Author Topic: Canada Pension Plan Increase....  (Read 5780 times)

Retire-Canada

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Canada Pension Plan Increase....
« on: June 20, 2016, 06:59:51 PM »
http://www.cbc.ca/news/business/finance-minister-cpp-1.3643155

I'm generally in favour of increasing CPP. I'm employed so I pay both the employer's end and the employee's contribution. So this is going to cost me twice as much as some other folks, but anything that's going help stabilize retirement incomes at a liveable amount is fine in my books.

The average CPP payout is about half the maximum so an increase of 1/3 won't be that huge for most people.

What are your thoughts on this?

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #1 on: June 21, 2016, 06:41:59 AM »
I'm paying both halves but won't get to collect anything.
Damn immigrants, coming over here, starting companies, hiring people, paying tax - but not working for 40years so don't get to claim any benefits.

Generally in favour, assuming it goes to pensions and doesn't end up paying for some other government project a few decades down the line. I do like the Aussie idea of forcing people to save 10% (?) of your salary in their equivalent of an RRSP.
« Last Edit: June 21, 2016, 06:46:09 AM by nobodyspecial »

going2ER

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Re: Canada Pension Plan Increase....
« Reply #2 on: June 21, 2016, 08:21:46 AM »
I would be fine with paying extra to CPP as an employee if it means having a better CPP in retirement. It is not a huge factor in my retirement plan, but for many people it is the only part of their plan.

The current maximum is not much to live on even with a paid off mortgage, foget about those that are paying rent.

According to this website http://cppib.com/en/home.html who does the investments of the CPP the fund is doing well, but I guess if we are to increase payouts we do need to increase contributions.

Kaspian

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Re: Canada Pension Plan Increase....
« Reply #3 on: June 21, 2016, 08:31:50 AM »
I think many Canadians are under the false assumption that CPP and OAS are a fullblown retirement plan instead of what it was intended to be--a small subsidy to top off one's own savings.  It's a foolish world where people who've made decent salaries their whole lives have saved nothing for retirement because they're under the impression CPP will be able to maintain their lifestyles.   We even had new TV ads for the Ontario Retirement Pension Plan which implied this ridiculous meme!  Basically, "Of course you didn't save anything for retirement, you weren't supposed to.  CPP was going to take care of you, but it falls short."  Why don't we have ads which say, "CPP is supposed to be pocket change.  You still have to save your own money for retirement--all of you dummies."?   

It's like the new idea that you should be able to buy a house, a car, and have three kids on a minimum wage job.  ...Jobs which were originally intended for high school students or maybe a second wage for a newly arrived immigrant family. 

We've gone off the rails somewhere.

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #4 on: June 21, 2016, 09:19:18 AM »
It is odd though that they take 9% (and now to be 10%) of your salary to pay for the "top up", which depending on your personal circumstances you may not get - and yet they cap the amount you are allowed to save for your own retirement at 18%.

If CPP is a top-up based on your contributions, and not a social security safety net for the poor, then I think you should be allowed to opt out and have the contributions added to your RRSP.

Kaspian

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Re: Canada Pension Plan Increase....
« Reply #5 on: June 21, 2016, 11:09:37 AM »
If CPP is a top-up based on your contributions, and not a social security safety net for the poor, then I think you should be allowed to opt out and have the contributions added to your RRSP.

I completely agree, but there's the problem--every single Canadian would "opt out" so they got higher paycheques, still NOT put the money in their RRSPs/TFSAs and then try to opt back into CPP when retirement actually came around. (They'd also moan even more about government employee pensions--it takes a lot of convincing to my friends that $10K comes automatically off my paycheque every year for a government pension, that I only get $2K a year RRSP room, and they get a ton of RRSP room because they're supposed to be fucking using it.  Nope--all of them except ONE spends their money and puts nothing in their RRSP because they "don't trust mutual funds".)

The Conservatives (note:  I didn't really like them) did try and increase the amount we could save by jacking the TFSA to $10K/year but the Liberals argued "only rich people could afford to use that".   Most people I know who use their TFSA also think it's just a "savings account" and use it as to save cash for a vacation or in case of emergency.  :(

Financial literacy is pretty damn bad up here.
« Last Edit: June 21, 2016, 11:11:35 AM by Kaspian »

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #6 on: June 21, 2016, 11:21:53 AM »
The only argument for the CPP is that it is a safe annuity - unfortunately I don't get it because I won't be working here for 20-40years.

