Last week I previewed Fred Vettese’s completely updated and revised edition of Retirement Income For Life. I’m giving away an extra copy of the book and asked readers to enter to win by sharing when they took (or plan to take) CPP. The results were interesting.

The vast majority of responses were in favour of deferring CPP to age 70 (41%). One quarter of responses favoured taking CPP at age 60. And, nearly one-quarter of responses favoured taking CPP at age 65.

Deciding when to take CPP is a key consideration of your retirement income plan. What I found interesting about the responses was the rationale or the stories behind these decisions. For instance, there is a lot of misinformation about the Canada Pension Plan: that it is government run (it’s not), that it will become insolvent before you collect benefits (it won’t), and that you could do better investing the money on your own (not likely).

These misconceptions can lead to poor decisions. It’s estimated that just 1% of CPP recipients elect to take their CPP benefits at age 70. Clearly more education is required.

Several of the responses in favour of taking CPP early showed this lack of knowledge or a perceived bias around the CPP program.

Some retired early and took CPP early to “avoid too many zero contribution years.” 

• While it’s true that your calculated retirement pension may decrease with each year of zero contributions, the amount of the decrease is typically less than the amount of the increase you’d get by deferring CPP (0.6% per month to age 65 and 0.7% per month to age 70).

  CPP expert Doug Runchey uses the example that by waiting you will receive a larger slice of a smaller pie, but you will almost always receive more pie.

One response called CPP a “legal pyramid scheme.”

• All pensions are claims on the earnings of future generations. Indeed, CPP is a contributory pension plan and so the retirement benefits paid today rely on contributions made by workers plus any investment growth in the plan. There is no doubt that pension plans face increasing pressure with longer life expectancy, a shrinking workforce, and lower expected stock and bond returns in the future. But the health of our CPP is reviewed every three years and the latest actuarial report shows the program is sustainable for the next 75 years.

Several responses from retired readers said they took CPP at 60 and “invested the money in their TFSA.”

• I’m a big fan of retirees continuing to use their TFSA to invest. But it’s unlikely your investments will outperform the guaranteed age-adjustment increase that you’d get by deferring CPP (7.2% per year to age 65 and 8.4% per year to age 70). A better reason to take CPP early is if you need the money to meet your spending needs. Voluntarily taking a pay cut and then trying to invest your way to outperformance is a losing proposition.

Finally, one of the most common reasons for taking CPP early is “when someone close to you happens to die early.”

• This experience has an ‘anchoring’ effect, where you don’t want to end up like your friend or relative (who got nothing after years of contributing) and so you decide to take your CPP benefit as soon as possible. Anchoring to an experience like this can be useful if it prompts us to buy life insurance or update our will. But should it be a factor in your decision to take CPP early? I think not. Your own personal health should play a role, yes. But, assuming you are in relatively good health, the chances are far greater that you live a long life. Indeed, a 60-year-old male has a 50% chance of living to age 89, while a 60-year-old female has a 50% chance of living to age 91.

Overall, I was happy to see the number of people who are at least considering delaying their CPP benefits to age 70. One of the best comments was from reader B. Pratt:

“I plan to take my CPP at age 70. That’s the “plan”. As with all plans, there is a need to monitor and adjust as required. So if I need to start earlier than age 70, I will. One cannot be asleep at the wheel during retirement and it is always good to reevaluate plans at least once a year!”

Retirement Income For Life book giveaway

As promised, I’m going to give away a copy of Mr. Vettese’s newly updated Retirement Income For Life. Many thanks to everyone who took the time to leave such thoughtful comments and share your strategy around when to take CPP.

There were a total of 220 entries into the contest. I used a random number generator to select the winner. 

Congratulations to Gin, who commented on October 31 at 2:35 p.m. I will reach out to Gin by email and arrange to send out the book.

Promo of the Week

My friend Barry Choi and I have started a Facebook page called Personal Finance Canada – a private group but an open forum to discuss to discuss money topics and ask your burning questions about personal finance, investing, retirement planning, credit card hacks, travel tips, and more.

Barry and I will moderate the group and answer questions. But we plan to invite other experts to answer questions and post on topics of interest.

So, join the Personal Finance Canada page, invite your friends, say hello, and ask us your burning questions related to personal finance. We’d love to hear from you.

