Know Your Retirement

[Thorin]

Okay, so the title is a poke at the Know Your Meme thread title

Anyway, if you know me then you know that I like to plan ahead, especially for finances (which is what makes it so funny that I'm not already retired!).  One thing that's always confused me is how to determine retirement income.  Old Age Security pays some money every month, and Canada Pension Plan pays some money every month, but how much do they pay?

Well, now there's a nifty little wizard-style web app available: https://srv111.services.gc.ca/INT_01.aspx.  You need to know a few things, like your average income from age 18 to now, although you can also just guesstimate them.  It takes a good fifteen minutes to go all the way through, because they ask a fair bit of questions.  However, the summary gives a good overview of how much you can expect (assuming you entered real numbers).

In my mind, this is the kind of tool that people need to have access to in order to make educated decisions about their future...

edit: the calculator now lives here: https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html

[Thorin]

With the CPP retirement payout date having been moved from your 65th year to your 67th year, I wonder if this calculator has held up.  Most likely you just need to move the dates and all the other numbers stay the same.

[Darren Dirt]

Okay, so the title is a poke at the Know Your Meme thread title

Anyway, if you know me then you know that I like to plan ahead, especially for finances (which is what makes it so funny that I'm not already retired!).  One thing that's always confused me is how to determine retirement income.  Old Age Security pays some money every month, and Canada Pension Plan pays some money every month, but how much do they pay?

freaky timing bro! Last week I was verifying on the CRA website that I had just hit my maximum EI (and just about CPP) and then got curious, click click click and I eventually found the calculator which lets you know your OAS and CPP that you will get (annual) -- it's nicely designed, intuitive and clear and works along many pages, so if you decide to play "what if" you just hit the browser's Back button once or twice and try a different value (e.g. "what if I retire at 60? 70?" hint: 60 = getting paid 5 years earlier = 30% LESS, ouch, no thanks!)


the URL I used was also within https://srv111.services.gc.ca (obv) but I got linked there, not from a Google search or something, but via the GoC pages like http://www.servicecanada.gc.ca/eng/isp/cpp/cppinfo.shtml and http://www.servicecanada.gc.ca/eng/isp/cpp/soc/30-49/difference.shtml and http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/cppretirement/when.shtml ... one thing I learned was you do NOT have to stop working to receive your retirement pension ... which means you can "retire" at 60 with the major reduction of 30% (-.5% per "early" month) but still build your nest egg ... not sure who would do that or why (other than to boost your "average income" thus increasing the amount you get paid ... but then imo just keep working and don't take any payment until the latest year possible, unless you're pretty sure your health ain't gonna co-operate).



Like you said in the OP, it takes maybe 15 minutes, and you gotta provide (or guess) a ton of numbers, but in the end it's ... eye-opening.

I think I came pretty close to the maximum, if I presume to be in the >60k annual income from now until 70 (or 65, not much of an increase if I wait that extra 5 years, but OUCH if I retire @ 60!)
OAS: $545 per month ($6,540 per year), expressed in today's dollars.
CPP: $987 per month ($11,844 per year), expressed in today's dollars.


so... [thumbs]this guy[/thumbs] is pretty glad to be paying into a GoA pension to add to that paltry sum.

RRSP contributions next on my list --  been so tight money-wise the last few yearsdecades but I sure do regret putting it off year after year.

[Thorin]

No RRSP and also no house building equity?  That can be tough.  Although you've got that offset with a pension.  The real question is, would you have enough to cover your bills if you were 65 now and got $1,532 per month?  Remember that you can be in a one-bedroom apartment since the kids are grown up, and you don't need to commute to work or even keep a work attire wardrobe.  Might still be kinda tough.  I think I worked out I'd want about $2,200 to $2,300 a month for my wife and myself.  So I'd need to find some way of getting an extra $800 a month for however long I'm retired.

$1,532 per month is equal to $8.84 per hour if you worked full-time.  So it's less than minimum wage (min wage is $9.40 an hour).  You'll probably find if that's all you have, you need to find some kind of part-time income to keep afloat.