I'm less bothered by the TFSA hike, it was nice. I like not paying tax on dividends and I like not having to do the tax paperwork even more. But I do think it was a cynical move by a government to buy votes - like President Bush mailing $500 tax rebate checks.
I'm not sure that anyone rich enough to be influencing government policy was bothered by saving the tax on an extra few $100 of income.

Le Barbu

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Re: Canada Pension Plan Increase....
« Reply #7 on: June 21, 2016, 11:35:10 AM »
The actual increase purpose is just another way to aleviate the fucked-up calculations they made when the Boomers were all working full time. Now, this cohort really need a lot of money to live The Good Life (as they did for the last 50 years) and dont give a fuck whos paying for this. I hope to quit ASAP and stop funding this Generation Ponzi Scheme. Canadian under 50 now should prepare to turn mustchian to live with CCP when they get 65+

Retire-Canada

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Re: Canada Pension Plan Increase....
« Reply #8 on: June 21, 2016, 12:16:40 PM »
It is odd though that they take 9% (and now to be 10%) of your salary to pay for the "top up", which depending on your personal circumstances you may not get - and yet they cap the amount you are allowed to save for your own retirement at 18%.

Nobody is capping your retirement savings at 18% in Canada. The tax deferred RRSP program is limited to 18%, but that's not the only place you can put investment $$ for your retirement. The TFSA is available and you can setup any number of non-registered accounts, invest in real estate, etc...

PharmaStache

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Re: Canada Pension Plan Increase....
« Reply #9 on: June 21, 2016, 01:15:54 PM »
Random questions-

1. Does anyone know how a "typical" mustachian work timeline of say, 10-20 years of making at least the (old) cpp max of 54k-ish affects your cpp payout at 65?  Would it just be 25-50% of what someone who worked the full 40 years would get? 

2. I have seen references in news articles about this affecting work pension plans- can anyone explain?

3. What does it mean that the part of cpp you pay between 54-84k is "tax deferred"?

SoftwareGoddess

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Re: Canada Pension Plan Increase....
« Reply #10 on: June 21, 2016, 02:32:29 PM »
Random questions-

1. Does anyone know how a "typical" mustachian work timeline of say, 10-20 years of making at least the (old) cpp max of 54k-ish affects your cpp payout at 65?  Would it just be 25-50% of what someone who worked the full 40 years would get? 

The rules for determining CPP payout are complicated. I have a spreadsheet for my own personal case, which says that if I stop contributing at age 40, which for me would be about 18 years of contributions, then the payout would be a little less than half of what it would have been had I contributed for 40 years. Make of that what you will.

Quote
2. I have seen references in news articles about this affecting work pension plans- can anyone explain?

The benefits of some defined benefit plans are defined as a combination of CPP payouts and other plan benefits. If CPP contributions and payouts are increased, then the plan may be adjusted accordingly.

Quote
3. What does it mean that the part of cpp you pay between 54-84k is "tax deferred"?

I hadn't heard that one, but I would guess that it just means that CPP contributions are not taxable, while CPP payouts are taxable.

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #11 on: June 21, 2016, 03:46:52 PM »
It is odd though that they take 9% (and now to be 10%) of your salary to pay for the "top up", which depending on your personal circumstances you may not get - and yet they cap the amount you are allowed to save for your own retirement at 18%.

Nobody is capping your retirement savings at 18% in Canada. The tax deferred RRSP program is limited to 18%, but that's not the only place you can put investment $$ for your retirement. The TFSA is available and you can setup any number of non-registered accounts, invest in real estate, etc...
Yes I know, and obviously a MMM needs to save 3-4x as much. It would just be nice to get the tax back ;-)

If they want people to save for retirement upping the RRSP limit would be better than the TFSA, especially since you pay income tax, and lose benefits, on what you ultimately get back.


lostamonkey

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Re: Canada Pension Plan Increase....
« Reply #12 on: June 21, 2016, 07:02:26 PM »
I am okay with this change:

1. The increase does not begin until 2019 and is implemented over 10 years. This means that employers will have plenty of time to adjust to the changes.

2. Current retirees wouldn't get increased payouts which is fair given that they didn't make increased contributions.

3. The employer and employee respective contribution rate changed from 4.95% to 5.95% which is not too extreme.

4. The maximum pensionable income increased from $55K to $80K. I don't like this change. If you make $80K per year, you should be required to provide your own additional cash flow in retirement

5. Contributions in excess of the current maximum pensionable income will be treated as a tax deduction as opposed to a tax credit which I think is fair.

