CPP is More Valuable than Most People Realize
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- Опубликовано: 2 апр 2024
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People like to complain about CPP, but it is one of the most valuable retirement assets available to Canadians.
References: zbib.org/fe9a63b38a324cfeb648...
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From a behavioral standpoint, it's easier to tolerate a 100% equities portfolio like XEQT when you have CPP and OAS to compliment your retirement portfolio.
Yup exactly, especially if you have another source of pension on top of that.
or yolo into GME
Cpp, electrical pension union strong
@@bullydungeon9631 cpp + defined benefit plan + stock market investment + rental income = goals
@@bullydungeon9631
Happy to be self employed (crazy yes Lol) so on my own but still support all I know with good pensions. Only helps all of us in the end. ✌️
Ben Felix with the back-to-back. No wonder he was a baller.
I'm a US bro, so this is all news to me. Let me get this straight: It's like an annuity, so lifetime income with survivor benefits. It's inflation indexed, so unlike any annuity I could buy in the US. It's payroll contribution funded with employer matching, like a US 401k, but with a single "investment option" with a good track record. And it's mandated, so everyone (excluding Quebec on QPP) gets the benefit and there's less of an age demographic funding problem like SS has. And all this is ON TOP OF OAS?? I think this is the first time I've ever been envious of Canadian investors.
Sounds like you got it straight and understand it better than most Canadians!
Survivor benefits but almost zero if you die one day after you start to draw. Nothing to your estate except a few thousand dollars, regardless that you may have contributed for 40 years.
Yeah why should it go to your estate? They didn’t work for it… and the money offers protection to other people who paid cpp and lived longer. Same benefit you would have received
Yeah the employer matching will make companies increase their price and move their business to Mexico.
You now prob know more then many here in Canada. Kudos! ; )
Such a good video, holy moly. Can't believe how hyper partisan the world is, that even the friggin' CPP is being attacked like it's some MLM scam.
This video is practically a public service announcement
At a time where most social insurnace porgrams are running out of money CPP is consistently growing assets at a faster rate than their drawdown, they are fully funded for at least thr next 75 years
CPP in 2026 will see expenditures exceed contributions. This is the same problem that sparked the change in 1997 - not sustainable. Each Canadian contributor based on $590B in Assets without taking into account the growing unfunded liabilities of 1.14T as of 31 Dec 2021 is worth $28,818. $28,818 to fund 25% of your retirement income for an average of 18 years (average age of death is 83) = $1,601/yr or $133.42/m.
@nadinewellwood because of the scare of under funding ccp investments changed their instant portfolio and is now one of the best private equity firms in the world
@@nadinewellwood CPP created it's investment Board in 1997 because it was realized that Expenditures would eventually exceed contributions alone due to demographic changes. Growth of the Investment fund was meant to keep the Plan funded on top of contributions. To date the CPP's investment portfolio has been greater than required to keep the Plan funded, $200 Billion more. The plan is not suffering from unfunded liabilities, as currently it can be argued that it is overfunded.
This video does a great deal of public service - it helps countering Brandolini's law. There is so much disinformation on CPP.
We're getting a lot of good content, thank-you !
Another Ben Felix Banger
Hey Ben, great video. I've watched all of your videos and love the insights you provide. I know you're Canadian-focused with your content, but I'm a US investor and would find it fascinating to see a comparison of the CPP with US social security. When I run numbers against our pension program, they do not come out quite as favorably as the Canadian investor's CPP does, but I'd love to see a video on your analysis of it.
Excellent advice. Maximizing CPP should be ONE of the pillars of your investments
There is another benefit to deferring CPP that is poorly understood, underappreciated, and seldom gets mentioned. Knowing that you have a larger CPP starting sometime in the future allows the retiree to "safely spend more" now. This is because the "nest egg" required to fund future spending no longer needs to be nearly as large. Would love for you to do a deep dive on this aspect in future videos. Thanks Ben for all your hard work.
The question of when to best start taking CPP is debatable and it really depends on each person’s personal situation rather than having an ideal age for everyone.
@@mrslcom I like what Jonathon Clement had to say about delaying benefits. He said "Only those who fully intend to die young should take benefits as soon as possible. All others who can afford to do so should defer". He also said "If you do defer, you won't live to regret it". A bit cheeky perhaps but definitely some wisdom as well.
@@garthsproule1135 Sure. But when to take CPP involves a number of factors and it’s not that simple. Not to mention the psychological effects as well of each individual.
