   They need OAS, and they need it at 65.   

 

If we can't afford to pay it, find some other way - like taxing it back for those who have good pensions and other sources of income.   But don't take it from those who need it most.

 

 

chemgal's picture

chemgal

image

Seeler, I'm not super knowledgable about OAS as I suspect the rule will change quite a bit before I am 65.

http://retirehappyblog.ca/minimizing-old-age-security-clawback/ wrote:

 

The OAS clawback means that high-income earners (over the age of 65) are required to repay some or the entire OAS pension. It is interesting to note that the government does not use the word clawback. Instead they use the OAS recovery or OAS repayment. Despite that clawback seems to be the more universally understood term.

If your net individual income is above a set threshold, your OAS pension will be reduced. Here are the starting thresholds:

  • $69,562 for 2012
  • $67,668 for 2011
  • $66,733 for 2010
  • $66,335 for 2009

This figure is also adjusted each year for inflation. For every dollar ($1.00) of income above the threshold, the amount of basic OAS pension reduces by 15 cents. For example, if your taxable net income was $70,000, then you would be above the clawback threshold by $2,332 which in turn would mean that you would lose $349.80 per year of OAS or $29.15 per month. If you qualified for the maximum OAS, you would be losing just under 9% of your OAS pension income.

To me this means that if you make a certain amount you do not recieve OAS.  Perhaps this information is incorrect?

 

I agree that some people do need the money.  I am also frustrated by some people's irresponble behaviour, knowing that I (and other tax payers) will be paying for it.  I would like to see more being done to encourage responsible behaviour.  Whether that would actually result in more people being responsible, I do not know.

LBmuskoka's picture

LBmuskoka

image

The people who benefit most from OAS are women.  Unlike CPP, OAS is available to all Canadians.  To receive CPP one must have worked and contributed - another group that benefits from OAS are the self employed, however self employed do have the option of contributing to CPP.

 

Women also make up the largest portion of low end service workers who do not have company pension plans; thus again making OAS necessary for retirement.

 

If the government wants to institute pension reform, I suggest they begin with Parlimentary pensions ...

 

Under the current pension plan MPs and Senators who have served at least six years in Parliament are eligible for a pension based on the average of their five highest paying years of service, multiplied by the number of years of pensionable service, and again multiplied by a three per cent accrual rate.

 

Parliamentarians whose service falls short of the six-year requirement are entitled to a lump-sum $78,800 severance package. In addition to being eligible for a guaranteed pension at age 55, retired Parliamentarians have continued access to the services provided under the Public Service Health Care Plan.


The C.D. Howe report follows a recent report by the Canadian Taxpayers Federation that found that the public contributed more than $100-million to the pension plans of 413 MPs and Senators—$248,668 per Parliamentarian—in 2009-2010. And while the fund grew at a rate 10.4 per cent in 2008, the Canadian Pension Plan and the Ontario Teachers’ Pension Plan lost roughly 18 per cent in the same year.

 

[...]

That means Prime Minister Stephen Harper (Calgary Southwest, Alta.) will be eligible to collect a pension of $223,500 annually by 2015 which totals $5.5-million when he’s 80 years old.

 

[...]

.... “It would take a regular Canadian nearly 30 years to save the equivalent nest egg necessary to produce the eventual pension payout a backbench MP is eligible for after just six years of service and who makes the same pension contributions.

     The Hill Times, Jan 30, 2012

 

 

It was once said that the moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; and those who are in the shadows of life, the sick, the needy and the handicapped.
      Hubert H. Humphrey

 

seeler's picture

seeler

image

chemgal wrote:

The OAS clawback means that high-income earners (over the age of 65) are required to repay some or the entire OAS pension. It is interesting to note that the government does not use the word clawback. Instead they use the OAS recovery or OAS repayment. Despite that clawback seems to be the more universally understood term.