[Mr. Analog]

What scares me is how close pension age is getting to 70, I mean what's it going to be in another 30 years I wonder?

[Thorin]

Oh, and you've hit your EI limit already?  Then you make more than me.  I'm due to hit on the next paycheque (mid-July).  I hit the CPP limit on the paycheque after that.

If you're interested in RRSPs, I suggest getting an RRSP loan sometime in the summer or fall (not Jan/Feb) to put away a bunch.  RRSP loans low interest (frequently prime or lower) and you can then claim a big deduction against your income to get a big tax refund.  I suggest claiming the RRSPs you buy against your income until it drops your income to $42,707, then claim the rest the following year.

Easiest to give an example to explain why this is a good idea.  Lets say you make $80k and have $100k in available RRSP room (you did say you haven't bought any RRSPs before).  So lets say you go get a $50k RRSP loan from the bank (payments are about $500 a month and $50k turns into about $300k in 30 years at about 6%).

If you claim the full $50k in RRSP deductions this year, your taxable income will drop from $80k to $30k.  You'll save 22% from $80 down to $42,707, then 15% from $42,707 to $30k.  That's ( $37,293 x 22% ) + ( $12,707 x 15% ) = $8,204.46 + $1,906.05 = $10,110.51.

If you claim $37,293 this year to drop your income to $42,707 and claim the remaining $12,707 next year, it'll all fall in the 22% bracket.  That's ( $37,293 x 22% ) + ( $12,707 x 22% ) = $8,204.46 + $2,795.54 = $11,000.  That's $889.49 more just by waiting 12 months.  The extra cash you get by offsetting some RRSP contributions to next year will be even more if you make less than $80k.

Oh, and the reason I say buy RRSPs now-ish instead of waiting for RRSP season is that the per-unit prices of mutual funds tend to rise due to artificial demand created by people buying them just before the deadline.

[Darren Dirt]

Oh, and you've hit your EI limit already?  Then you make more than me.  I'm due to hit on the next paycheque (mid-July).  I hit the CPP limit on the paycheque after that.

Yeah, accidental "brag" I guess, sorry... but I've got such a sick amount of deductions per paycheque, especially the PENSION now, my take home is actually less than what I would take home 2 years ago (until 3 weeks from now, when CPP is also maxed out).

Sad thing is, the first couple of "bigger" paydays = some rebudgeting --> getting "caught up" on stuff that I would normally like to pay in advance, instead have been paying just around or after due date (minor stuff mostly like Epcor or Telus internet, but also happy that for a few months I'll be able to pay the rent on the 20th or so instead of the 2nd or 3rd of a month)

In theory, though, I should be budgeting the same amount, and banking/saving/RRSPing the "bonus cash". In theory.

[Darren Dirt]

would you have enough to cover your bills if you were 65 now and got $1,532 per month?  Remember that you can be in a one-bedroom apartment since the kids are grown up, and you don't need to commute to work or even keep a work attire wardrobe.  Might still be kinda tough.  I think I worked out I'd want about $2,200 to $2,300 a month for my wife and myself.  So I'd need to find some way of getting an extra $800 a month for however long I'm retired.

$1,532 per month is equal to $8.84 per hour if you worked full-time.  So it's less than minimum wage (min wage is $9.40 an hour).  You'll probably find if that's all you have, you need to find some kind of part-time income to keep afloat.

Well my bus pass is presently around a grand a year, but for seniors it's like $18 or something silly... and for "extra income" I could easily surpass $8ish per hour just sitting at the $3/6 limit holdem tables at Century and just folding everything but pairs and AK/AQ -- I know there's a dozen or two retired guys and gals who do pretty much exactly that (they rarely cash out huge, but usually cash out up 50 bucks or so after a handful of hours of socializing with other folks they've known for decades).

Plus my kids will take care of me if it comes to laying the guilt trip on 'em...