Thank goodness for the CPP. Think of how screwed so many retirees would be if required to live on what they saved/invested voluntarily. Having so many seniors in such deep poverty would be bad for everyone.
Or perhaps they could take their earnings and learn to invest themselves and grow up?
Seems like a hard ask when even most financial advisors give bad advice.@@JSCG12
Just a thought. Maybe more people don't' invest for retirement because they think CPP will cover the cost of their lifestyle, which it usually doesn't.
@@JSCG12yes, but regardless of your portfolio, an inflation adjusted annuity is a killer. So it's not as bad as people portray it. Sure it's still a rip off. But annuities can have a place in a diversified and balanced portfolio
@@JSCG12 riiiiiiiiight.......
Thank you. This was an eye opener, even for someone living in Germany.
I feel the same (i'm also german) - it is very common here to bash the "gesetzliche Rente". But when we take a look at it from a point of long term hedge against inflation and longevity, in combination with a private stock investment it seems pretty great.
Brilliantly explained. You da man. Thanks Ben.
Felix is cooking this week! Let’s go!
Great video，Ben!
Great information as always. For people in the US, most of this applies just as well to Social Security. And I'm a strong proponent of waiting to collect. Yes, you'll lose money if you die young, but you are less likely to need it in that circumstance. What you want is extra protection in case you outlive your savings.
The CPP is way better funded than US Social Security. According to Fred Vettese in the 2023 update to his book Retirement Income for Life, the US SS itself projects that it won't be able to meet pension obligations by 2034 without a funding injection. US SS doesn't have the legal right to borrow and it's not clear that politicians in the US are prepared to increase taxes. Meanwhile the CPP's contribution rate is sustainable for at least the next 75 years
CPP was not well planned originally (to the benefit of current retirees). But going forward it is. Current investment performance is also helping build the cushion reqd for future pensions.
More reform is needed. It will come in due time.
And like public union pension funds well invested globally.
@@meibing4912
Maybe not the way many want. All sides same political coin.
hey man, thanks a ton for this clear explainer.
Lots of negative talk about CPP not keeping up and likely to dry out - Similar to China.
Also hearing that the is hiding the weak performance using more immigrants paying into it.
Like real GDP not falling even if GDP per capita is.
This makes me put all that noise aside.
Can continue paying in knowing that it will be there and what benefits it brings.
Love these shorter videos that give great info!
Could you analyse the QPP? I'd be interested to know if it's similar to the CPP... Are the advantages mentioned also valid for QPP?
I was a CPP hater for the longest time but after this video i have changed my ways..
For real? Any particular argument?
@@BenFelixCSI Biggest one was as you mentioned "I can get better returns on my own"
CPP in 2026 will see expenditures exceed contributions. This is the same problem that sparked the change in 1997 - not sustainable. Each Canadian contributor based on $590B in Assets without taking into account the growing unfunded liabilities of 1.14T as of 31 Dec 2021 is worth $28,818. $28,818 to fund 25% of your retirement income for an average of 18 years (average age of death is 83) = $1,601/yr or $133.42/m. CPP is a tax on workers and employers to pay for a government benefit program we can not afford.
I like the upload frequency
I like this video because I already got from the other Ben Felix videos that we just need to invest in a globally diversified low-cost portfolio. But because there's so much more than just picking the right stock and bond allocations, videos like this I find very educational
this is an excellent video.
it should also be noted that there is a tax risk with CPP. it defers tax to when you're older but there is no guarantee that the lower tax brackets will decrease in the future. in fact, they can increase reducing discretionary income at retirement.
Ben, what is your opinion of the Vanguard wellington fund? It's had 100 years of quite good risk adjusted returns. Even the champion of index investing, Jack Bogle, said he has money in there.
The goat of personal finance
Although OAS is less of a guaranteed benefit, of you look at the combined amount a couple can receive, it’s amazing. Especially if you wait until 70 to start your CPP. Indexed and guaranteed.
Is this the "1st pillar", i.e. old age / disability insurance by the state, or an extra layer on top of it? (Not a Canadian here)
I think a video on what kind of safeguards protect the CPP would be comforting for people too (or perhaps alarming). Basically what protects from interference, raiding or mismanagement from any future sitting governments, especially if they have a majority, and what the investment leadership of the CPP looks like and why it is good (or bad) compared to private sector funds and other alternatives.
It may seem kind of off topic since it could be kind of legal in nature but its not so much different than the due diligence we would do on a fund or other investment.