If your net individual income is above a set threshold, your OAS pension will be reduced. Here are the starting thresholds:

  • $69,562 for 2012
  • $67,668 for 2011
  • $66,733 for 2010
  • $66,335 for 2009
  •  

 

$66,000 ???     $70,000 ?????   before the clawback begins?     These are incomes that many of the people I know don't even dream of making, even when working 50 hour weeks, let alone in retirement.    Try saving a significant amount for retirement when you are earning $20,000 a year, or even double that.

 

 

chemgal's picture

chemgal

image

Seeler, my complaint isn't against those who are considered low income.  It's the fact that people making similar salaries, in similar situations could be treated very differently based on how they choose to spend their money.

 

There seems to be much encouragement to spend, and not all that much to save.

MikePaterson's picture

MikePaterson

image

Encouragement to spend or save falls on deaf ears in my case (and I don't think I'm alone). Either would be quite the luxury.  For various reasons, including extreme financial vulnerability and ineptitude, I find myself without  savings or private pension at 65. So I'm doing my utmost to live within the limited income I derive from benefits and my writing. Regular jobs are very hard to find at my age. If I one day find myself alone, and with no social capital I can draw on with a clear conscience, my last resort of desperation would, perhaps, be to do something wholly harmless like holding up a bank. I'd undoubtedly fail but might end up with some basic food, shelter and companonship — though it would cost the government substantially more than providing a liveable old age benefit. (Still, the government likely to be looking for beneficiaries of its Crime Bill "housing" programme…)

 

I guess it all comes down to the sort of society we want to live in.

kaythecurler's picture

kaythecurler

image

Living out one's Golden Years in jail might be better than trying to survive on OAP and GIS independantly or in one of those "Homes" that are available for the impoverished elderly!

seeler's picture

seeler

image

chemgal - while I haave a great deal of sympathy for those stuck in dead end or poor paying jobs and unable to save for the future, I can see your point of view for those who live beyond their means - and the economic system that has encouraged it.    I'm thinking not so much of retirement but in saving for a rainyday.   We know of people in boom industries with high paying jobs who spend, spend,sprend.   But if there is a downturn in the economy, or a contract is ended, or the coal runs out, or the job moves to India, and suddenly the high-paying job is gone - what do they have.   In two incidents I know of (a mine in Ontario, a mill in NB), people earned wages that Seelerman and I dreamed of.   In ten years they earned more than we earned in twenty.   And then, the news got out, the jobs were gone.   They couldn't find work.   And once their EI ran out they had nothing.   Maybe if their houses weren't so big, and so heavily mortgaged, they wouldn't have faced foreclosure.   Maybe if they weren't still paying on model cars, boats, snowmobiles, 4-wheelers - they would have had money in the bank to help them through.   Maybe they could discover that they can hold out until retirement on $12 a hour, rather than $24.    But in the end, if they are out of work at 55 or 60 it is unlikely that they will find much to get through and they will be counting the months until they are 65 and can start receiving a 'fixed income'.    Not much, but it will put food on the table.

 

MikePaterson's picture

MikePaterson

image

The predators fatten them up then cut them dowm, Seeler. Weak will and undiscerning consumption are promoted as societal norms.

waterfall's picture

waterfall

image

.

chemgal's picture

chemgal

image

I took a look of the site Waterfall.  The information on it bothers me.  I think we should all be encouraged to save, and I do not blame people who follow some of the suggestions provided, but I think things should change so saving is beneficial.  I do disagree that people should get access to as much money as early as possible to ensure it gets spent before they die.  If someone has 6 months to live, fine, but when one's lifespan is unknown I disagree with that.

 

Seeler, I agree about saving for an emergency, or just planning for the long term when someone knows things are likely to change.  To me, retirement savings should be a part of this.

