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Retirement Raincheck?

by Arnold Machel, CFP®

 

 

“Do not boast about tomorrow, for you do not know what a day may bring.”  – Prov. 27:1 (NIV)

Since the 2008 financial crisis, I’ve been telling clients (and anyone else who would listen) that they should start planning on a retirement age of 67. That’s right, age 67 – not age 65. and I know that most people are planning to work to 65, but considering the global situation I think that 67 makes more sense. My reasoning was (and still is) fairly simple. Back then…

* Private pensions were under increasing pressure and in this lower interest rate/lower return environment would find their funding formula wanting.

* The conservative government announced that Old Age Security (OAS) would start at 67, not 65.

* The Canada Pension Plan (CPP) was facing similar issues to private pensions and I reasoned that it was only a matter of time before it followed suit with OAS.

* The global financial crisis provided the perfect opportunity for the government to make the case for increasing the retirement age to take pressure off both CPP and the income tax system.

Quite frankly it was a surprise to me that the Harper government in control at that time did not take steps in that direction during the financial crisis, when doing so would have been much easier politically. It was an even bigger surprise to me that the Trudeau government did exactly the opposite, acting on their 2015 promise and bringing Old Age Security (OAS) back to 65. While politically expedient, it was a poor financial decision.

Well… in February of this year Trudeau’s economic advisory council in their report entitled Tapping Economic Potential Through Broader Workforce Participation, made the following recommendation:

“Pension systems should not discourage working. Older Canadians willing to remain in the workforce beyond the traditional retirement age should not face disincentives. The federal government could explore different incentive structures in OAS and GIS, as well as in the CPP. Under the current system, seniors may take up the OAS pension between the ages of 65 to 70, with payments increasing in line with deferral. Workers may take up CPP between the ages of 60 and 70. Allowing OAS and CPP deferrals beyond age 70 could encourage willing older workers to remain in the labour force longer. The government could also explore ways to make deferrals beyond age 65 more attractive.

“The Council understands that the age of working eligibility is one element of a complex system. The government should of course consider the entire system, and all relevant factors, including a) the ability to work for some older workers, particularly those engaged in more physically demanding professions, b) the health transfer system, and c) the overall system of taxation and transfers, which may create disincentives to employment (e.g., in terms of lost GIS). Within this system, we believe that the ages of eligibility for the Old Age Security (OAS) program and Canada Pension Plan (CPP) should be recalibrated and increased to meet the Canadian reality of an ageing society and a considerably longer life expectancy than we had just a few decades ago. Increasing the age of eligibility for the OAS-and by association the Guaranteed Income Supplement (GIS), which has the same eligibility age, and the CPP would follow a trend in many other OECD countries, which have extended the age of eligibility in recent years to make their public pension systems more fiscally sustainable.”

Given Trudeau’s decision to do just the opposite (decreasing the age of OAS eligibility back to 65) it’s unlikely that he will act on this advice from his economic council… at least not in the short term. Nonetheless, the idea is out there, other countries are doing it and Canada will need to at some point, so my advice is to start getting used to it now.

Whether it’s Trudeau’s government or the next one, this is likely to happen.  Fortunately, when they get around to it, it’s likely they’ll phase it in like the original OAS plan, such that any change to the retirement age will likely not affect those who are over the age of 55.

So, at the end of the day, it’s not anything to be terribly concerned about and really, there’s not much to do about it, but in my opinion, getting used to the idea that 67 will be your retirement age is probably a good idea. Especially if you are under the age of 50 right now.

If I’m right and the change happens after you get around to retiring, then that’s a bonus. You dodged the bullet. But if it happens before you retire, then at least you’ll be mentally prepared for it. Besides, you can always retire earlier if you have sufficient funds. Better to be surprised with the idea that you can retire earlier than surprised with the prospect of being forced to retire later than you were mentally prepared for.

Arnold Machel, CFP(r) lives, works and worships in the White Rock/South Surrey area.  He attends Gracepoint Community Church where he serves on the Leadership Team.  He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services.  Questions and comments can be directed to him at dr.rrsp@visionvest.ca<mailto:dr.rrsp@visionvest.ca> or through his website at www.visionvest.ca<http://www.visionvest.ca/>.   Please note that all comments are of a general nature and should not be relied upon as individual advice.  While every attempt is made to ensure accuracy, facts and figures are not guaranteed.

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