The fund is managed by the CPP Investment Board, which is an independent investment fund. They are a massive investment manager (among the largest in the world) and have broad ranging and diversified investments across the world. It's not in any way a government-managed pool of money subject to the types of mismanagement that many think of when they think of politicians.
@@marklyons4366 It was not a question for my benefit it was a suggestion to explain all of that in a video for the viewing populace at large.
In any case it is far from immune to government meddling as recent stories about the government planning to require pension funds to invest in Canadian corporations illustrate.
CPP is a great idea and I am grateful for it, even if others collect more as a result of living longer. There seems to be a persistent misunderstanding of how pooled arrangements like this work, including EI and OAS. While not insurance, the popularity of ETFs suggests that more and more people are under no illusion that they will outperform, so maybe they kind of appreciate CPP but wish for the upside because they paid into it, without the downside of course.
What are your thoughts on buying LEAPS in market index funds for the purpose of acquiring leverage for a young investor? All the evidence I've seen suggests that buying them can increase my EV over a very long period but it's not a free lunch due to the volatility.
A debate that will last. Personal choice. Husb is older and chose early but at times wonders. Still worked out. But taking CPP/OAS early may make sense if low income/avail savings and or medical issue at 55+. Our CA agrees. CPPD helpful as bridge for any who qualify even if perhaps too stringent def’n and process. Thx Ben.
@Ben -- Does all of this apply to US Social Security also? I mean, it is mandatory for all and inflation adjusted annuity also.
I don’t know the details, but conceptually yes.
"Its not theft, its insurance!" lol indeed.
Would love to see a similar video evaluating Social Security in the USA.
Hey Ben, good video. Have you done the comparison for newer people paying the full contribution to those who paid much lower CPP contributions in the past but get the same benefits? I'm excluding the expansion of the CPP in this scenario.
Also the CPP claims to be hedged against inflation but did you have any real data that that is actually the case?
Early contributors end up getting a better deal, but that doesn’t make the current setup a bad deal.
CPP payments are indexed annually based on the calculation here www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/after-apply/consumer-price-index.html
Thanks Ben, I think I didn't word my second question very well. I more meant on the CPP fund level can they guarantee they'll have enough money to pay if inflation spikes. I.e. Does their investment strategy account for this better than say a stock/bond portfolio?
Or I guess are you saying the CPP fund is hedged with inflation because people are paying into it and contributions will go up with inflation as it's a percentage.
@@abcdefghijk8223it is my question as well. If a random fund promised inflation adjusted annuity into perpetuity (as long as you are alive), I would consider it scam since there is no such underlying investment vehicle that can support such returns.
But when same promise is made through CPP, we Ben doesn’t question the ‘how’.
For this video to be accurate, Ben needs to also consider the probability of CPP not meeting its promised obligations due to asset underperformance or increase in population lifespan.
Ben, can you me mention what happens if you go all in equities trusting CPP, then when you are 65, CPP announces benefit cuts on the same day as your portfolio is down 50%?
Why ignore this tail risk?
Can you do this for U.S. Social Security? Especially analyzing high income earners who must contribute much more and receive much less (proportionally) compared to lower income earners?
There is a cap on contributions that relates to high income earners. As well, there is a maximum monthly benefit.
You're so lucky Canadians.
Appreciate you making this video, despite some financial advisors expressing the wish they could replace CPP in some form.
Our politicians (of all stripes) can and will make stupid short sighted decisions to please boomers and win elections by selling out the futures of younger generation: a good example is how we are currently living through these policies as it relates to housing.
So for me this is the risk you do not address which is the risk that the government will change policy and start dictating how the pension plan invests or otherwise raids the piggy bank. I can't help but think about Paul Martin and EI when I think about what could happen to CPP between now and when I retire. I would link some articles about that but I dont want this comment flagged as spam.
Super video. In total agreement with you…keep up the excellent work!
As an American, I'm so jelly of Canadian retirement stuff. Be it the CPP here vs American Social Security, or Canadian's equivalent of Trad and Roth IRA accounts rolling over unused contributions to the next every year.
You guys got it good
I feel like Social Security does offer many of the benefits that Ben was extolling in this video, doesn't it?
you are aware we are a communist wasteland, right? cpp means nothing.
Last time I checked ASS is superior to CPP currently in terms of payout
@@lI-tm2pnSocial Security has a better payout but is unsustainable and funded by current contributions.
Americans get wayyyy more tax-advantaged accounts and space.
