tag:blogger.com,1999:blog-5465015914589377788.post982934462401852166..comments2024-02-17T11:07:06.232-05:00Comments on Michael James on Money: Should CPP Exist?Michael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-5465015914589377788.post-65073747993024617782019-06-16T13:31:22.830-04:002019-06-16T13:31:22.830-04:00@Ram: I agree in principle, except for the part ab...@Ram: I agree in principle, except for the part about "putting gun to people's head and extorting money." However, I don't know of any system with similar benefits. Everything else I'm aware of has ways of accessing the money early. Even a DB pension gives you the possibility of quitting your job, taking the commuted value into a LIRA, using LIRA provisions for accessing some of the money early, and begging for money from the government when you're old and hungry.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-55917211276650158422019-06-16T11:31:44.455-04:002019-06-16T11:31:44.455-04:00I'd prefer a system where CCP forces deduction...I'd prefer a system where CCP forces deduction only on people who don't contribute to another system for similar benefits. The other system could be managed along the lines of CPP and could even have a higher contribution cap with defined benefits based on contribution. I don't like the current idea of putting gun to people's head and extorting money.<br /><br />Ramhttp://www.gmail.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-17473491314939919392019-06-12T19:21:48.686-04:002019-06-12T19:21:48.686-04:00@Paul: Annuities have their problems, but dividen...@Paul: Annuities have their problems, but dividend ETFs aren't perfect either. There's no guarantee that dividends won't be cut in a market downturn. Further, an 80-year old could get about $9000 per year with that $100,000. To match that, the ETF holder would have to sell $4000 worth or units per year (initially), which would be painful if the market had dropped 25%. At its core, you either are willing to accept some risk or you're not.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-56208598394696277962019-06-12T19:02:55.108-04:002019-06-12T19:02:55.108-04:00@ Returns Reaper
Why not simply take your $100,00...@ Returns Reaper<br /><br />Why not simply take your $100,000.00 and buy XEI.TO that has a steady monthly distribution. (or mix it up with a few quality Reits for a boost of income) It will give you almost $5000.00 per year, very close to an annuities return of the same amount. Your expense ratio is 0.22%. If the market drops 25% they still pay the same distributions. I just don't get the need for annuities at all when there are so many simple low volatility ways to create a steady income stream and hang on to your principle. <br /><br />I do totally agree with your last paragraph by the way. paulhttps://www.blogger.com/profile/00050081178673700867noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-4376428261339564632019-06-12T10:09:03.296-04:002019-06-12T10:09:03.296-04:00@Bob: Thanks. It's easy for people to repeat...@Bob: Thanks. It's easy for people to repeat a quote like "CPP is a Ponzi scheme," but harder to spread reasonable discussion.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-26816204184229820242019-06-12T09:41:10.786-04:002019-06-12T09:41:10.786-04:00@Paul: When it comes to annuities, the only one I&...@Paul: When it comes to annuities, the only one I'd advocate is an immediate annuity. These simply exchange cash now for an income stream starting now. While nearly every other form of annuities has the problem of high fees, I believe immediate annuities are a sensible insurance product to deal with longevity risk.<br /><br />I don't believe dying tomorrow and leaving no money behind should be a concern. The alternative is running out of money and living your final years at a drastically lower standard of living. A sensible approach (it seems to me) combines saving an appropriate amount prior to retirement, then exchanging a portion of those savings for an income stream to cover your basic necessities, and keep the rest of your savings for discretionary spending and to leave to your estate. This is almost exactly what CPP is except that CPP controls the investments prior to the purchasing of the annuity and it is the Canadian government that provides the annuity rather than an insurance company. If I were to paint my own perfect picture, I'd personally prefer to control the investments and have the government provide the annuity. But what we have isn't bad, and it forces people to save.<br /><br />I'd agree unscrupulous advisers push bad products onto people with high fees. This is more of an argument against unscrupulous advisers rather than a portion of products available to them. I'd say unscrupulous advisers typically aren't intentionally unscrupulous. <br /> They lack education and their interests aren't aligned with their clients. Therefore they sell products with high fees in order to earn money.Returns Reapernoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-69572220449142112552019-06-12T08:56:00.769-04:002019-06-12T08:56:00.769-04:00@Michael: I just wanted to say thank you for the g...