Author Topic: Annuitizing CPP and OAS  (Read 1300 times)

Rightflyer

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Annuitizing CPP and OAS
« on: July 24, 2015, 08:22:44 AM »
Apologies if this has been discussed elsewhere (if that's the case please point me in the right direction.)

When calculating net worth for retirement purposes I just revised our spreadsheet to include the PV of our expected Canada Pension Plan and Oold Age Security payments.

It makes an eye-popping difference. As in to the tune of $400K.

Methodology:
I took our projected CPP payments (from our Service Canada account) and calculated our OAS based on our time in Canada at age 67.

Then I calculated it 2 different ways:

1) PV calculation using Discount Rate=3%, 30 years for CPP and 23 years for OAS.

2) Average of 8 Life Insurance Co's Annuity payments at 65 years (Registered Joint Life Annuity 20 year guarantee)

Then I took the lower of those 2 numbers.

Rationale:

1) The CPPIB confirms in its latest report that the Plan is fully funded for the next 75 years (75 years is apparently as far as the actuaries will go.) Furthermore, under current legislation, the government cannot use this money for any other purpose.
So, it is as guaranteed as anything is likely to be.

2) OAS is at the whim of the current government and as far as I know, comes from general revenues. However, it would be a mighty unpopular move to cut OAS substantially.
Also, the minimum age for OAS has been moved to 67 already to ensure it's sustainability.

Questions:

Does this make good financial planning sense? Is anyone else doing their planning this way to come up with their required stash?

MDM

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Re: Annuitizing CPP and OAS
« Reply #1 on: July 24, 2015, 09:22:04 AM »
Is anyone else doing their planning this way to come up with their required stash?
That is one way to do it.  Another way is to subtract your guaranteed income from your retirement expenses.  That way, instead of "stash required = E/WR" you have "stash required = (E - GI)/WR,
with
E = annual expenses in retirement
WR = Withdrawal ratio
GI = guaranteed income in retirement

Rightflyer

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Re: Annuitizing CPP and OAS
« Reply #2 on: July 24, 2015, 09:57:29 AM »
Thanks MDM.

So then we actually figure out 2 stash required amounts.

One is from FIRE date (age 52ish) to pension eligibility (age 60-67) and,

the other is from pension to grave...

Does that sound right? 

MDM

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Re: Annuitizing CPP and OAS
« Reply #3 on: July 24, 2015, 11:11:40 AM »
Thanks MDM.

So then we actually figure out 2 stash required amounts.

One is from FIRE date (age 52ish) to pension eligibility (age 60-67) and,

the other is from pension to grave...

Does that sound right?

Yes.  See also http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/.