If you only pay 1/2, it's an OK deal. If you are self employed and pay both halves, it is not a good deal. That's why I switched to paying myself dividends, and self invest.
I always tell people that mock the state pension plans that if such a system were to go bust, they'd have bigger problems to face, such as how to put food on their plate, as that would mean the country's entire economy likely collapsed.
What's the difference between CPP and RRSP?
An RRSP is a type of account that you can choose to open and make tax deductible contributions to, which can be invested.
CPP is a pension plan with mandatory contributions for employees in Canada.
There is also a disability component to it. Not a lot, but it is built in.
And a survivor benefit in some cases.
Insurance companies subtract the benefit from CPP from their own benefit payouts. Ask me how I know this.
@@michaelre7556Correct, but only if you have that as part of your benefit were you worked.
@@michaelre7556 That sucks, but not surprising. Buddy worked for insurance firm and used to brag about his bonuses while derisively explaining the company could afford generous bonuses cause they wouldn't pay out on policies.
It isn't just the government holding people's savings that people don't like. It's the Canadian government's inability to communicate with text, in a way average people will understand clearly. I should not be referring to Wealthsimple's explainer pages to understand Canadian personal financial accounts.
We live in a country of financially illiterate people. The government could literally make a draw by numbers and people still wouldn't get it.
ridiculous. Your complaint is just a complainer complaining. It's not hard to understand. There are clear numbers and graphs on the government website, and you even have secure personal site, tied into the government site, to explain everything based on contributions you've made and that have been automatically recorded based on your tax returns. You must be from Alberta....The English Quebec, who hates everything federal.
As usual, a phenomenal video but I somehow still despise CPP, especially since I am an employer. I may need a year to digest this 😅
CPP in 2026 will see expenditures exceed contributions. This is the same problem that sparked the change in 1997 - it is not sustainable. Each Canadian contributor based on $590B in Assets without taking into account the growing unfunded liabilities of 1.14T as of 31 Dec 2021 is worth $28,818. $28,818 to fund 25% of your retirement income for an average of 18 years (average age of death is 83) = $1,601/yr or $133.42/m. CPP contributions are a tax on workers and employers to pay for a government benefit program we can not afford.
Can we get a video on how CPP funds are managed, fees and whether there is evidence that they are keeping up with benchmarks.
Read the CPP Investment Boards annual report
Cpp and along comes maid. Works a treat.
I was shocked by how the Alberta government characterized CPP as a money grab when I moved here lol. Having spent more than a decade in the US, the CPP is a welcome change for me. The number of people I worked with who had zero contributions in their 401k when they were well into their 40s always scared me
the albertans that work in the mines aren't the best educated and they tend to parrot what is said in their social circles
Albertans remind me of Texans. Think they are big and strong, but whines the most. Maybe we should let them leave Canada.
@@amanasd26 I'd have less problems with it if that were true. I'm talking about educated folks, like engineers and people in finance. The whole thing reminded me of Texas and Florida, to be honest, just with less overt racism and guns lol
@@frustratedalien666 yeah alberta in general is very tribal in their political beliefs. I say beliefs because it's not rooted in anything rational.
@@frustratedalien666Funny. To Canadians outside of Alberta, Alberta is Canada's Texas. Lots of oil, guns, and racists.
One big missed item. CPP is taxed at the marginal rate. Most investment vehicles are currently more favorably taxed, whether dividends or capital gains. Very important when speaking about retirement income ...
It’s a little more involved than that since there are tax implications at the time of contribution. There is a credit on base CPP and a deduction for additional CPP, and the full employer contribution is a deduction (which is likely reflected in wages to an extent).
The RRSP is a good analogy here. If you ignore the deduction on contribution, it looks like the RRSP is taxed less favourably than taxable dividends or capital gains. If you include the deduction, the RRSP is usually at least as tax efficient as a TFSA.
You can collect CPP and OAS and pay no tax. An Alberta couple age 65 can receive full OAS and full CPP creating almost 50K in income. The tax is only about 130. That's an average tax rate of 130/50K = 0.26% It's best to look at retirement income in terms of average tax rate. The personal and age credits allow seniors to a good chunk of retirement income tax free.
It's total taxable income that matters.