 

For those of you against raising the OAS age, what age do you think it should be?  Is 65 fine, - 55 - 45?

chemgal's picture

chemgal

image

I would like to see investment income not treated as income when all it's doing is keeping up with inflation.  I think the very least that could be done is not penalizing people for saving, and trying to keep the same overall worth of that nest egg.

ninjafaery's picture

ninjafaery

image

I think also that limits on RRSP contributions should be raised considerably too. This would go a long way to help younger people sock away more cash while getting a badly-needed tax break.

seeler's picture

seeler

image

I'd like to see some discussion on the idea of investment income not taxed unless it exceeds the rate of inflation.    It seems to me that income is income, regardless of where it comes from - salary, wages, bonuses, interest, dividends, captial gains.  

 

And while it might be relatively simple to tax income bonds and GICs that have fixed rates (for instance if invested at 5% per annum, and inflation is 3.5%, then only tax 1.5%).   But what about the many types of long term investments that fluctuate daily or monthly or annually.  Some years the income might be in the double digits, other years they might not even break even.   How would you adjust those for inflation?  

 

I'm not an accountant or an economist.   I don't know how this would work or what effect it would have on the economy - or if it would put a greater tax burden on those who don't have the ability to save enough to have investment income.  Taxes have to come from somewhere - give one group a break, and it will effect another group.

 

chemgal's picture

chemgal

image

Waterfall, I don't know why you decided to remove the link.  I don't have a problem with the website itself.  It just bothers me that rules are set up so that most of the information on that site is probably best for people not able to save large amounts of money.

 

Seeler, I don't think it would be too difficult.  As I understand it, gains are not taxed until the investment is cashed.  The inflation allowable amounts would be reduced from the taxable gains.  Maybe I am oversimplifying a complicated idea.  I'm not sure how much of an affect it would have on the economy.  Hopefully it would reduce the need for GIS and OAS if it got people saving more.

 

Ninja, I have no problem with the RRSP contribution limit being raised, but I don't think there are many people who currently max it out.

ninjafaery's picture

ninjafaery

image

http://www.shillington.ca/Financial_Planning/General_Advice.htm

 

I reposted a page from waterfall's link, since I think it's really valuable. It's a guide for those who expect to have less than $100k at retirement.

Basically, for those of us who don't have a pot to p**s in, he's saying RRSPs are a bad idea since it's unlikely low-income folks will benefit after clawbacks. He's saying that if your RRSPs are less than $20k, you should use them toward buying a lower-priced home to preserve your equity before you turn 60. (Remember he's referring to low-income people who probably don't own a home).

That way, you get to keep the little you have. This is especially useful for people like me who have worked at very low wages for a number of years and haven't had the wherewithal to amass enough money to contribute a meaningful amount over the years. I figured my RRSP contributions through my work plan would net me around $37.50 per month if I live another 20 years!

GordW's picture

GordW

image

ninjafaery wrote:

I think also that limits on RRSP contributions should be raised considerably too. This would go a long way to help younger people sock away more cash while getting a badly-needed tax break.

 

That assumes that they have the money to sock away and that they need the tax break....agreed that both conditions are normally true or false together.  But for many people the first one especially is not true.  Currently I have excess contribution room well north of $20 000.  And that started building up when I was single and making the most contributions I could afford (and then had to cash it all in to go finish my MDiv).

ninjafaery's picture

ninjafaery

image

GordW wrote:

ninjafaery wrote:

I think also that limits on RRSP contributions should be raised considerably too. This would go a long way to help younger people sock away more cash while getting a badly-needed tax break.

 

That assumes that they have the money to sock away and that they need the tax break....agreed that both conditions are normally true or false together.  But for many people the first one especially is not true.  Currently I have excess contribution room well north of $20 000.  And that started building up when I was single and making the most contributions I could afford (and then had to cash it all in to go finish my MDiv).

Well clearly, clergy aren't exactly the ones needing a tax break!

I guess I was referring to young professionals who have relatively high incomes and will need to save aggressively for retirement. 

GordW's picture

GordW

image

MAybe ninja but you only said "Young".  I actually wasn't referring to clergy.  I was referring to the hordes of young poeple struggling to get by and having no means to plan for the future.  THey can not afford to save nor do they need the tax break, having not enough income to make it worhtwhile.