Heckler

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Re: Canada Pension Plan Increase....
« Reply #13 on: June 21, 2016, 09:22:11 PM »
Are CPP payouts a taxable income when I'm receiving the benefit?

lostamonkey

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Re: Canada Pension Plan Increase....
« Reply #14 on: June 21, 2016, 09:24:39 PM »
Are CPP payouts a taxable income when I'm receiving the benefit?

Yes

okits

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Re: Canada Pension Plan Increase....
« Reply #15 on: June 22, 2016, 01:51:27 AM »
I think I'm fine with it. 

From a public policy level, it probably means a couple hundred dollars a month extra per retiree when the time comes.  Not life-changing, but if you're lower income that buys you better groceries, at least.  I feel as though this increase is being talked about as being revolutionary, and it's not.  If you didn't save for retirement (pension, RRSP, general assets/wealth) this change to CPP isn't going to single-handedly give you $50k a year in retirement.  Not a boatload of extra money is getting paid into the plan, so not a boatload of extra money is getting paid out to retirees in the future.

As a few personal finance columnists have pointed out, this is, for most sub-45 yr old workers, the only defined-benefit, indexed, iron-clad pension they'll have access to.  Increasing it a little is a good thing and acts as an enhanced safety net for retirees (I'm not optimistic that we can expect everyone to adequately save and invest for their retirements.)

From a personal standpoint, I'm pursuing ER and don't expect to be paying into CPP for decades more.  Already, I'm looking at downshift options to give me better quality of life, so while I'll pay more in premiums I don't think the increase is terribly meaningful.  I think DH is feeling a bit burnt by the raising of the maximum income level, but this is being phased in slowly so we may not have too many high-earning years left in the workforce by the time it's in place.

And in the end, policy makers don't care a fig what I think, so they'll make decisions and I'll just live with them.  :)

Retire-Canada

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Re: Canada Pension Plan Increase....
« Reply #16 on: June 22, 2016, 06:33:47 AM »
If they want people to save for retirement upping the RRSP limit would be better than the TFSA, especially since you pay income tax, and lose benefits, on what you ultimately get back.

I'd far rather have extra TFSA space than extra RRSP space if you gave me the choice.

People forget that RRSP is only tax deferral and the more you have in it the less the tax differential will be when you retire from your working income to your FIRE income and hence less benefit.

Beyond that all $$ taken from the RRSP count as income and are taxed at higher rates including capital gains and Canadian dividends - so your are losing out in terms of those lower tax rates. RRSP income reduces income tested Gov't retirement benefits so it can cost you in that way as well.

Finally with mandatory withdrawals RRSPs can end up a big tax burden in retirement if not managed carefully reducing or eliminating all the tax deferral benefits you thought you were going to get.
« Last Edit: June 22, 2016, 06:35:31 AM by Retire-Canada »

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #17 on: June 22, 2016, 06:40:19 AM »
Precisely - I meant it would be a better plan for the government. In that it would cost them less in the long run than raising the TFSA limit.
 
I would say though that if they are raising the limit to people earning twice the median income, who will probably not be benefiting from the money in retirement, then it has become simply another tax and so they should abolish the maximum and let it apply to everyone.
« Last Edit: June 22, 2016, 06:44:26 AM by nobodyspecial »

plainjane

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Re: Canada Pension Plan Increase....
« Reply #18 on: June 22, 2016, 07:56:28 AM »
If they want people to save for retirement upping the RRSP limit would be better than the TFSA, especially since you pay income tax, and lose benefits, on what you ultimately get back.
I'd far rather have extra TFSA space than extra RRSP space if you gave me the choice.

You and I come out ahead with extra TFSA space, but I think from the perspective of good governance, extra RRSP space is a better idea.  Taxes pay for civilization.

nereo

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Re: Canada Pension Plan Increase....
« Reply #19 on: June 22, 2016, 08:16:20 AM »
I think many Canadians are under the false assumption that CPP and OAS are a fullblown retirement plan instead of what it was intended to be--a small subsidy to top off one's own savings. ...
We've gone off the rails somewhere.

This is my general feeling on the subject. While the increase will undoubtedly help some, it's at best a band-aid on a self inflicted wound.  Worse, I fear that this newest band-aid might be counterproductive for some in the sense that they will continue injuring themselves while taking comfort that they're going to get a slightly larger band-aid.

Ok, enough of that analogy. The data on savings rates and household debt for Canadians is miserable, and lately its been even worse than their US counterparts (which I didn't think would be possible). My opinion is that we absolutely need CPP and OAS, but we need to figure out a way of getting people to save more on their own.  Like Retire-Canada, I'd personally prefer more headspace in my TFSA, but since so many people don't use that or underuse theirs I'm not sure that adding more will help those that need the most help.  Maybe Revenue Canada needs to send out "report cards" each year when we file giving people a grade on their current finances (I'm only half kidding here).