@@gruff4036 agreed
Ben.... what you are saying here is very important and very well considered. However, you need to slow down and speak at a slower pace so that you provide time for the listener to consider a point that you are expressing and be ready to integrate the next point. (1/3 your current speed of delivery) Your language is too domain specific for those (that do not already know what you are saying) to understand easily. Speak to those that don't know what you are trying to say. Quality of information is being drown in quantity of information. Help others to learn and understand. This could be broken into a series of videos that build on the information that you present in the ones before. At the end summarize "Why?" someone who hates the idea of CPP should rethink their position. There are many reasons for this argument. Max
Its only going to be valuable if its going to be there when you need it. Most people will never put enough in to make it worth it.
CPP in 2026 will see expenditures exceed contributions. This is the same problem that sparked the change in 1997 - not sustainable. Each Canadian contributor based on $590B in Assets without taking into account the growing unfunded liabilities of 1.14T as of 31 Dec 2021 is worth $28,818. $28,818 to fund 25% of your retirement income for an average of 18 years (average age of death is 83) = $1,601/yr or $133.42/m. CPP contributions are a tax imposed on workers and employers to pay for a government benefit program we can not afford.
stock market gains + define benefit pension + cpp + rental income = goals
I don’t get why the CPP fund needs to have so much management though. They are doing active investing!
CPP is great but the only problem I have is that the government may be investing your cash into things that one might find unethical.
I’d rather put that money in to a special untouchable account for 40 years personally. But since we can’t. Here we are.
CPP is much less valuable for single Canadians. As a single, If you pass away early there are no survivor benefits or a guarantee payout like many insurance annuities would offer. Whereas married pensioners have the significant benefit of a robust survivor payout to a spouse for the rest of that persons' life. Highly inequitable for a plan that requires mandatory participation.
Typical conservative....'If i can't get exactly what i want then it's shite'.
@@randyt3558 Not a political point for me. Just wishing for a plan that is fair across the board.
@@user-kw2mn9nn5rFair to whom? Those who at a particular time in their lives believe they can do better than CPP? Or those who can't?
@@randyt3558 I would like the plan to be equally fair to married persons and single participants. My point is CPP is materially more favourable to married participants than it is to singles, due to the actuarial cost incurred by all, yet only pays to married participants.
@@user-kw2mn9nn5rWell, first, you're articulating you argument poorly. What you're talking about is survivor and death benefits. And to attain survivor benefits you must either be married (regardless of sex) or a common law partner residing with a person (for at least a year) who was receiving CPP benefits WHO HAS DIED. So, how do you make it 'fair' a single person collecting CPP, who has died? What's your real argument here? That you want singles to get more while they are alive, or, you want more than the 2500 payout to kin, when they've died?
American here, is CPP the Canadian social security?🤔
I was quite neutral/indifferent on the CPP - too far out for me to worry about it - but your posts have highlighted how it's actually an amazing safety net come old age. And the fact one can remain in an all-equity index portfolio knowing even if the market tanks in the later years, that person won't have to resort to eating cat food and can wait out until the markets turn around. Really solid product.
CPP in 2026 will see expenditures exceed contributions. This is the same problem that sparked the change in 1997 - not sustainable. Each Canadian contributor based on $590B in Assets without taking into account the growing unfunded liabilities of 1.14T as of 31 Dec 2021 is worth $28,818. $28,818 to fund 25% of your retirement income for an average of 18 years (average age of death is 83) = $1,601/yr or $133.42/m. CPP contributions are a tax imposed on workers and employers to pay for a government benefit program we can not afford.
Says the person kicked out of the UCP in Alberta for unsubstantiated, unscientific-backed, conspiritorial views and is spearheading the Alberta Pension Plan. Cool story.
Please make a similar video on Social Security for US citizens.
Sorry Ben, while I do think CPP is a valuable and necessary program, i think the death benefit needs to be redesigned. There has to be a way to return more back to unlucky contributors while still funding people who live to 100.
I see your argument, but it would still be nice to opt out of. Unfortunate it’s unrealistic given an average persons lack of ability to save
Nah I don't want people to opt out because I'm pretty sure the vast majority would not take their CPP contributions and save it for retirement, they would spend it all. Then when time comes for retirement, those same people would claim the GIS because of their lack of retirement funds and that would mean every taxpayer would be paying for them.
Guess you'd prefer to opt out of Canada's single payer health system as well eh?
@@randyt3558 No, single payer healthcare is perfect for unpredictable events. So I wouldn't opt out. Retirement is more predictable so I believe it is different
@@sebastien4565 Sad but true, most people do not have the discipline to save an appropriate amount
@@CanadianWealthya okay....Having a baby is predictable...Should single payer health care take care of that? You have not made a single argument that makes sense.
