Canadians Your Thoughts on the Future of CPP/OAS/GIS and Income Tax

[BigBangWeary]

I am curious to know what other Gen Y and X Canadians think the likely outcome of the baby boomers passing through the system will be in regards to things like CPP/OAS/GIS and current income tax brackets.

I know that many people I talk to think that this giant wave of aging Canadians will tax the system mainly due to the high cost of health care/nursing care, and the extremely bloated state of the current municipal, provincial (especially in Ontario), and federal debts. This may force things like increased CPP contributions, later retirement ages, higher tax brackets to deal with the deficits, etc.

I know making predictions about the future can be a fools game, but I think there are some pretty strong trends that would be silly to ignore. Looking around I find it hard to believe my peers will see anything like the current state of retirement in 30 years time. I guess this is partly why we are so Mustachian as a family.

What are your predictions? Are you strategically planning for this? How so?

[Mmm_Donuts]

Gen X here. I have no predictions on what's going to happen to these services, but when I do my retirement planning with cfiresim I use very low estimates for any form of government pension ($6000/ year for CPP and OAS combined.) I do think we will receive something, but I'm not counting on the max that people would receive today.

[FIRE47]

I am curious to know what other Gen Y and X Canadians think the likely outcome of the baby boomers passing through the system will be in regards to things like CPP/OAS/GIS and current income tax brackets.

I know that many people I talk to think that this giant wave of aging Canadians will tax the system mainly due to the high cost of health care/nursing care, and the extremely bloated state of the current municipal, provincial (especially in Ontario), and federal debts. This may force things like increased CPP contributions, later retirement ages, higher tax brackets to deal with the deficits, etc.

I know making predictions about the future can be a fools game, but I think there are some pretty strong trends that would be silly to ignore. Looking around I find it hard to believe my peers will see anything like the current state of retirement in 30 years time. I guess this is partly why we are so Mustachian as a family.

What are your predictions? Are you strategically planning for this? How so?

I remember reading that cpp was solvent for 45 years or basically long as they will issue an actuarial opinion on. However I do anticipate forced increased contributions and lower returns (based on future payouts, not returns of the plan investments) going forward as they have been basically since the plan started. The returns were astronomical for those first to collect somewhere in the hundreds of percentage points annualized return based on money put in vs taken out. It is now in the low single digits 1-2% inflation adjusted and theres no reason to believe this won't continue. soon enough you'll be lucky to get back inflation adjusted what you put in.

OAS will likely be clawed back sooner or have the age increased over the long term - I don't see the GIS going anywhere as there really wouldn't be the stomach to take from those collecting GIS.

Those are my fairly safe predictions. I count on recieving nothing from any of them in any FIRE calls but likely it will closer to how it is now than $0.

[KMMK]

In my calculations for FIRE I don't count on getting any CPP, though I think that is unlikely to actually be the case. However I won't get that much as I won't be working the full number of years. If there are higher taxes and/or CPP contributions required, I'll work more if I have to. But likely the income I will be making will come from Boomers, so that's an offset right there. For my self and immediate family I'm indifferent regarding GIS and OAS, as either people I know won't be that low income as to rely on that, and myself I'm not worried about the clawback as I won't have income anywhere close to the threshold. For those benefits for society in general, like most things, I take a wait-and-see approach.

I'm 39 now so lots of time still to see how it all plays out. Though I do need to research disability and long-term care insurance more thoroughly. Good health is not at all guaranteed.

[Prairie Stash]

Taking a look at history, the CPP bankruptcy problem was addressed in 1998. Specifically the worry was the CPP would collapse for Gen X and Y, so a sovereign wealth fund was created in Canada. Never conflate the US problems with Canada, our countries have vastly different approaches.
http://www.csls.ca/events/slt01/pesando.pdf

As for GIS, OAS that's a pay as you go system. At age 65 (30 years from now) the Gen X and Y generation won't have much to worry about baby boomers, they'll be pushing 80-110 years old. It would be great if they were still around, unfortunately mortality catches up to everyone. if I retired at 65 it will be at the tail end of boomers passing, by all accounts health care costs will be decreasing.

GIS - Token amount to keep senior citizens from being homeless, good luck getting that repealed and getting reelected. What kind of heartless person would advocate for homeless seniors? Clawed back for wealthy people, basically its seniors welfare.

OAS - Another welfare program for elderly that's clawed back for the wealthy. Again, who's going to cut a program that increases senior poverty rates?

[BigBangWeary]

I agree with Mmm_Donuts and others here that we should not necessarily be banking on these for our future retirements.

My best guesses/assumptions:

CPP – Fiscally sound and is in no danger, but we will likely be asked to put more towards this in the coming decades due to poor personal savings rates and disappearing pensions for private sector workers. This will mean fewer dollars during your working life to invest as you see fit (or blow at the Casino). Overall, good for the country as a whole, but not necessarily great for do-it-yourself types, or widows.

OAS – As the Boomers come through we will see this pushed further back and possibly reduced in size/generosity by the time we are there (30 years from now)

GIS – will stay in some form

Healthcare/Taxes – The cost of supporting the Boomers during their final years (most taxing on the health care system) and in nursing care will see an increase of taxes and lowering of support for the groups that come immediately after.

Personally, both my mother and father (separated) rely heavily on CPP/OAS/GIS. I wish it wasn’t so, but this is their reality. My in-laws have a paid-off home and a small amount of savings, but they too will be relying significantly on these programs.

Unless we significantly increase quality immigration, greatly reduce government debt, and find ways of massively diversifying our economy, I see lean years ahead for my generation. As the bulge in population heads to the exits, and those of us left are left working in a much more precarious workplace, I do wonder how we will continue to fund even what we have now.

I suppose negative interest rates might help … I hear they are the new solution.