Damn immigrants, coming over here, starting companies, hiring people, paying tax - but not working for 40years so don't get to claim any benefits.
Lol.  I am one of those "damn immigrants". I'll probably get some benefits but i'm highly unlikely to get my share due to my shortened working career here in Canada and the time I have spent and will spend outside Canada.  Oh well, my life is blessed so I can't be too upset.
« Last Edit: June 22, 2016, 08:20:09 AM by nereo »

Dmy0013

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Re: Canada Pension Plan Increase....
« Reply #20 on: June 22, 2016, 09:12:43 AM »
I think its a good idea to raise the CPP - to many people are saving nothing, and relying on winning the lottery.

Now here is a question...

OAS - is that going to be around for me in 30 years?

RichMoose

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Re: Canada Pension Plan Increase....
« Reply #21 on: June 22, 2016, 09:50:47 AM »
I think a higher CPP is good for the hordes of financially illiterate Canadians out there who don't understand what saving for retirement means. However, it will make people like me generally worse off. Also, the costs of running CPP has been skyrocketing. With consulting and management expenses I believe it's running at more that 1% of assets. Pretty horrible considering they don't beat the returns of a balanced portfolio.

Personally I'm not too worried because I only have another 10 yrs, give or take a few, of employment income ahead of me. If I choose to work after that I will make sure it's in a self-employed role (corporation) where I can get paid in dividends rather than regular income, plus other tricks to realize benefits without having to pay CPP and other payroll taxes on them.

Retire-Canada

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Re: Canada Pension Plan Increase....
« Reply #22 on: June 22, 2016, 09:51:53 AM »
OAS - is that going to be around for me in 30 years?

Only if Canada is around. ;)

If you have so little faith in the economy behind the country and that benefits program I hope you are not invested in Canadian stocks/bonds.

OAS is not incredibly generous. It's a fairly modest program and if you take it away/reduce it significantly the people that depend on it aren't going anywhere and they'll be accessing Government support through other programs.

Personally I have no concerns that OAS or something similar will be around when I am traditional retirement age.

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #23 on: June 22, 2016, 02:13:56 PM »
OAS - is that going to be around for me in 30 years?

Only if Canada is around. ;)

If you have so little faith in the economy behind the country and that benefits program I hope you are not invested in Canadian stocks/bonds.

OAS is not incredibly generous. It's a fairly modest program and if you take it away/reduce it significantly the people that depend on it aren't going anywhere and they'll be accessing Government support through other programs.

Personally I have no concerns that OAS or something similar will be around when I am traditional retirement age.
But it could be means tested to the point that only the very poor get it.
After all who could complain about benefits being increased for those most in need (and removed for everybody else)

nereo

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Re: Canada Pension Plan Increase....
« Reply #24 on: June 22, 2016, 02:21:10 PM »
But it could be means tested to the point that only the very poor get it.
After all who could complain about benefits being increased for those most in need (and removed for everybody else)


nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #25 on: June 22, 2016, 02:29:34 PM »
I mean a common government tactic is to take a benefit that everyone gets eg. unemployment / free prescriptions / oas and then means test it so that eg. people earning 10x average income don't get it.
Then reduce the level gradually so only the very poorest qualify.
Then sell this to the electorate as "targeting it at those most in need".

So instead of everybody getting $100 you increase it to $125 but don't mention that you are only paying this to 1% of the people

Retire-Canada

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Re: Canada Pension Plan Increase....
« Reply #26 on: June 22, 2016, 02:56:44 PM »
But it could be means tested to the point that only the very poor get it.
After all who could complain about benefits being increased for those most in need (and removed for everybody else)

Anything could happen. Spending your time being negative doesn't get you anything beyond a the negativity you are creating for yourself.

Looking at reality for a second what has happened recently?

1. OAS age was lowered from 67 to 65 - not scary
2. CPP is being "enhanced" for greater payout - not scary
3. TFSA dropped back to $5500/yr plus it's not indexed again inflation - not my fav move, but again not scary

Everything going on in the government around retirement has been reasonable and focused on a positive outcome for the people that need it most...low to middle incomes.

nobodyspecial

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Re: Canada Pension Plan Increase....
« Reply #27 on: June 22, 2016, 03:14:06 PM »
Not being negative, just saying that you shouldn't necessarily rely on current levels of govt old age payouts looking 40years ahead.
And it wouldn't take an end-of-the-world catastrophe for them to be reduced to zero for many people.

rocketpj

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Re: Canada Pension Plan Increase....
« Reply #28 on: June 22, 2016, 04:07:04 PM »
Isn't OAS already pretty limited to lower income people?  I've always assumed I wouldn't qualify so haven't paid much attention.

