Opinion: Paying the price for pension procrastination

The best piece of financial advice I ever received is this: don’t count on the government to enable you to live comfortably in retirement.

And the biggest financial mistake I ever made was my failure to join the Ottawa Citizen’s pension plan for the first 10 years of the 24 years that I worked there. I calculate my tardiness in joining the voluntary plan has already cost me more than $100,000 in pension income in the 13 years since I retired from full-time work.

Government’s role in the retirement planning of Canadians is topical with the Trudeau government in preliminary discussions with the provinces on how to boost the payout to retirees from the Canada Pension Plan.

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Don’t hold your breath. Even if there is an agreement to enrich the plan through higher compulsory monthly premiums for workers and their employers, it will not be nearly enough to guarantee a comfortable retirement for those fortunate enough to qualify for the maximum CPP benefit.

Currently, the average CPP benefit for retirees who contributed to the plan is a little more than $550 a month, a paltry sum for a lifetime’s worth of pension contributions.

The maximum CPP benefit is currently less than $1,100 a month. But only a small minority of retirees qualify for that amount – those who held well-paying, full-time jobs for most of their working lives.

The new federal government has already signalled to retirees that it will provide them with little or no additional financial help in the foreseeable future. Very few retired people seem likely to benefit from the federal government’s so-called middle-class tax cut.

In order to get any income tax relief from the Trudeau government, a retired couple requires a combined taxable income of at least $90,000 a year. That’s a huge amount for most retirees, even if both are former federal government employees who worked full-time for most of their lives.

Many people working in well-paying, full-time jobs seem unlikely to get much of a tax break from the Trudeau Liberals. In order to benefit from even the smallest tax cut, individuals must have a taxable income of about $45,000 a year. That’s after deductions for CPP, employment insurance, union dues, registered retirement savings and any other income that is tax-free.

Thus, a person making as much as $60,000 a year may see no income-tax cut at all. To call this a middle-class tax reduction seems a stretch, to put it mildly. To qualify for a significant tax cut, a worker will probably require a gross income of close to $100,000 a year. Even then, the maximum income-tax relief for an individual will be less than $700 a year, according to the Liberals’ own estimate in their manifesto promising “real change.”

The Trudeau Liberals are also doing seniors no favour by cutting the amount that Canadians are allowed to stash away annually in a tax-free savings account. This was a measure introduced by the Conservative government in 2009, to scorn from some media outlets such as the Citizen, which said such an account would have little benefit.

In fact, the tax-free savings account is of particular benefit to seniors, who must gradually withdraw money from their tax-deferred registered retirement savings account once they reach old age.

Under the Conservatives, Canadians were recently able to stash up to $10,000 a year in their tax-free savings account following an increase in the limit last summer. The Liberals plan to reduce the annual limit back to $5,500.

So, back to where I began: don’t count on the government and its Canada Pension Plan, enriched or otherwise, to provide sufficient funds to live comfortably in retirement. The maximum CPP benefit, combined with the maximum Old Age Security benefit, currently provides an individual with a monthly income of about $1,635.

When I was hired by the Citizen, I was in my early 40s and I didn’t think much about retirement. So I opted not to join the company pension plan, figuring I could save for retirement later in life. I also planned to invest more in my registered retirement savings plan, but often found reasons to splurge on vacations instead.

Ten years later, I recognized my mistake. And in my final 14 years of full-time employment, I earned a work pension that exceeds what I receive under the Canada Pension Plan, to which I had contributed for 27 years. To be fair, I don’t remember how my contributions to the two plans compared.

My point is this: when it comes to pension income, the more the merrier.

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