December 8, 2020 | The Hand & The Heart

So a 90-year-old British babe is Patient Zero as the great vax begins. Nice. She has more balls than a good chunk of this blog’s steerage section.

But let’s talk about being a wrinklie, instead of our fav pathogen. People getting older (100% of us) in a world where a pandemic can change everything in a few months, where interest rates are close to zero and ‘safe’ investment pay absolutely diddly, face new challenges. It used to be a 60-year-old would have 60% of his/her assets in bonds. At seventy, that became 70%. After all, bond and GIC returns were decent, more than inflation, and the interest was enough to live on.

Well, forget that.

Today a long bond pays half a per cent and GICs are no option. The best portfolio for people in retirement turns out to be the same one as for those still working – an exposure to equity or growth assets of about 60%, with a big chunk of the fixed-income stuff being high-dividend preferreds. In a low-rate world we all need growth, then we need income. The biggest risk has not changed. That’s running out of money, not losing it.

Now, this brings us naturally to the Numero Uno question financial dudes are ever asked: should I take my public pension early or later?

A new study on this was released Tuesday. Like every other one in the past, it reached this conclusion: “Delaying Canada and Quebec Pension Plans benefits for as long as possible is the safest and most inexpensive approach to get more secure, worry-free pension income that lasts for life and keeps up with inflation.”

Ah, but here’s the rub. Almost nobody waits until CPP maxes out at age 70. On average 41% grab the money when it’s first offered at age 60 and another 30% sign on at 65. Merely 1% of Canadians hold out until seventy candles.

So, another example of widespread financial illiteracy and social stupidity?

The pros think so. They consistently point out that waiting to collect the government cash means more income for life, because payments increase with each year delayed, plus the plan is inflation-indexed. The experts point out we’re living longer, need more income to finance those extra years, and live at a time when safe assets pay nothing and there are fewer adult children around to look after the old snorts.

In fact financial planners say there are only three reasons a sane person would collect early: You need the money to eat and pay the bills since you’re otherwise destitute, expecting to collect the GIS and probably read the wrong blog. Or you anticipate living a shorter life because of illness, heredity or your love of Harleys. Or you retired early and stopped making CPP contributions in your fifties. These authorities also point out that the 7% annual increase in CPP payments realized from just waiting is probably more than your investments would yield, so it makes financial sense to abstain.

Finally, TPTB want you to delay and burn thought your RRSPs first because it saves the government money. First, your retirement accounts are fully taxable as income is withdrawn so politicians finally get to suck off their share. Second, the longer you wait to collect the public pension, the closer is death. Then they don’t need to pay you anything (except maybe a small survivor benefit to your spouse).

Okay. So the consensus financial view is to suck it up, collect nothing at age 60, take your free OAS at 65 and hang in for CPP until seventy. Today’s report actually claims this strategy would yield about a hundred grand extra over retirement decades.

But, as noted, most people don’t wait. And this time they’re right.

You should stick your hand out and grab the monthly cash when it’s first offered to you. No regrets. No second-guessing. No spreadsheets. No online financial calculators. Pas de experts.

First, you have absolutely no idea how long you’re going to last. Look at what the virus has done. Not only the immediate deaths but all of the life-extending treatments and therapies that have been cancelled or delayed for hundreds of thousands of others, because of the damn bug. Crap happens. Take the money.

Second, getting old sucks. You have no idea what this involves until you get there. Assuming you’ll wait and spend your enhanced CPP on fun stuff – exotic travel or a big honking camo quad – after you pass seventy might end up in disappointment. Live now. Take the money.

Third, if you’ve got a proper B&D portfolio just let it continue to swell in retirement while you collect early CPP to pay for day-to-day stuff like bourbon and ammo. This is eight hundred bucks or so a month you don’t need to pull out of investments. Besides, if you have a lot of capital gains, waiting to collect more at age 70 could put you in a higher tax bracket, triggering a bigger bill. Take the money.

Finally, this is yours. You and your employer funded it. Your years of service earned it. This belongs to you. If 2020 has taught us anything, let it be this: each month in an unpredictable world is a gift. Make it count. And never leave anything for Chrystia.

Garth Turner December 8th, 2020

Posted In: The Greater Fool

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