C Plus Plus is definitely a valuable asset to have. 😂
No idea what CPP is, I think a lot of people here are not Canadians..
Canadian Pension Plan
This guy Vancouvers.
fun fact: 8848 meters is the height of Mount Everest.
Every country that has a system like this, has to deal with the same dumb criticism. You could translate this video into multiple languages and without changing your arguments, it would apply to other countries.
CPP should be calculated more individually, If someone has a lower life expectancy they should get higher benefits for example. There should also be a bigger payout for people who die early. And there should be the ability to exempt yourself from it if you can show you don't need it. These are my only problems with the otherwise good program.
We are a two pension household with lower than average life expectancy, I don't like this idea of us being forced to subsidize others for simple factors that are considered and held against us in some situations (like purchasing health and life insurance) But not others like the CPP. I just think that for every actuarily significant factor either every product and program should take it into account or none should be allowed to.
I understand it's insurance but it should be actuarily set so that the expected value each person receives from it is roughly equivalent. Maybe slightly redistributional but the person who collects the least CPP should still collect at least half as much as the person who collects the most. Otherwise it is just a tax and not savings because it's forced redistribution.
This is a valid point.
I'm afraid this method of calculation will make it unsustainable.
@@dimon22323 no it won't? You just work backwards from how much money you have to figure out how much benefits you can afford to pay. Nothing that I said at all will suddenly make it unsustainable. It's unsustainable if you want to keep overly subsidizing certain groups of people. But if you have a statistically higher chance of living longer, then you should get smaller payments to make up for that. It's just basic actuarial science.
"If someone has a lower life expectancy they should get higher benefits for example." There are many occurrences where someone has not been expected to live very long, but they lived many more years than anyone expected them too. There was a big issue during the AIDs epidemic where people were buying up AIDs victims’ life insurance policies, but due to advances in medicine, the policy buyers couldn't retire because the insured weren’t dying prematurely. Another example is Stephen Hawking, who was expected to live for 10 years after receiving his diagnosis; he lived for 40 years longer than that. I hope that you too can live a longer life than you currently expect too.
CPP is not a prize. It's an income protection plan. With your idea, anyone who smokes would get higher benefits because of a low life expectancy....So would an alcoholic. Your attitude is the same as any conservative, or wealthy person who believe that if they can't get it all, no one should get any...It's pathetic.
Mortality credit.... Nice lol
When can I sign up to the BF fund?
CPP is great for a few nights out.
I assume the discussion was for a regular employee paying into CPP. Self-employed people pay into CPP twice as much, so get half the benefit/returns.
It is a forced-savings plan, I suppose, which is another "benefit". People who wouldn't otherwise save are forced to.
No. As I say in the video, $8,848 is the combined contribution. Same as what a self employed person pays.
You may be interested in this www.advisor.ca/practice/planning-and-advice/should-business-owners-avoid-cpp-by-paying-themselves-dividends/
For a regular employee, the other half is contributed by their employer, which I would assume Ben included in his calculations. The result would be the same.
Employers don't get the benefits so it is essentially the same thing since self-employed people are the employer
What many self employed people overlook us that employers factor in their contributions to CPP as part of their overall compensation to employees, so in a way “regular” employees salaries are reduced by the CPP contribution also.
Obviously CPP is an excellent hedge against longevity but I'm curious if you could get a similar benefit from taking a low draw down. Obviously it wont be as good as CPP but I feel like your risk will be fairly low if your drawdown is 2% - 3%
I found all three arguments to be fairly convincing as someone who felt that I wouldn't strongly benefit from the CPP but the risk hedging around inflation and sequence of return were the ones I found most convincing.
People in the US don't realize how much social security is OP. If you study it.
Bend points
The only inflation adjusted annuity you can get
Borderline incredible spouse benefit or widow benefit..
In addition, the inflation adjustment can be beneficial because the average retiree is not exposed to inflation the same way the CPI computes it. Typically a paid off home hedges against the CPI housing component. In that case, a social security adjustment can be beneficial.
Maybe someone more informed than me could throw some light here but my understanding is that social security does not break even in terms of its inflows and outflows. In that case we should factor in the higher taxes you would indirectly pay to keep the social security fund solvent.
Survivorship bias. Most people under 40 have given up on owning a home because they are so unaffordable. Good for you boomers, but the new generation has little hope in that regard.