TBH I should take some time to find out how much the GoA pension is gonna add to my monthly/annual income, considering my portion is somewhere around $500/month (and GoA matches mine iirc) I think I should be fine (i.e. would expect in excess of $1k/month from the pension).

If you're interested in RRSPs, I suggest getting an RRSP loan sometime in the summer or fall (not Jan/Feb) to put away a bunch.  RRSP loans low interest (frequently prime or lower) and you can then claim a big deduction against your income to get a big tax refund.  I suggest claiming the RRSPs you buy against your income until it drops your income to $42,707, then claim the rest the following year.

Nice math-based advice, back in my early 20s I did a loan for RRSP and did a small amount monthly, but within 10 months I "cashed it out" for some kind of "emergency" I don't even remember anymore, including some penalties, horrible self-restraint (I was in my early 20s, remember) ... but at my present level of maturity I think once I start the investing habit I would commit to it for life. Just gotta wait until I'm discharged from the "B" word in late 2013 then I'm sure I will go for the RRSP loan, my bank history and my job/income info would urely justify TD bank taking a "chance" on me.

[Thorin]

I wouldn't count on gambling to supplant one's income - it could deplete one's income instead.

I'll bet your GoA pension will give you a fair bit of money if you stay with them for the full 25 or so years.  I know my father in law (worked for the feds) retired and got $50k a year from a job he'd been making $75k at while working.

I had to think about the "B" word for a bit before realizing what you meant.  Is it something you're comfortable talking about?  Is it something you want to talk about?  I know that I have a tendency to just keep asking questions until people tell me they don't want to tell me, but it's because I'm genuinely interested - both to know more about the subject and to understand what situation the other person might be in.

I know that anyone can ask me anything about my income or financial position and I'll answer most things openly because I think sharing that information can help others (comparing salaries, learning about tax credits, etc).  Not everyone thinks that way, and most people would not want to tell others about negative financial things, so I'll understand if you say, "no way".

[Darren Dirt]

I wouldn't count on gambling to supplant one's income - it could deplete one's income instead.

I was about 60% serious... notice I said "pairs and AK/AQ" and "limit holdem", i.e. "fold 93% of hands, continue past the flop with Top Pair or better" -- I've seen a handful of old folks who play pretty much exactly this way, and somehow even though they rarely even see a Flop they STILL get called all the way to showdown. Taken to an extreme, I don't think most people would call it gambling if someone folded everything but AA (and knew they would still get called by unobservant/gamboling opponents) since it's pretty obvious that's a significantly better hand than the range of hands any opponent would be playing; my suggestion is playing just a few more hands (7% instead of just 0.5%) and still playing "honest" after the flop so only betting/raising when you know you are way ahead of virtually any other hand your opponent may hold.

This is not gambling, it's intelligent investing -- since most of the opponents at the live $3/6 limit holdem tables are playing anywhere from 30% to 80% of their hands, and calling (or betting/raising i.e. bluffing) with a LOT worse than Top Pair. Even though this (and even "only play AA") is not a "guarantee", it's a far cry from playing any "pit game" against the house where if you are lucky the house advantage is 2% or 3% over the human players.


/tangent.

I had to think about the "B" word for a bit before realizing what you meant.  Is it something you're comfortable talking about?  Is it something you want to talk about?  I know that I have a tendency to just keep asking questions until people tell me they don't want to tell me, but it's because I'm genuinely interested - both to know more about the subject and to understand what situation the other person might be in.

Nothing much to talk about, I made some poor (and overly optimistic/rosecoloredglasses -- dived deep into anarcho-capitalist/voluntaryist philosophy and acted on my beliefs) decisions in the early 2000s when i was a contractor, and when the CRA envelopes began arriving in the mail I wised up / matured enough to "face the music", and the large # they provided along with the credit cards (EVIL! EVIL!) = I really had no other option (believe me, I tried crunching numbers and talking to counsellors to see if I could go any other route). But it's been quite confidence-building having to live on an Actual Budget for the last 20 months, for example there's great power in saying to the kids "can't afford it!" and knowing you really mean it, there's no extra "safety net" to fall back on. And now I actually pay attention to how much money I spend on FOOD, which for some reason was never much on my radar and thus became a great big "spend whatever is left over" wallet leak. Also it sure made me appreciate the public library and Value Village / Goodwill when it comes to places to get entertainment and clothing  .

