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February 26, 2020 | Pension Pooched

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Made your RRSP contribution yet?

Wait, keep reading. This isn’t another tedious piece on tax-free compounding, using a retirement plan to split family income, making a contribution without having any money, how to remove funds without being taxed nor how the entire system is dramatically skewed to benefit high income-earners, medical professionals, lawyers and the self-employed. You already know that stuff.

Instead, let’s revisit a fav topic: how pooched everyone else is.

How much do you need to retire? That depends on when you hang ’em up and how much you spend, of course. Plus if you have kids or wish to leave an estate for others to squander on stuff you’d never buy. There is no static answer. Some people say 30x your annual working income is the right number. Investment giant Schwab suggests $1.7 million is a reasonable goal. Fidelity says you need enough saved/invested to replace 80% of your work salary. Anyway, the Internet teems with financial calculators you can use to come up with your own target.

Then compare your readiness with this dismal set of facts:

  • As mentioned before, people retiring without a defined corporate pension have an average of $3,000 saved. Yeah, they probably have a house, too. But you can’t eat that.
  • About a third (32%) between 45 and 64 have saved… nothing. Seriously.
  • Roughly a fifth (19%) have less than fifty grand. But the average amount Canadians have saved/invested for the future is $184,000. That tells us a small slice of folks have saved a boodle. A giant slice of people are heading for a future of KD and CPP.

Now on that point, we all need to understand clearly the public pension system in Canada will not save you. Not with the recent enhancements, either. If you’re a Millennial, the higher benefits (a max of just over $20,000 a year) don’t click in until the average moister is 76.

Today the max someone can collect in CPP is $1,175 a month, but very few qualify. So the average received is $672, or eight grand a year. Grocery money. Old Age Security goes to everyone at age 65 (for now), and that adds $613. So the total in government pogey the average person receives is $15,420. If that were your only income, then the GIS (Guaranteed Income Supplement) kicks in at a max of $876 per month, bringing  the grand total of public assistance to $25,932 – or about two thousand a month.

Married people get less GIS, but it’s still possible for an average household of two to receive a total of about $45,000 annually. Maybe all the people with little or nothing think this is enough to get by on, which is why they don’t save or invest. Given that the median household income in Canada is north of $90,000, this translates into a 50% drop in retirement. So ask yourself, could you suddenly live on half the money you’re getting from employment?

Let’s compare with the deplorables in Trumpland (which some people think may soon be the home of Bernie’s Sandersnistas).

The average monthly Social Security payment in the US is $1,471, or about $1,900 in moose money. Therefore it’s three times more than CPP pays (on average). By the way, the max SS payment of $2,210 at age 62 is about twice as generous as CPP – and it grows from there: $2,900 a month if you wait until 66 and $3,770 monthly ($45,300 US) at 70. So a couple of wrinklie old pensioners who worked all their lives could actually see up to ninety grand a year.

But what about household savings?

A new survey by TD Ameritrade says 50% of Americans have more than $100,000 – way better than us. Most of this is in the hands of people over the age of 40 (no surprise there), yet Millennials in the US are the ones most often stuffing their Roth IRAs (the American equivalent of our TFSA).

Hmm. The average American has saved more money for retirement, and the US system is far more generous with public pensions. So how did we get so smarmy and snooty, believing the States is a land of dumpster-divers, people who spend everything on Glocks and trailer park rednecks where financial illiteracy reigns supreme and society is divided between billionaires and losers?

Beats me. The CBC maybe. Or our political elite. Maybe it’s the whole real estate-government complex.

After all, the US rate of home ownership is lower than in Canada by almost 10%. American households carry far less debt, and actually reduced borrowing a ton after the housing market blew up. Plus the median cost of an American house is just $228,000. The average paid by first-time buyers is $219,000. There are porta-potties in Vancouver worth more.

Thus, when it comes to the financial state of Canadians, this pathetic blog’s thesis stands. It’s suicide by house.

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February 26th, 2020

Posted In: The Greater Fool

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