 

And even for those who could afford it and use the tax break, higher contribution limits are meaningless unless the individuals choose to see the need to save--instead of seeing the need to buy all the toys.

waterfall's picture

waterfall

image

Hi Chemgal, sorry I wasn't going to remove it permanently but I was going to add a site that actually shows how to figure out how much your gov't pension will be at retirement and then I was going to put them both together. Unfortunately I can't find the site I was looking for.(and I had to leave to go somewhere) If I can just find it, it's very interesting how little a gov't pension really is and people usually don't take the time to find out exactly what they will get at 65 or 67yrs.

 

(I see the site was reposted so I won't repeat that one)

chemgal's picture

chemgal

image

Waterfall, I was worried I scared you off with my criticism, glad to see you're still here!

 

Ninja, that's exactly my point.  If people were able to save a little bit, they should be benefited for doing so and not punished for having something in the RRSP.

 

GordW, I agree.  When my scholarship level was high, I saved it.  Good thing, as now I have no income.  It wouldn't have made sense then to stick it in a RRSP.  Even now, it doesn't really make sense, my husband and I both have tuition credits for 2011, and his income will only go up.  He does have some RRSPs, but it's only to get the company matching.  For us, it just doesn't make sense.  Why contribute to a RRSP only to take it out for a HBP and then have to repay it while not getting any benefit?  I think most young people are in a similar situation.  I wouldn't mind a little more TFSA room for my downpayment savings.  It will be great for those who started getting contribution amounts right from 18 though.  I don't think there's too many people under 25 buying houses.  35k or 70k for a couple is a good start for a downpayment.

lastpointe's picture

lastpointe

image

I don't have an issue with changing the age for receiving OAS and as others have posted while we all get it, depending on your income it is clawed back possibly to zero.

 

And i think that is good too.  There is no reason for those who don't need it to get it.

 

i also think that seniors should not all get free drugs.  Granted it isn't free, i remember my parents paid the first $100.  But they didn't need free drugs. 

 

Back when these systems were set up, the life expectancy was in the  70's, now it's in the  80's.  OAS was never intended to be paid out for 20 or 25 years.

 

In Ontario there is other assistance for the elderly who are poor.  I had an aunt whose pensions, after working all her life, didn't cover the cost of a nursing home bed when she was no longer able to live alone.   in Ontario, everyone is entitled to a bed, no matter if you can pay and everyone is also entitled to keep a portion of their pension.  At the time she was in a home, about 10 years ago, she got her room and kept $120 of her pension each month for things she needed to buy.

 

Things need to be reviewed, adjusted and fixed if we are going to be able to continue with offering monetary assistance for those who need it.

 

I would like to see  a system where everyone gets it, the wealthy have it clawed back and the really poor get it added to

seeler's picture

seeler

image

lastpointe - do you really think that a sixty-seven year old woman, with arthritis in her joints, and a borderline IQ should be standing out on a street corner stopping traffic and keeping school children safe in the dark on a winter morning with the windchill at something like -25, and working three 2-hour shifts at minimum wage?  Is that the type of country you want to live in?   I would like to know that she is entitled to OAS at 65.  

 

Yes, many people are still in good health at between 65 and 70.    Many are still able to work, and many jobs are not physically demanding.   Perhaps there shouldn't be any mandatory retirement.  Perhaps those able and willing should be permitted to keep working.  And perhaps if they are working they shouldn't be able to apply for OAS.   But for those who need it, I hope it will continue to be available to them at 65.  

 

waterfall's picture

waterfall

image

I think the maximun gov't pension plans comes to around $16,000/yr. Very few people qualify for that amount though because it takes a steady income of over $30,000 that begins from the age of 18 to 65 to be able to receive that much. Realistically most will receive alot less.

seeler's picture

seeler

image

waterfall, are you talking here about CPP or OAS?    OAS is something like $6,500 per annum and is available whether or not the person has worked or earned income during their lifetime.   

