How much do you put into RRSP's?

[Phanuthier]

Isn't CPP something like "you pay for the (baby boomers) now, and in the future someone will pay for you" ?

[chemgear]

Originally Posted by Phanuthier

Isn't CPP something like "you pay for the (baby boomers) now, and in the future someone will pay for you" ?

So, like a pyramid scheme?

[bizaro86]

Originally Posted by Phanuthier

Isn't CPP something like "you pay for the (baby boomers) now, and in the future someone will pay for you" ?

Yeah, sort of, except prior generations paid lower rates. Basically, when they started the system, there wasn't a prior generation collecting, so the rates were low, and they promised people benefits that they didn't make them pay for.

Which is why the rate was only 1.8% for the first 20 years, and is now 2.75 times higher at 4.95%.

The contribution rates doubled between 1992 and 2003, because the governments/electorates chose to underfund the pension plan before that time. Essentially, that generation didn't pay for anything close to their own CPP, and now those working now have to pay for their own plus the CPP for the prior generation.

Historic percentages are found here.

http://www.servicecanada.gc.ca/eng/i...ribrates.shtml

[GP_Matt]

Originally Posted by bizaro86

Because I've got to think that most people who get to 64 without saving anything are going to experience a drop in standard of living.

Maybe all generations are the same when it comes to savings, and don't want to do it.

I have read that for a lot of poorer people they might actually see an increase in their standard of living when they retire.
A single income couple who made $50000 a year for most of his life can retire at 67 to the following scenario. (OAS and CPP numbers are approximate and off the top of my head.)
Pre retirement take home pay $45332

CPP - $12000 a year
OAS - $8000 a year
Spousal OAS - $8000 a year

Take home pay - $27754

If you assume that they were paying $1000 a month for a mortgage, $200 for gas and maintenance to get to work and $200 for clothes and coffee/food at work that is an after tax savings of $16800 putting their per-retirement cash flow at $28532. If they saved $100 a month for their retirement they will now be better off in retirement than they were when they worked.

[GP_Matt]

Originally Posted by bizaro86

Yeah, sort of, except prior generations paid lower rates. Basically, when they started the system, there wasn't a prior generation collecting, so the rates were low, and they promised people benefits that they didn't make them pay for.

Which is why the rate was only 1.8% for the first 20 years, and is now 2.75 times higher at 4.95%.

The contribution rates doubled between 1992 and 2003, because the governments/electorates chose to underfund the pension plan before that time. Essentially, that generation didn't pay for anything close to their own CPP, and now those working now have to pay for their own plus the CPP for the prior generation.

Historic percentages are found here.

http://www.servicecanada.gc.ca/eng/i...ribrates.shtml

At some point then, when those who didn't contribute fully stop collecting will the rate go down? Or better yet, we keep the rate the same and jack up the benefits to screw the next generation.

[bizaro86]

Originally Posted by GP_Matt

At some point then, when those who didn't contribute fully stop collecting will the rate go down? Or better yet, we keep the rate the same and jack up the benefits to screw the next generation.

At the current forecast it'll take until 2020 to make up 20% of the existing underfunded liability, this improvement is from changes implemented in 1998. At the time of the agreement it was 7% funded. The rate maxed out in 2003.

At 17 years to catch up 13% of the deficit, it would take ~104 years to get to fully funded, assuming steady state, but the boomers are only just starting to retire in numbers, so it'll actually never happen.

Basically, right now there's no plan to ever get to fully funded, but the contribution rate shouldn't have to go up much if at all to keep paying out the benefits promised, since the deficit is made up every year by people contributing more than the benefits they're earning are worth.

[yads]

Originally Posted by Phanuthier

Isn't CPP something like "you pay for the (baby boomers) now, and in the future someone will pay for you" ?

Not quite. I believe that's what Social Security in the US is like. CPP payouts are determined by how much you contributed/earned during your lifetime. If you didn't work a lot (or worked at a low paying job most of your life), you're not going to be getting a lot of CPP when you retire.

[flamesfever]

Originally Posted by GP_Matt

I have read that for a lot of poorer people they might actually see an increase in their standard of living when they retire.
A single income couple who made $50000 a year for most of his life can retire at 67 to the following scenario. (OAS and CPP numbers are approximate and off the top of my head.)
Pre retirement take home pay $45332

CPP - $12000 a year
OAS - $8000 a year
Spousal OAS - $8000 a year

Take home pay - $27754

If you assume that they were paying $1000 a month for a mortgage, $200 for gas and maintenance to get to work and $200 for clothes and coffee/food at work that is an after tax savings of $16800 putting their per-retirement cash flow at $28532. If they saved $100 a month for their retirement they will now be better off in retirement than they were when they worked.

Don't forget if their income falls below a certain level, they may also qualify for the Guaranteed Income Supplement (GIS).

[Cowperson]

Originally Posted by bizaro86

Basically, right now there's no plan to ever get to fully funded, but the contribution rate shouldn't have to go up much if at all to keep paying out the benefits promised, since the deficit is made up every year by people contributing more than the benefits they're earning are worth.

Like a ponzi scheme!!!!

Demographics will take care of that eventually. Canada will be trending towards one of the youngest populations in the world by 2050 because guys like me will be dead or long dead.

Cowperson

[Dion]

Originally Posted by Cowperson

Like a ponzi scheme!!!!

Demographics will take care of that eventually. Canada will be trending towards one of the youngest populations in the world by 2050 because guys like me will be dead or long dead.

