Increasing Retirement Savings

[albertGQ]

So I was watching Global News tonight and they mentioned that 2/3 of Canadians or more are not saving enough for retirement. One of the ideas that were brought up was to increase CPP payments to 50% of income instead of 25%. But is this an efficient solution? I'm not sure I agree with allowing the government more control over our money is a good idea.

What do you guys think the government can and should do to encourage Canadians to save more for their retirement. I don't think it's fair for people that do save through RRSPs should be penalized by having their OAS clawed back.

Something that just crossed my mind without putting too much thought into it is changing the tax structure of RIFs. Why even tax RIF income. I can see taxing RRSP income when someone withdraws this money before retirement, but why not make RIF income tax free?

Is this a good idea? Would this encourage more Canadians to save for their retirement? I've heard people critisize the RRSP program by saying it's just a tax deferal strategy (which it is). So why not make the contributions tax deductable and the RIF payments tax free?

I know there are a lot of financially smart people on CP and I'd love their opinions. What are the positives and negatives to my idea? Can you guys think of any other solutions to this problem as well?

Discuss!

[ken0042]

Originally Posted by albertGQ

but why not make RIF income tax free?

As one of the 2/3- I fail to see how this would make me more likely to save for retirement. A person like me needs to have the options removed; make it so I cannot do anything with my retirement fund.

Myself I jumped at a new job that offered a pension, because once again I need to be forced to save. This new plan would be a way for the gov't to do the same thing. And the bottom line is it is cheaper for them to take money from me now and invest it than it is for them to pay me welfare when I am 70.

[I-Hate-Hulse]

Once again, Australia has it figured out. Mandatory retirement savings. (superannuation)

http://en.wikipedia.org/wiki/Superan...n_in_Australia

[valo403]

Originally Posted by I-Hate-Hulse

Once again, Australia has it figured out. Mandatory retirement savings. (superannuation)

http://en.wikipedia.org/wiki/Superan...n_in_Australia

I loved the mandatory Super when I lived in Australia. I made plenty to live comfortably even though I was doing odd temp jobs, and when I left the country and filed my taxes I got a check that pretty much covered all the debt I ran up traveling around on my way back to Canada.

[Devils'Advocate]

You can change tax policies all you want, you are not going to get people to put money away for a rainy day. Who is going to save for their old age hospice when they can get a new big screen TV today?

Preaching personal responsibility is nice when you are dealing with a personally responsible society. Based on the above study, that wouldn't be an adjective for the Canadian populace.

Personally, I'm guessing that the boomers will not have near enough money to pay for their retirement and the government will go bankrupt dealing with their health care costs, so we Gen-X and Gen-Y folks will end up paying for their extravagances. And their personal debts. And the federal, provincial and municipal debts they have built up.

[Gundo]

Im one of the 1/3 although Im thinking of taking out my RRSP's to pay off my debt, the amount I would pay into taxes is much less than the interest I would pay on my debt. And being free and clear allows me to turn right back around and pay my RRSP's back within 2 - 3 years.

and then Id be more or less debt free aside from my mortgage, and being only 27 Im plenty confident I can save up more than enough for my retirement, most people my age still dont even think about saving for retirement.

[MoneyGuy]

This may be where this came from. From Canadian Press.

TD Economics warns pension reform needed or seniors won't have adequate income

A new report from TD Economics warns that unless the pension system is reformed, a growing number of Canadians won't have adequate income in retirement to maintain their standard of living.
The report released Thursday comes in advance of next week's meeting of federal and provincial finance ministers in Prince Edward Island, where the retirement income system will be discussed.
"If we don't see material changes within the next five years then we're going to start running into greater risks that individuals are going to experience this decline in the standard of living," said Craig Alexander, TD's chief economist.
He said a decline in personal savings, rising household debt levels, volatile markets and declining employer pension coverage will affect the lifestyle of future retirees.

