What are Old Age Security and the Canada Pension Plan, and how should these financial supports affect your retirement plans?
. “We get a lot of media from the U.S., which tends to scare people into thinking our social security could run out too, but it won’t,” Ms. MacDonald says. “All the provinces involved would have to agree before any changes are made to CPP, which never happens.” Government can raise contribution rates to keep the plan funded if there is any danger there won’t be enough. And reducing CPP benefits would be political suicide.
The chair metaphor is apt because each “leg” affects and balances the others. For example, when you take money out of an RRSP it becomes taxable income, says Ms. MacDonald, and you need consider how that works along with your other benefits.
But money today is very tempting. “95 per cent of Canadians take their CPP at 65 or earlier,” says Ms. MacDonald. She compares the situation to the classic marshmallow experiment – ask a toddler to choose one marshmallow right now or two in an hour and just guess what they’ll do. Most grownups do no better, but the 5 per cent who choose to wait until age 70 to collect will reap big benefits. Waiting until 70 for CPP equates to 42 per cent more than if you started cashing in at 65.
Whatever your financial means and plans, retirement is a moment of conflicting tensions. On one hand, you could live 30 more years and have to stretch that money out. On the other, you’ve got ais therefore not a number or percentage but a spot where this Catch-22 doesn’t fill you with fear and anxiety. “The best amount is whatever one removes the fear of uncertainty,” she says.
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