Long Weekend Reading: Canada Pension Plan Solvency Edition

The Canada Pension Plan Investment Board manages $392 billion in assets on behalf of some 20 million Canadian contributors and beneficiaries. Operated at arms-length of the federal government, the CPPIB is the 11th largest sovereign wealth fund in the world (Norway’s trillion dollar pension fund leads the way).

While questions about Canada Pension Plan solvency abound, the fact is the CPP is rock solid, with an independent review by Chief Actuary of Canada determining its assets are sustainable to at least 2090. That’s a conservative estimate when you consider the projected annual real rate of return used in the review is just 3.9 percent.

Related: Where does my CPP money go after it gets deducted from my paycheque?

Meanwhile, the CPPIB has achieved 10-year annualized net real returns of 9.2%. It also posted an 8.9 percent net return for its most recent fiscal year, which included the challenging fourth quarter in 2018.

One area of concern raised by experts is the rising costs associated with managing the massive pension fund. Altogether the CPPIB spent $3.27 billion last year, an increase of $74 million from the previous year. Total costs work out to a management expense ratio of around 0.83 percent.

The reality is that our Canada Pension Plan fund is well managed, sustainable, and absolutely should be considered part of your retirement income plan. The average monthly payment amount for new beneficiaries in January 2019 was $723.89. That’s nearly $8,700 per year in pension benefits, indexed to inflation and payable for life.

The maximum monthly benefit for those eligible is $1,154.58 ($13,855 per year), and beneficiaries can increase their eligible amount by deferring CPP to as late as age 70.

This Week’s Recap:

I managed to post one article this past week, a comprehensive review of KOHO – the prepaid and reloadable VISA card that offers a full-service suite of banking services on its mobile app. Check it out.

Our trip to Scotland and Ireland is less than a month away (!) and we’re looking for some things to do in and around the places we’re staying, which include:

• Edinburgh (5 nights)
• Inverness (7 nights)
• Kilkenny (14 nights)
• Dublin (5 nights)

While in Edinburgh we plan on visiting Rosslyn Chapel and taking a trip out to St. Andrews. We’ve also scheduled family pictures with a company called Flytographer, a Canadian-based startup that connects travellers with a community of hundreds of local photographers in 275+ destinations around the world.

If you’re interested in checking out Flytographer for an upcoming vacation you can use this link or enter my referral code ROBBENGEN to save $25 on your first photo shoot.

From Inverness we have booked a day tour of the Isle of Skye, and may venture down to Fort William to take the Jacobite steam train.

Our plans are less set in Ireland and so we’re looking for ideas for day-trips from our home-base in Kilkenny, as well as some must-see attractions in Dublin. Let me know if you have any suggestions!

Long Weekend Reading:

Sticking with the Canada Pension Plan theme, here’s Alexandra Macqueen to explain how to understand your CPP Statement of Contributions.

Check out Rob Carrick’s new Real Life Money Launcher, a tool designed for young people to set up their savings after they start working.

TFSAs were supposed to help low-income Canadians save for retirement. It’s not working:

“Too many are not getting the advice they need to shed their RRSPs — and some are still, wastefully, saving in them.”

Here’s Global News money columnist Erica Alini on what happens if you die with too much money left in your RRSP.

Another stunning case of investor harm and lack of advisor oversight on behalf of Investors Group. This time, two clients over 90 years old were sold DSC funds with seven-year redemption schedules. In both cases, the clients died less than two years later and their estates were obliged to pay DSCs.

Is moving $1 million out of segregated funds and into ETFs a good idea? I’d say it’s a no-brainer.

This investor is paying 2.32% in fees and wants to know if that’s too much. Again, no-brainer.

“For an investor who owns mutual funds and works with an adviser, an average MER of more than 2 per cent is typical. Is it fair? Well, I’m sure the firm and its advisers think so. But for an investor, it will take an enormous bite out of long-term returns.”

Andrew Hallam explains how a Ponzi scheme can lure so many victims.

An Ontario man says he is “fuming” after losing 370,000 Aeroplan miles that he was saving for his retirement.

Meanwhile, an RBC customer had $1,734 stolen during an e-transfer. A weak password was blamed, as the victim’s security question to her friend was: “Who is my favourite Beatle?”

Here’s a strange one – Expedia charged a man almost $6,200 for a 1-night stay at a Holiday Inn.

Million Dollar Journey blogger Frugal Trader explains how to maximize the Canada Child Benefit.

My Own Advisor Mark Seed shares a great post on how to draw down a portfolio using Variable Percentage Withdrawal.

Mark also shared an update on his financial freedom target of age 50. The dream is becoming reality!

The psychology behind why few of us feel rich. Most people have a blind spot when it comes to money — we only compare upwards to people who have more.

Should you withdraw the commuted value of your defined benefit pension? Michael James answers with an emphatic no.

Finally, there has been a lot of talk about the Latte Factor and spend shaming in the media lately. Yet, Financial Uproar’s Nelson Smith says we aren’t talking about a potentially more destructive habit – the booze factor. We certainly spend more on wine than we do on coffee.

Enjoy the rest of the long weekend, folks!