"The bottom line is that more Canadians are likely to find that they experience a lower standard of living in retirement over the next four decades," Alexander said.
He said close to 25 per cent of seniors are not meeting the traditional benchmark of 60 to 70 per cent replacement of their pre-retirement income.
Alexander said the analysis by TD Economics shows the middle class will be particularly affected in years to come, especially those without pension plans.
He said the retirement system is doing a good job of keeping retirees out of poverty, but not enough to ensure they can maintain their standard of living, and governments need to act, starting with gathering better information on household income and savings.
The last survey of financial security by Statistics Canada was done in 2005 and Alexander said a lot has changed on household assets and liabilities in the last five years.
He said the updated information is needed so governments can pursue a "rush prudently, don't run blindly" approach to reforming the Canadian retirement income system.
Alexander said governments need to improve financial literacy among Canadians so people have the capability to competently manage their own financial affairs.He is also calling on governments to raise annual limits for RRSPs and defined contribution pension plans, and to improve the rules for employer-sponsored defined benefit plans.
His report suggests the use of a public supplementary pension plan to help those in greatest need, rather than changes to the Canada Pension Plan, which wouldn't necessarily help the minority of people who aren't saving enough now.
The Canadian Labour Congress has proposed increasing CPP benefits. Currently, the average Canadian receives a monthly retirement pension of $502.57 from the CPP.
The labour congress proposal would "effectively double'' the average benefit and would see the maximum increase to $1,635 from the current level of $934.17. That would require Canadians to deduct a greater amount from their paycheques.
But the Canadian Federation of Independent Business said Thursday that its members are against that idea.
"Proposals by unions to double CPP would serve as a major job killer, as economists worldwide recognize that payroll taxes are a drag on job growth and economic development," federation president Catherine Swift said in a statement.
"With EI payroll tax premiums set to rise for the next several years, beginning in 2011, an increase in CPP premiums could hamstring Canada's economic recovery, just as it begins to gain momentum."
Instead, the business group has written to the federal and provincial finance ministers to say governments need to consult with businesses on other ways to improve the retirement income system.

Part of me feels really sorry for these folks, but where does personal responsibility start? I do feel sorry for folks who genuinely cannot save, but people who have the resources but don't save get no sympathy from me. I don't want to see CPP get more expensive so my costs go up because people won't look after themselves. Gundo, get cracking. Contact Slava and get started.

Edit: I don't know why the system is putting extra quote codes in.

[flamesfever]

From what I have witnessed, the average person in the 20 to 40 year age group tends to get sucked into the idea that he or she has to have all the toys e.g. expensive cars or trucks, motorcycles, quads, snowmobiles, boats and motors, etc. These are all depreciating assets, that become worthless with time, and continually take away the ability to generate savings...in years when it counts most.

Anything that you can invest in, that appreciates with time, will help you create assets, which when sold will generate money to live on when you retire, eg. your house, cottage, land, various investments in stocks, bonds, etc.

[Cowperson]

Originally Posted by flamesfever

From what I have witnessed, the average person in the 20 to 40 year age group tends to get sucked into the idea that he or she has to have all the toys e.g. expensive cars or trucks, motorcycles, quads, snowmobiles, boats and motors, etc. These are all depreciating assets, that become worthless with time, and continually take away the ability to generate savings...in years when it counts most.

Anything that you can invest in, that appreciates with time, will help you create assets, which when sold will generate money to live on when you retire, eg. your house, cottage, land, various investments in stocks, bonds, etc.

This seems to be about legislating against human nature, the penchant of the common man to live in the moment instead of looking to the future consequences of those actions.

Forcing people to save would have societal benefits in the long term but they'd kick and scream about it the whole way.

Cowperson

[Sylvanfan]

Ah yes we had this debate a couple months ago around here. I do think private companies could do more to entice their employees to save. As I said in that thread, when I had 5% company RRSP matching I had a half arsed chance of saving enough to retire when I was 65. When I lost that...I pretty much realized I would have to work till I was 75, and the chance of me living longer than that is pretty slim.

[flamesfever]

Originally Posted by Cowperson

This seems to be about legislating against human nature, the penchant of the common man to live in the moment instead of looking to the future consequences of those actions.

Forcing people to save would have societal benefits in the long term but they'd kick and scream about it the whole way.

Cowperson

I'm not talking about legislating anything, I'm talking about educating the masses...or a few on CP.

[flamesfever]

As far as RRIF's are concerned, I would prefer to lessen or eliminate the mandatory withdrawal amount, or make it strictly up to the individual as to what percentage he takes out each year, depending on his needs and tax situation.

I think the TFSA is a great tool for all those who take the time and energy to learn how to invest properly.

I also think the clawback on OAS is unfair.

[jtfrogger]

For me, the key quote in the article that MoneyGuy posted is this, "He said the retirement system is doing a good job of keeping retirees out of poverty, but not enough to ensure they can maintain their standard of living, and governments need to act, starting with gathering better information on household income and savings."

The current program keeps retirees out of poverty. I personally believe that it shouldn't have to do much more. A minimal increase, maybe, but anything more is not necessary. So, if someone doesn't save a penny, they can still survive on CPP/OAS. This is especially true if they own their own home.

The comment about raising the limit on RRSPs sounds ridiculous to me, especially if the reason is to allow people to have a decent standard of living in retirement. I find it hard to believe that anyone maxing out their RRSP under the current rules will struggle meeting a decent standard of living unless they are trying to retire at 45.

[Stranger]

Originally Posted by flamesfever

From what I have witnessed, the average person in the 20 to 40 year age group tends to get sucked into the idea that he or she has to have all the toys e.g. expensive cars or trucks, motorcycles, quads, snowmobiles, boats and motors, etc. These are all depreciating assets, that become worthless with time, and continually take away the ability to generate savings...in years when it counts most.