I'd have liked to see a much bigger CPP increase.  As far as I know it's well managed and would help avoid any major crises in the future - starving elderly people etc.

Not many people can't afford an extra percentage point off their cheque, and even the most mustachian won't complain about a slightly higher cheque in the distant future.

I'm pretty sure the CPP funds are fairly well protected from the 'government of the day' deciding to spend it and pay it back later in promises (like has happened with a lot of municipal and company pensions in the US, among other places).  As long as it is protected from general revenues I'm in favour of a bigger expansion.

Always good to have a few investing irons in the fire in the long term - maybe the next 30 years will be the decades when indexing stops working.  I see no harm in having a supplementary fallback in the CPP etc.

Retire-Canada

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Re: Canada Pension Plan Increase....
« Reply #29 on: June 22, 2016, 07:29:02 PM »
Isn't OAS already pretty limited to lower income people?  I've always assumed I wouldn't qualify so haven't paid much attention.

OAS is income tested to a degree and GIS is income tested. If you are frugal you may well get the full OAS, but probably not GIS. Especially if you manage your investments in a way to keep your reported income low.

lostamonkey

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Re: Canada Pension Plan Increase....
« Reply #30 on: June 22, 2016, 07:37:19 PM »
Isn't OAS already pretty limited to lower income people?  I've always assumed I wouldn't qualify so haven't paid much attention. Currently you have to start paying OAS back when you as an individual earn $73K worth of income. This is hardly low income.

I'd have liked to see a much bigger CPP increase.  As far as I know it's well managed and would help avoid any major crises in the future - starving elderly people etc. If we want to decrease elder poverty, we could just increase GIS. This CPP increase will primarily benefit middle income earners who wouldn't otherwise save.

Not many people can't afford an extra percentage point off their cheque, and even the most mustachian won't complain about a slightly higher cheque in the distant future.
We could use the extra percentage point to make private investments which wouldn't be controlled by the government
I'm pretty sure the CPP funds are fairly well protected from the 'government of the day' deciding to spend it and pay it back later in promises (like has happened with a lot of municipal and company pensions in the US, among other places).  As long as it is protected from general revenues I'm in favour of a bigger expansion. It's protected from the government of the day but they can make changes to it if the provinces agree

Always good to have a few investing irons in the fire in the long term - maybe the next 30 years will be the decades when indexing stops working.  I see no harm in having a supplementary fallback in the CPP etc. If indexing does not work, it would mean that global markets have crashed and do not recover. In this scenario, the CPP's investments will also be unsuccessful and they will have to either reduce payouts, increase contributions, or have the government add money into the program.

Retire-Canada

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Re: Canada Pension Plan Increase....
« Reply #31 on: June 23, 2016, 07:57:49 AM »
If we want to decrease elder poverty, we could just increase GIS. This CPP increase will primarily benefit middle income earners who wouldn't otherwise save.

By keeping middle earners in a reasonable position in retirement the Government is freeing up money they can then use to fund other support programs for low earners that are needed at the time. If middle earners who should or could have been okay fail in retirement they start to draw from programs that low earners need reducing what's available.

personally I'd be more than happy with an increase to GIS or the guaranteed income program that's been floated to help low earners. People in trouble don't disappear and we pay for them one way or another. If we can do it in a proactive way that limits the damage to lives and gives people options to retire with dignity I'm all for it.

I spent 10yr in the Canadian Army and I'd rather see 30B spent on social programs than new fighter jets.

Kaspian

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Re: Canada Pension Plan Increase....
« Reply #32 on: June 23, 2016, 10:34:33 AM »
I think its a good idea to raise the CPP - to many people are saving nothing, and relying on winning the lottery.

That is so sad because it's true.  Someone on Bloomberg said yesterday (when discussing CPP) that many Canadians think they rich and prepared for retirement because of their home values.  He pointed out that even if home values don't crash, a) You can't eat your house and b) Reverse mortgages aren't a good deal and many wouldn't use them and c) Most people won't  downsize for a decade or two after retirement anyway.  So, house rich, cashflow poor people are fucking themselves.  (Well, he didn't say that last bit, but it was implied.)