[Tom]

I wouldn't count on gambling to supplant one's income - it could deplete one's income instead.

I was about 60% serious... notice I said "pairs and AK/AQ" and "limit holdem", i.e. "fold 93% of hands, continue past the flop with Top Pair or better" -- I've seen a handful of old folks who play pretty much exactly this way, and somehow even though they rarely even see a Flop they STILL get called all the way to showdown. Taken to an extreme, I don't think most people would call it gambling if someone folded everything but AA (and knew they would still get called by unobservant/gamboling opponents) since it's pretty obvious that's a significantly better hand than the range of hands any opponent would be playing; my suggestion is playing just a few more hands (7% instead of just 0.5%) and still playing "honest" after the flop so only betting/raising when you know you are way ahead of virtually any other hand your opponent may hold.

This is not gambling, it's intelligent investing -- since most of the opponents at the live $3/6 limit holdem tables are playing anywhere from 30% to 80% of their hands, and calling (or betting/raising i.e. bluffing) with a LOT worse than Top Pair. Even though this (and even "only play AA") is not a "guarantee", it's a far cry from playing any "pit game" against the house where if you are lucky the house advantage is 2% or 3% over the human players.


/tangent.

Oxymoron much? Investing by its nature is gambling

[Darren Dirt]

This is not gambling, it's intelligent investing -- since most of the opponents at the live $3/6 limit holdem tables are playing anywhere from 30% to 80% of their hands, and calling (or betting/raising i.e. bluffing) with a LOT worse than Top Pair. Even though this (and even "only play AA") is not a "guarantee", it's a far cry from playing any "pit game" against the house where if you are lucky the house advantage is 2% or 3% over the human players.


/tangent.

Oxymoron much? Investing by its nature is gambling

While it is true that any "investment" is a gamble, some investments are mathematically more advantageous than others.

A typical stock/mutal fund "investment" expectation is based on management style and past performance ... and obviously can always go the completely opposite direction of what you expect.

But when you are investing in something based on the laws of probability and math, you can figure out long-term "return on investment" (ROI). It says what would happen to your bankroll, longterm, if you did the same thing hundreds or thousands of times in the same situation (i.e. over-rides the short-term "bad/good luck").


As an example, if you are being given 3:1 or 4:1 return on an investment, where the outcome is >33.3% or >25% likely to go in your favor, that is longterm profitable.

Consider this scenario: I have a completely fair 6-sided dice and I tell you "roll it and if you get a 1 or 2 or 3 or 4 then I give you $1, but if you roll a 5 or 6 then you give me $1". You can see that one of the two parties has a really good "return on investment". In a casino the "pit games" are essentially where the "house" has the "1 2 3 4" to win while the human players only have the "5 or 6". (in this case, the house would have a 4:2 advantage which means the human player would essentially be losing 20% of their bet every time they made it).

So while in a limit holdem poker game that I described above where I play that extremely "tight-aggressive/honest" against "loose-passive/neverfold" opponents, I am essentially "giving myself" the "1 2 3 4" side of the transaction.

Notice I said "limit holdem", which means the investment is in small chunks preflop and on the flop, and double-that-size chunks on the turn and river ... so no chance of gambling your entire stack any single hand, unlike No Limit holdem). I'm obviously exaggerating with the "4:2 advantage" since if the "house" had that much of an edge then nobody would play any pit game, but in holdem if I flop Top Pair and my single opponent has bottom pair (or even better for me, a pocket pair lower than my Top Pair) then I am a 75:25 favorite, literally every $3 bet that I make on the flop is returning me $1.50 in long-term profit, and on the turn if he didn't hit his 5 outs (~10% chance) then I'm now almost 90:10 favorite so I am profiting more than $4.50 out of every $6 bet there). It's the math of the situation.