Anything that you can invest in, that appreciates with time, will help you create assets, which when sold will generate money to live on when you retire, eg. your house, cottage, land, various investments in stocks, bonds, etc.

When I was a kid my Dad gave me a paper that show how to save for retirement. It basically showed that if you put away $2000 / year from age 20-30 (I think) in a fund that got you 7% interest and nothing else until age 65 you'd have $1,000,000. If you started saving at age 30 or later you'd have to put $2000 / year for 35 years to get the same $1,000,000. I'll try to find the paper if I can.

[1stLand]

I suggest everyone reads "The Wealthy Barber" and "Rich Dad Poor Dad"

It's all u need to know about saving for retirement.

Buy assets that generate passive income.

Have enough assets and maybe you will be able to buy toys that depreciate over time.

I would never buy a vehicle or boat or quad or motorcycle brand new, even if I was rich.
Whats the point?

[MoneyGuy]

Please don't encourage people to read Rich Dad Poor Dad.

[Slava]

Great thread, and I'm glad that someone started it. I'm with the OP here in that I would like to see a better rate for taking money out of the RRIF. I have seen client who started their RRSP day one (as in as soon as the government brought the program in) and saved 15%. Now they are looking at 32-36% tax to bring that money back out. I know the government needs their share and all, but that does give people pause when debating how best to save their money.

I'm not going to be particularly pleased if they increase CPP premiums. I already pay enough as a small businessman, and I think that this just means that bringing on employees in general more and more difficult for the small business community.

Originally Posted by 1stLand

I suggest everyone reads "The Wealthy Barber" and "Rich Dad Poor Dad"

It's all u need to know about saving for retirement.

Buy assets that generate passive income.

Have enough assets and maybe you will be able to buy toys that depreciate over time.

I would never buy a vehicle or boat or quad or motorcycle brand new, even if I was rich.
Whats the point?

I don't know that I really agree with that statement that I bolded there. Most people who are saving for retirement don't need an income stream, they need to leave that money alone and let it compound. Taking out the growth all of the time or taking the cash for your dividends is working against you unless you can put that money to work in a better place.

[macker]

Originally Posted by MoneyGuy

Please don't encourage people to read Rich Dad Poor Dad.

Why not? As a starting point it can help many people. There is a reason it is one of the top selling books over the past 15 years. Many of the principals are timeless. His book with Trump isn't that bad either. It is not all good but for many people these ideas can be transformational. I realize that he has consistently bashed mutual funds from the beginning but that isn't reason enough to discourage people from reading but might encourage people to examine the way they are investing. As a starting point for a broad overview Chilton, Kiyosaki, Bach, Edelman etc.all do an adequate job. Use them as a starting point but realize that much of what they are stating is taken from previous books such as Think and Grow Rich, The Richest Man in Babylon. So if you want timeless ideas in a very readable format.....Rich Dad Poor Dad.....What do you recommend that Trumps it?

[Frank MetaMusil]

Originally Posted by macker

Why not? As a starting point it can help many people. There is a reason it is one of the top selling books over the past 15 years. Many of the principals are timeless. His book with Trump isn't that bad either. It is not all good but for many people these ideas can be transformational. I realize that he has consistently bashed mutual funds from the beginning but that isn't reason enough to discourage people from reading but might encourage people to examine the way they are investing. As a starting point for a broad overview Chilton, Kiyosaki, Bach, Edelman etc.all do an adequate job. Use them as a starting point but realize that much of what they are stating is taken from previous books such as Think and Grow Rich, The Richest Man in Babylon. So if you want timeless ideas in a very readable format.....Rich Dad Poor Dad.....What do you recommend that Trumps it?

Wall St. Journal wrote up an interesting article a few years back:

http://online.wsj.com/article/SB1160...y_page_left_hs


I don't know if the book being a best seller has anything to do with whether or not the investment advice is sound.

[macker]

Originally Posted by Frank MetaMusil

Wall St. Journal wrote up an interesting article a few years back:

http://online.wsj.com/article/SB1160...y_page_left_hs


I don't know if the book being a best seller has anything to do with whether or not the investment advice is sound.

Reading someone elses opinion won't change mine one bit. As I said it is not all good and anyone can google rich dad scam and find all kinds of similar articles. You won't catch me at a Darren Weeks seminar either but why dismis the book completely. The book being a best seller for the length of time that it has tells me that people enjoy it and it is readable. The investment advice (pay yourself first, live within your means and then increase your means, find out what everyone else is doing and do the exact opposite, why consumers will always be poor, Newtons law etc. etc.) is sound. It is not original as it is all pointed out in books from years gone by. Some might say that the principals are too basic but you don't see many people following what is preached in his books today...Like it or not the question I have is what book better points out the basics if you have read better, keeping in mind that the average person isn't interested in sitting down to Benjamin Graham etc. and the focus is too narrow...