All true, but the SS funding model is a problem, which is why it is easy to find videos about how SS is headed for bankruptcy. Canada's OAS is funded by income taxes, not payroll taxes, so it doesn't have that problem. Combined with a payroll contribution funded CPP (closer to a 401k than SS), it's a much more robust funding model. As a US citizen, this is about the only thing that I envy Canadian investors about.
@@papacharlie-niner148 correct. I think the SS trust fund has other levers it could pull. Notably spouse and survivor benefits. Or the number of credits required to qualify..
This video really opened up my eyes to how poor the return on CPP is. Looking to leave the country asap.
Goodbye 👋.
For self-employed people, who has to pay both employer and employee premiums, is the CPP still worthy?
www.advisor.ca/practice/planning-and-advice/should-business-owners-avoid-cpp-by-paying-themselves-dividends/
Ben, what about MPP?
Someone please send this to Danielle Smith.
Yes, but how can her donor friends make money out of it if the money stays in the CPP fund!
Yeah but they take my money right now and I don't like that
6m27. Exactly!
You might make the same arguments for SS in the US as you can for CPP in Canada except SS is not really a pension. Rather, it is an insurance policy against poverty in old age and thus acts as a wealth transfer from the affluent to the poor. That's a great deal for low income earners but a bad one for high earners. For those at the top, they will not do as well as if they invested the money themselves even with the inflation protection, etc. But investment return is not the only metric that matters. Who wants to live in a society where destitute seniors are homeless and starving? It's one of the prices we pay to live in civil society. Is CPP designed the same way as SS in the US? As an American, I'm curious.
Canada has three plans for seniors. Old Aged Security is a fixed amount paid to anyone over 65 (currently $713 monthly, increasing to $785 for those over 75); the amount decreases for seniors with incomes over $90K. CPP is like the US's SS, based on contributions, and averages $750 monthly. For low-income Canadians (
What if you are self employed and have to pay both employer and employee contribution? Is CPP it still worth it ?
To put into context for non-Canadians, is this basically their version of the U.S.' social security?
Yes.
I believe that the US social security is completely government funded. If so, that is more like the Canadian OAS...CPP is employee/employer funded and a defined benefit pension based on your contributions etc
@@BenFelixCSI I thought OAS is more like the US SS and CPP is closer to a mandated US 401k?
What do you think about CPP from the perspective of an employer, or self-employed person who has to pay both portions?
It’s the same. www.advisor.ca/practice/planning-and-advice/should-business-owners-avoid-cpp-by-paying-themselves-dividends/
*is this REALLY an investment though? a mandatory deduction from your wages...*
The key number is 4.71%. I can invest in dividend stocks and get that level of return today and all of the capital goes to my estate. A lot of the CPP return is simply return of capital. CPP is a one size fits all plan. My risk profile is not the same as an average Canadian. My income comes from patent royalties as a percentage of corporate revenue. As prices charged by manufactures tend to track inflation, my inflation risk is mitigated. I am further mitigating risk by re-investing royalties into dividend paying stocks. Secondly, I don't need to sell any assets to maintain a good standard of living so timing risk is not relevant. Third, since I am not selling assets my longevity risk is mitigated. CPP should be a voluntary plan where people are free to opt in or opt out.
ya....The CPP should only be for poor people, so I shouldn't have to contribute since i'm not poor....typical conservative attitude...got it.
For a second I thought this was about the CCP... Didn't know you could invest in communism 😂
Man I love CP Plan 🥰
Well it’s only good if you don’t die early or stay as a citizen forever.
Also, you have to take into account if a person runs into a tight spot. They can’t just withdraw money from the CPP. Without the CPP it could’ve been a potential emergency fund.
That’s kind of like saying I should get my life insurance benefit before I die. CPP, by definition is not an emergency fund, and has never intended to be the only source for retirement income in Canada.
You would still get your CPP if you are no longer in Canada. (not the case for OAS)
The CPP would likely have less controversy if you could opt out of the contribution requirement AND the Canadian government could effectively financially cut off those who opt out. Problems arise when people refuse to pay premiums yet still find ways to access publicly funded welfare benefits. But coersing everybody into a pooled insurance plan is anti-libertarian, which probably runs counter to many peoples' sense of freedom and autonomy. Like any forced government insurance program, it's a conflict between individualism versus collectivism.
I wish most people would opt of having children and driving cars.