Anyway, didn't mean to get into a "skill vs. luck" argument rant here, just pointing out that what a lot of "leisure players" partake in as relatively cheap entertainment (i.e. they don't care if they win or lose, they just throw back some alcohol and have fun for a few hours) creates a scenario where a patient and disciplined person who doesn't have a "day job" can actually expect long-term and pretty consistent wallet-boosting, essentially it's a "win win", my opponents have some laughs and the occasional adrenaline/endorphin rush, and I keep taking advantage of mathematical situations that long-term will pad my wallet.

[Mr. Analog]

The other thing about long term investing is that while short term goes up and down rather violently long term ROI is usually good (depending on the item).

For example, if you invest in a volatile commodity like oil where the price shifts daily, but goes up over the long term.

Yeah, it's a possibility that there is some cheaper-than-pumping-it-from-the-Earth way of getting oil but that's extremely unlikely, so it's still technically a gamble but hopefully something that world changing would be obvious.

[Tom]

And then the wankers crash the market again and all of your investments tank.


My mom lost over half of her RRSPs.

[Thorin]

Okay, so you didn't pay your taxes, you racked up credit card debt, you declared bankruptcy, and you're aggressively defending the idea that going to a casino will help you pay bills because it's a "sound investment".

Not paying taxes - that kinda pisses me off, because now I have to pay more to cover your share of the burden.  And yes, taxes are squandered, but they are also turned into items for the public good (roads, bridges, hospitals, emergency services, schools, etc).

Racking up credit card debt - I totally understand that, it's way too easy to do.  Easy credit is what is driving many people into lifetimes of stress and anxiety.  Of course credit can also be a good thing if it helps you advance your quality of life (for instance by buying a car so you can get to higher paying jobs).

Bankruptcy - It'll be discharged late next year?  Will that have been the seven years that it's supposed to stay on your credit report?  Yes, bankruptcies are supposed to stay on your credit report for seven years (instead of lifetime like it can be for any delinquent payments).  During the period that you have the bankruptcy on your report but are no longer going through the bankruptcy process, you will probably find banks willing to lend you money if a) there's collateral or a co-signer and b) you can prove steady, stable income.

Gambling as expected income - your plan here is based on you trying to make a slow and steady profit while the other players are not.  If everyone at your table adopts the same strategy as you, the math says you will leave the table poorer than when you sat down.  Compared to a job that pays you a guaranteed wage, this is not a good idea.  Really, honestly, truly, this is something you should stop considering as a viable source of income.  Sure, over the long term you might come out ahead, but what if you just lost today's money due to a stroke of bad luck, and now you don't have any money to buy supper?  Are you gonna go ask people for a couple dollars to buy a sandwich?  Now as a viable source of entertainment, sure.  You take your entertainment budget and you lose no more than that amount.  If you play cautiously like you describe, you may very well come out ahead, and this newfound wealth can be potted away or spent immediately.  But just like a good soldier knows he died the day he signed up, a good gambler knows that he lost all his money when he sat down at the table so only gambles what he can afford to lose.

I have not studied poker enough to know the percentage, but I have studied poker enough to know that it's not just the cards in your hands or the cards in the other players' hands, but it's also everyone's ability to read other players.  If you have two aces and I have two deuces, great for you.  Unless a third deuce comes up, now you're "excellent hand" turns into a loss.  A couple of odds-beating bad strokes of luck and you're definitely not as rich as the math says you should have been.  If that other player is really good at roping you in, you could find pretty quickly that even though the odds say you should have more than you sat down with, you don't.

I would prefer to gamble my money on an investment, where everyone else also wants the investment to do well because we'll all stand to profit, rather than on gambling, where there's only one winner in the equation.