@Michael: I just wanted to say thank you for the great arguments against the naysayers and “water cooler experts”.<br /><br />Often in life, what we have is not perfect, but it’s way better than the alternatives.Bob Linnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-43315915262975562272019-06-11T18:04:23.120-04:002019-06-11T18:04:23.120-04:00@Paul: CPP payouts are based on your expected lif...@Paul: CPP payouts are based on your expected lifetime, so the longevity protection part is free. I don't know much about the Singapore model, but one of the virtues of CPP is that it protects taxpayers from having to save people who won't show any responsibility for themselves.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-14082906015374368002019-06-11T17:53:36.247-04:002019-06-11T17:53:36.247-04:00Hi Michael,
"free" ? I don't look a...Hi Michael, <br />"free" ? I don't look at contributing a portion of a paycheck into a program for 39 years as being free? Maybe i misread your thought here? :)<br /><br />As for Annuities, not a big fan of most of them for a variety of reasons. High fees, low payouts, early death - 0 payout to siblings, unscrupulous advisors pushing the wrong style annuity product on clients for personal gain, to name a few of them. However losing cognitive thoughts managing your own money in your +80's a well designed, fairly priced one could become more suitable. <br /><br />As for a possible alternative, I think I have had this discussion with you a few years ago. The Singapore CPF pension model seems to be an interesting concept. (minus the corruption claims that that clouded it) It makes people more responsible for themselves. It's a forced savings plan that can be utilized for other necessities while still giving you a pension later in life. Just to add some content to your discussion here. paulhttps://www.blogger.com/profile/00050081178673700867noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-65562820465554951312019-06-11T13:13:04.059-04:002019-06-11T13:13:04.059-04:00@Lance: The closest equivalent to replace CPP with...@Lance: The closest equivalent to replace CPP with your own savings is to buy an annuity with your savings in retirement. This doesn't require saving substantially more since everyone pools their money with everyone else. Of course, the insurance money takes a cut, and perhaps the lifetime guarantee of income isn't as ironclad as what the Canadian Government can provide, but I think it is nearly equivalent.<br /><br />But I'm not arguing against CPP. I agree with the general premise that people wouldn't save enough money on their own. Although CPP may not be perfect, I think we are far better off with it than without it.Returns Reapernoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-49699935140697627992019-06-10T17:05:42.189-04:002019-06-10T17:05:42.189-04:00@Lance: Good points. Longevity risk is expensive...@Lance: Good points. Longevity risk is expensive to handle on your own, and CPP gives it to you for free.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-55813354997812392222019-06-10T16:51:20.128-04:002019-06-10T16:51:20.128-04:00Michael, I agree with all your points.
An additio...Michael, I agree with all your points.<br /><br />An additional thought is as follows. As a whole, our nation will likely die very closely to what actuarial tables predict. But, individually, this isn't the case. Thus, if one had to replace CPP with their own savings, each and everyone one of us, if we were being prudent, would likely have to contribute more than they are now to CPP, in order to take care of both market risk, as well as longevity risk. CPP takes care of this risk for us as a whole.<br /><br />10 to 20 years ago, I would have been one of those arguing against CPP. Not anymore. I think it's a relatively fair system that benefits the country as a whole. Many people don't realize the benefit to their financial plan by having a fixed annuity, especially one that is indexed. Reading Fred Vettese's book goes a long way in defending this.<br /><br />LanceLancehttps://www.blogger.com/profile/17990325594378152392noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-70404221405669171692019-06-10T16:06:05.594-04:002019-06-10T16:06:05.594-04:00@Richard: There is definitely room to improve CPP,...@Richard: There is definitely room to improve CPP, but the gap between CPP and how the average person manages his or her own investments is so wide that there is little hope of it dropping to zero.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-50923174590408431392019-06-10T14:20:12.671-04:002019-06-10T14:20:12.671-04:00The CPP has a lot of advantages.
There is one cur...The CPP has a lot of advantages.<br /><br />There is one current structural disadvantage, because some of the payments being made now are going to people who contributed much less. The need to do this reduces returns.<br /><br />There is also a future risk if the quality of the management declines. It's hard to predict this and it would be even harder to do something about it if it happens.<br /><br />Some people will think they could do better. A few may even be right. Unfortunately it's hard to see the country as a whole doing better.Richardnoreply@blogger.com