Step Away From the CPP!
Recently there have been many suggestions that the CPP should be increased, some going as far as saying it should be doubled to provide a comfortable retirement for everyone without requiring any thinking along the way. This was the deciding factor for my vote in the federal election because I don’t think increasing the CPP is a good idea. The immediate effect would have two parts: higher taxes on workers and employers (everyone earns less now, and some jobs may evaporate), and higher payments to those who are retired now or in the near future. This makes it an excellent idea if you’re 60+, but not so hot if you’re in you’re 20s.
In fact a 25-year old would be paying more (or be employed less) for 40 years, after which they may have 30-40 years of retirement using today’s numbers with a bit more longevity. Which means they only see a benefit if the CPP can last without any form of deterioration for the next 60-70 years. And that in turn is only likely if today’s young people get busy making another baby boom.
I don’t think the wheels are coming off just yet. A recent Fraser Institute report shows that the CPP is still doing well, but as it continues natural growth with the current parameters its investment performance is likely to decline. This is another reason not to increase it since more investment capital would just lower returns. Put in 100% more and you get 80% back.
Now I don’t think the alternative PRPPs are much better, because you end up with the same problem on a different scale. Instead of having everyone depending on one mediocre fund, you have people depending on a large number of funds. Some will do better and some will do worse, meaning there will be winners and losers. If all PRPPs just stick to index funds, that will have the effect of smoothing out and lowering index returns for everyone. Increasing investment at a national level will have to face declining returns.
There is no simple fix now because the current ideal has been sold in a way that most people will not end up getting. We’re still using a retirement age that was set back when it was a mark of amazing longevity, but now the average person expects to be retired for 20+ years and in another 40 years that could extend to a much longer time. This can only be supported if you’ve been planning ahead for a very long time or if you’re in an extremely favorable investment environment. And many people seem to be too stuck in the defined benefit mindset to prepare.
If we can straighten out retirement planning so that everyone contributes adequately to prepare in advance (which is harder when you’re supporting many more who didn’t), or if we can straighten out our investment and business priorities so that we’re putting enough into science, technology, and productivity to produce the housing, food, energy, and exotic cruises we all need while everyone works 20% less over their lifetime, we might be able to give everyone a chance to live the dream. Until we recognize where our choices are leading us I won’t support any short-term cover-ups and I’ll stick to my very non-traditional financial/retirement plan which isn’t built on having others support me.