 

$6,000 or $7,000 per annum is the amount that the government is proposing we should wait until we are 67 or more before receiving.   Is it really going to make or break the bank when we compare it to some of the other things the government spends our money on.  

 

waterfall's picture

waterfall

image

I'm talking about both CPP and OAS together.

Pinga's picture

Pinga

image
chemgal's picture

chemgal

image

Seeler, why 65?

Does anyone know, on average how the CPP payout compares to someone taking that money and investing it themselves?  Assuming the same employer contribution.

Mahakala's picture

Mahakala

image

How does saving for retirement or worrying about it fit with the Sermon on the Mount where Jesus says do not worry about such things? I've never been able to reconcile such things.

Pinga's picture

Pinga

image

chemgal -- the point is that people will not invest the money...they will use it.

 

in addition, as part of a just society our goal is to ensure that everyone has at least  base to live on. 

lastpointe's picture

lastpointe

image

Hi Seeler,

 

I do not have an issue with the age increasing.  What is magical about 65.  Your example of a 67 year old with arthritis and being a crossing guard makes no sense.  She still had those bad joints and arthritis at 64.

 

I am all for the disabled being supported and for everyone being able to work to the best of their ability. 

 

the issue as i understand it is that currently 6 workers pay for the OAS for everyone 1 retiree.  In 20 years there will be 2 workers for every retiree.

 

So without increasing the work force massively we wont' sustain the system.

 

And to increase the work force there needs to be a massive economic improvement.  I haven't yet read an economic forecast that believes that is coming.  instead we are looking at a slow increase.  That is better than most of the world but we are still facing a smaller workforce and a larger group of retirees.

 

i think some ground can be attained through giving those seniors with needs the services and those who are ok they dont'; receive things like free meds.

 

I can look to my parents and my inlaws.  My parents had a good company pension, owned their home and had enough money to live on.  Their OAS was clawed back somewhat i assume as my dad's pension for the two of them was $45,000

 

They lived well, took vacations, gave gifts to grandchildren, saved money, owned their home and c ertainly didn't need free drugs.

 

DO I think the average person could/should be working at 67 or 70?  If they are able and wish to , yes.  I think mandatory retirement discriminates against the elderly.

 

At the same time, with university age kids i wish they woudl retire so the jobs can be passed on to the younger generation.

 

 

 

 

seeler's picture

seeler

image

chemgal - there is nothing magical about the age 65.   It just seemed to be the age that we, as a country, decided upon as a time when the government would start looking out for its seniors.  I think increasing it will have a negative and cruel effect on the people who need it the most.  

 

It also seems strange to me that in this age of technology, where so many jobs have been eliminated, and one person can often accomplish more, and do it better, than twenty could do it not long ago, that we are talking about keeping seniors in the work force - not just permitting them to work longer but making it economically necessary for them to do so.  

 

I'm not out there in the job market nowadays.  Maybe things have changed drastically, but somehow I don't see too many 'help wanted' signs up, or companies fighting for employees.   But I remember hearing about a fast food place advertising for a counter person and getting something like 50 applications - and not just from high school kids - but adults with families to support.  And another small business man had an agency look for someone to fill an job because 'The last time I advertized we were swamped with applications."

 

Not too long ago people in my generation were being urged to retire early to give opportunities to younger workers.   And people in their fifties were being offered 'buy out' packages if they took early retirement.     Now it seems our economic woes would be solved by having seniors remain on the job.

 

 

GordW's picture

GordW

image

But we have to remember that 65 was chosen at a time when it was expected that relatively few would be recieving those payments for more than 10 years.  Now we can expect that many will receive them for 15 years.  That makes a real difference in affordability.

chemgal's picture

chemgal

image

Seeler, the age actually used to be 70.  I'm not sure how sustainable it is.

 

Pinga, I know that some people wouldn't save.  Some people would invest it.  I'm curious about the payout vs. what was paid it.  It isn't as simple as looking at the 2 values for this year, as it changes every year and I'm not sure if the change is always just based on inflation.

Back to Politics topics
cafe