I’m honestly grateful people can’t yolo their entire income. Most people are bad at planning for the long term; CPP at least buffers their impact on others whether they would otherwise be burning money or chasing returns off a cliff.
canada is a country built on the collective good and social safety nets, not Libertarianism.
@@amanasd26here, here! Exactly!
@@amanasd26it was not, but it’s going there rather quickly
While I do like the CPP, there are some political risks where the Canadian governments (federal and provincial, in the case of Quebec) would raid or otherwise devalue the pension funds due to budget problems. The federal government under Harper already did something like this when it clawed back the pension for veterans (which the Supreme Court allowed). There is also the issue of future liquidity. The Canadian economy is expected to be the absolute worst performing in the OECD over the next 10 years and even the next 50 years. If Canadian taxpayers are no longer able to pay into the CPP due to economic problems, there is a large risk hiding there. The American economy over the long term seems like a much more reliable bet, if you have access to funds and instruments tied to the broader US economy.
This is not a potential risk for CPP as the federal government has no control over the funds.
The utility you gain from the money when you are old is nowhere near the value you gain from it when you are young imo. Money will be totally worthless to me beyond keeping myself barely alive when I'm that age. I wish there was a way to opt out of CPP.
You clearly don’t know many 65 year olds.
@@BenFelixCSI This is true - but that does not seem to address what I've said very well.
Utility gains from early consumption when incomes tend to be low are important, but that doesn’t make CPP bad.
It likely means many young people should not adhere to rules of thumb like “save 10% of your income” since CPP contributions are already doing a lot of the heavy lifting. You could argue that people with a strong time preference would be better off without CPP, but they’d also be more likely to be burdens to society later on.
To say that 65 year olds are barely alive and can’t enjoy CPP is not correct. They all play pickleball.
@@BenFelixCSI Yeah of course I did not mean to say that it is a bad force on overall society - just that there is good reason for some individuals (especially those that would watch a video on your channel?) to want to opt out of it.
But I don’t get who’s paying for it long term?
If fully inflation indexed annuities are not even available in Canada because of high risk to the insurer, doesn’t this kinda point to high risk to the government (future taxpayer).
Unless I’m missing something here, it seems like another unsustainable thing boomers have voted in for themselves while forgetting to pay for it and us younger people will be the ones to get screwed in the future.
CPP is funded by contributions and investment returns. Being such a large plan with a consistent base of contributions, it’s in a better position than an insurance company to hedge real liabilities.
@@BenFelixCSIsounds like a Ponzi with no opt-out by state mandate to prevent collapse.
@@Rhino1188it sounds nothing like that at all
@@BenFelixCSIbut contributions are determined and mandated by the government so they can adjust them higher in the future to fund any shortfalls
Obviously, you're missing something. Dunn and Kruger style.
I've contributed to CPP my whole life making it mucher harder to save or buy a home. Now that I am retired, I calculate 19% of my income is protected from inflation.
Thanks.. I guess? If inflation is high I am stil screwed.
Less screwed than without it, though.
@@BenFelixCSI How so? The inflation protection I get from CPP is so insignificant and yet you rate this as a key benefit. I know I'm not alone. I'm sure a lot of your clients are getting even less value (relative to their higher retirement income) when it comes to CPP.
Let’s be real, if most people suddenly made an extra 125 bucks per payday it’s not like they’d start saving that to buy a house. A lot of people say they would, but reality doesn’t bear that out. What they’d do is eat out a few more times a month. They’d buy a slightly nicer car than they drive now next time they needed to get a new car. They’d MAYBE save it for a year or two and put it towards a vacation or something like that. But it would get spent. In the vast majority of cases it’s not getting saved. CPP FORCES you to save. Even against your will in your case.
@@WillFast140 I didn't need help saving. So what benefit did I realize from CPP? I earn $1,200 monthly from this "benefit" when if I could have invested my CPP contributions myself I'd have $2,500 or more income per month.
Edit: I calculated based on my investment returns (mostly RRSP) that I'd have $3,158 per month. $1,200 vs $3,158: Thanks for nothing CPP.
I would much prefer to have a generous pension through the government while paying more into CPP or QPP than having to rely on my own investments.
I don't. I'll retire much sooner with the gains I made on my own investments than if I was contributing more to the governement plan. And there's not age treshold for accessing my investments as well. That being said, I'm happy to have the pension plan anyway, just an other tool in the financial toolbox.
Not if you buy enough dividend paying Stock to cover your expenses. You never touch the principle.
Drinking game: take a shot for every derisive comment from an Albertan
🤣