ANALYSIS: As the debate heats up this week over whether or not to expand CPP benefits, I'm a firm believer in taking control over what you can control.
Entering into retirement requires a different money mindset for most Canadians and planning often shifts from wealth accumulation to wealth preservation. However, the obvious reality is many will have less income than when they were working, and in many cases, there just hasn't been in been enough money set aside for the next third of their lives.
No one wants to compound the problem by making the same mistakes over and over again— the very definition of insanity. As policy makers explore the pros and cons of the plan expansion, here are a few retirement "don'ts" that can actually save you money while you await the outcome:
- When it comes to your money: Don't carry a credit card balance. Don't keep a lot of money idle in your chequing account. Don't retire with debt. Don't be afraid to spend money and enjoy life.
- When it comes to your portfolio: Don't assume you, or anybody else, are smarter than the market. Don't get investment recommendations from unqualified individuals. Don't read into the short-term market movements. Don't design an investment portfolio without first setting your financial goals. Don't buy based on past performance. Don't keep all of your money in the stock market if you are going to need it in the next five years. Don't day trade. Don't expect to find a risk free investment. Don't think a high yield means a high return. Don't hang on to the dogs in your portfolio. Don't forget about inflation.
- When it comes to your home: Don't think about purchasing a home that is bigger than you need. Don't opt for low insurance deductibles.
- Miscellaneous: Don't forget to set a budget, or think about when you will begin taking your government pensions. Don't overlook other benefits you might be entitled to such as discounts, senior’s bank accounts, and more. Don't ignore tax credits you will be eligible for, or ways to split income with family members.
Regardless of the outcome of the meetings this week, you can make a few changes that could yield you big results.
Don't expect your CPP benefit to change, but in case it does, recognize it could be less than you thought or might take longer than anticipated to receive. In the meantime, you still benefit and will be better off financially regardless of the outcome.
- The system is designed so that each generation pays for its own retirement. This is unlike OAS and GIS, which are funded through tax dollars.
- CPP premiums have only been raised once in the last 20 years — in 1997. The argument is that CPP should pay more benefits to those who aren't saving enough for retirement. The challenge is it hits Canadians at a time when the economy is fragile and money is tight.
- Up for debate is across the board increases and higher benefits for all. Or target the population that is not saving enough.
- Not every province has to have CPP and don't. Quebec and Saskatchewan have their own plans.
- Changing the plan is not easy to do. Seven out of 10 provinces have to agree and those seven need to represent at least half the country's population. Ontario, for example, has more than a third of the population. So the federal government needs Ontario to be onside. Ottawa needs Ontario, Quebec, British Columbia and Alberta to make any changes.