Cynicism, The Canadian Pension Plan, And You

The point: scoff if you like, but we have a public pension system in Canada that will likely make up a good portion of your retirement income, and its existence should be factored into your plans.

I hear it all the time - in banking, in financial planning, and now online in the personal finance blogging community: "CPP won't even exist by the time I retire." 

To that I say: bull hockey.

Now, I'll grant you that it might look different. It might start later, and it might pay less in inflation-adjusted dollars. I'll even grant you that building your entire plan around maximizing only your Canada Pension Plan, Old Age Security, Guaranteed Income Supplement, and the various provincial income programs isn't a great idea.

But the idea that some day the Chief Actuary of Canada will pick up the red phone on his desk and report that the CPP Account and the CPP Investment Fund will run dry in fifteen years so let's just cancel the program is ludicrous.

Here's an example from a related (but non-contributory) program: the age of eligibility for the Old Age Security pension changed this year because Canadians - on balance - are living longer, healthier lives (hooray!) and this is putting a strain on the ability of the federal government to pay out $6,600 a year to everyone over 65 earning less than $70,954 a year. Solution: increase the age of eligibility to 67.

Did the change happen overnight? Did 64 year-olds all across Canada wake up one morning two years further from receiving OAS than they were when they went to bed? Of course not.

In fact, anyone with eleven or fewer years to retirement wasn't impacted at all by the change. The only people who saw their age of eligibility extended by two years in an instant were those with fifteen or more years until they would have started collecting anyway, meaning that if they were relying on receiving $6,600 a year for their quality of life in retirement, they had 15 years to save the $13,200 necessary to make up for it.

Can our government change? Certainly. Might we as a nation ever be in the situation where - either out of perceived necessity or a burgeoning dictatorship - our government amends or disregards the rules under which the CPP Act can be changed? Sure. The social programs we know today might disappear entirely, but - if I may be so bold - if that's the case you'll have bigger problems than your pension entitlements.

The only time that leaving your public pension benefits out of your retirement calculations is a good idea is if it actually spurs you on to save the replacement value privately, and those savings don't negatively impact the quality of life now.

If you're just doing it to be fashionably cynical? Cut it out.