Cowperson

Speak for yourself! I plan on living to be a 100

[Sylvanfan]

Originally Posted by chemgear

I sorta recall you moving a while back as part of some major changes. But you are (sound) fairly young. Can you be sure that things cannot change/be changed?

Long story short, basically didnt get paid for a year of work thanks to my wifes sisters bleep head husband, after he conned me into moving to BC to help him get an office going there.

Still when you get to be mid 30's and you don't have a quarter million dollar portfolio...you realize that you're in trouble, and that's me. Inheritance may bail me out, but again, that is highly dependant on where health care goes for seniors in the next 25 years.

[Icon]

Originally Posted by BlackArcher101

I put 4.5% into an RRSP to take advantage of a company matching program, then what little I have left goes into TFSA. I frankly have no idea how I'll save enough for retirement and it scares me.

Ditto.

Maybe I'll get a big raise so the ~5% will turn into enough for retirement....

[MarchHare]

Originally Posted by Sylvanfan

Still when you get to be mid 30's and you don't have a quarter million dollar portfolio...you realize that you're in trouble, and that's me. Inheritance may bail me out, but again, that is highly dependant on where health care goes for seniors in the next 25 years.

I think you're over-stating the direness of your situation. If you're only in your mid 30s, you still have another ~30 years of employment ahead of you, and you haven't even entered your prime earning period yet! That's plenty of time to save for a comfortable retirement if you start righting the ship now.

[chemgear]

^ Yeah, lots of time left to adjust things.

[Wormius]

Originally Posted by GP_Matt

I have read that for a lot of poorer people they might actually see an increase in their standard of living when they retire.
A single income couple who made $50000 a year for most of his life can retire at 67 to the following scenario. (OAS and CPP numbers are approximate and off the top of my head.)
Pre retirement take home pay $45332

CPP - $12000 a year
OAS - $8000 a year
Spousal OAS - $8000 a year

Take home pay - $27754

If you assume that they were paying $1000 a month for a mortgage, $200 for gas and maintenance to get to work and $200 for clothes and coffee/food at work that is an after tax savings of $16800 putting their per-retirement cash flow at $28532. If they saved $100 a month for their retirement they will now be better off in retirement than they were when they worked.

But these people are in a pretty unpleasant situation if their mortgage isn't paid for though at retirement.

[Slava]

Originally Posted by Sylvanfan

Long story short, basically didnt get paid for a year of work thanks to my wifes sisters bleep head husband, after he conned me into moving to BC to help him get an office going there.

Still when you get to be mid 30's and you don't have a quarter million dollar portfolio...you realize that you're in trouble, and that's me. Inheritance may bail me out, but again, that is highly dependant on where health care goes for seniors in the next 25 years.

I have no idea how old you are, or what you have saved or anything, but I took a minute here to run some numbers for you. If you put away $5k a year and increased that by 10% a year for the next 30 years you would have roughly $2.5M at age 65. I started this with a base of $20k.

That's based on historical market performance and 90% equities, 10% bonds. That is the median market performance as well, and obviously you could get lucky or unlucky from that calculation. You seem like a pessimistic guy, so if you were unlucky you still have enough to generate an income for yourself without factoring in CPP/OAS at all. I also considered inflation at 3% in that figure, so while that might be a touch low, its not a terrible assumption either.

Bottom line, all hope is not lost. With some prudent savings and investment you can still arrive at retirement and have something other than catfood for dinner!

[1stLand]

Originally Posted by Slava

I have no idea how old you are, or what you have saved or anything, but I took a minute here to run some numbers for you. If you put away $5k a year and increased that by 10% a year for the next 30 years you would have roughly $2.5M at age 65. I started this with a base of $20k.

That's based on historical market performance and 90% equities, 10% bonds. That is the median market performance as well, and obviously you could get lucky or unlucky from that calculation. You seem like a pessimistic guy, so if you were unlucky you still have enough to generate an income for yourself without factoring in CPP/OAS at all. I also considered inflation at 3% in that figure, so while that might be a touch low, its not a terrible assumption either.

Bottom line, all hope is not lost. With some prudent savings and investment you can still arrive at retirement and have something other than catfood for dinner!

In 30 Years how much spending power will $2.5M give you?

I am not criticizing your post I am just curious.

[darklord700]

Originally Posted by Sylvanfan

Still when you get to be mid 30's and you don't have a quarter million dollar portfolio

A lot of people don't have a $250K portfolio when they turn 35. I am one of them. To have a $250K portfolio when you turn 35, you'll have to sock away something in the range of $10K - $20K every year from the 10 previous years and that's just not feasible for many many people.

[Slava]

Originally Posted by 1stLand

In 30 Years how much spending power will $2.5M give you?

I am not criticizing your post I am just curious.

Well I used an inflation rate of 3%/yr for this. Like I say, that is perhaps a little lower than what we'll see, but its a fairly good approximation. It'll workout to just under half of what $2.5M will buy you today.

[Cowboy89]

Originally Posted by Slava

Well I used an inflation rate of 3%/yr for this. Like I say, that is perhaps a little lower than what we'll see, but its a fairly good approximation. It'll workout to just under half of what $2.5M will buy you today.

That should be able to last at a tune of ~$65k per year in real terms for 30 years before even factoring in OAS and CPP. If there's part-time work, and lower expenses in retirement due to lack of obligations that exisited in earlier phases of life then that can definately fund a reasonable exisitance in the golden years.