Weekend Reading:

Speaking of Barry Choi, he explained a new perk offered by Air Canada called a Buddy Pass. Think of it like WestJet’s companion voucher, where the second traveller can fly for free, plus fees & taxes.

Our friends at Credit Card Genius introduce the new BMO Eclipse Visa Cards – offering 5x points on everyday spending.

RateSpy.com reports that variable interest mortgage rates have smashed the prime minus 1 barrier. The variable rate to beat is now 1.29%.

Half of Canadian investors aren’t even aware they are paying fees. Larry Bates shares some simple steps that will help investors make more informed decisions.

Steadyhand’s Tom Bradley explains why investors should spend less time trying to avoid the dips and more time preparing for them:

“Being a successful investor is less about being good at reading the economy, timing the market, or picking individual stocks, and a whole lot about dealing with the inevitable dips that lie ahead.”

My Own Advisor blogger Mark Seed shares his financial independence plan. Mark enlisted the help of fee-for-service advisor and PlanEasy.ca founder Owen Winkelmolen to help him map out his early and semi-retirement options. Great stuff!

PWL Capital’s Justin Bender shares the best ETF pairs for tax-loss selling:

Justin’s video tutorial pairs nicely with this post by Dan Bortolotti on finding ETF pairs for tax-loss selling.

What does the stock market do around election day? Of Dollars and Data blogger Nick Maggiulli explains.

Gen Y Money explains the ins and outs of life insurance in Canada – and could it be a bad investment?

Finally, these seven business owners share lessons they’ve learned through success and hardship during the pandemic.

Have a great weekend, everyone!

Fred Vettese is one of Canada’s leading retirement planning experts. The former chief actuary for Morneau Shepell spent his entire career working within Canada’s retirement income system. He’s written three books on retirement, including The Real Retirement, co-authored with former Finance Minister Bill Morneau, and The Essential Retirement Guide: A Contrarian’s Perspective.

Mr. Vettese’s latest is a completely revised and updated version of Canada’s #1 bestselling retirement income book – Retirement Income For Life. Most retirement books focus on the accumulation phase. Retirement Income For Life is aimed at people who are close to retirement, or who are already retired, and who are going to rely mostly on their own savings to meet their retirement income needs. It assumes your main objective is to maximize your retirement income rather than maximizing the assets you leave behind if you die early.

He decided to revise the book just two years after its initial release to help readers who were still a few years away from retirement improve their financial situation. He also reorganized the chapters into a more logical sequence, and added chapters to address special situations such as high-net-worth couples, early retirees, single retirees, and early death.

Mr Vettese also addresses significant developments since the release of the first book, which include expanded CPP and the possible introduction of deferred annuities that start at 85. He also touches on the potential fallout from the COVID-19 pandemic.

The five enhancements that made up the core of the first edition remain intact. These include reducing investment fees, transferring risk to the government by deferring CPP, transfer even more risk by purchasing an annuity, know how much income you can withdraw (and actively adjust it as needed), and have a backstop (likely a reverse mortgage or HELOC).

If you’re going to read one retirement book, this is it. Retirement Income For Life is an incredibly comprehensive and sensible look at how to think about retirement planning. Mr. Vettese offers plenty of wisdom throughout the book. Here’s one of my favourite takeaways from the section on investment risk:

“I used to research the market on my own and trade in individual stocks. It was hubris to think I was smarter than the crowd and could profit on a consistent basis by taking a contrarian stance. Over time, I did pick a few winners, but I also picked way too many losers. I didn’t beat the market anywhere near often enough to call the experience a success.”

He strongly suggests you not to become a stock picker or day trader. The odds are very much against you. Instead, participate in a pooled fund, such as an index you can buy in the form of an exchange-traded fund (ETF). The author’s takeaways in this chapter are worth the price of the book alone:

• Future investment returns will almost certainly be lower than historical returns for many years to come
• Stay away from investing in second mortgages
• Real estate investing can be lucrative for long-term investors, but it is not for amateurs and it is not without risks
• Long-term bonds will be especially poor performers, since bond yields have nowhere to go but up, and this would create capital losses. This includes real return bonds
• Your best bet for a 5% annual return is to invest in equity funds, risky as they are
• a 60-40 asset mix is probably better than 50-50 in the case of retirees with average risk tolerance

Retirement Income For Life Giveaway

I was fortunate enough to receive an extra copy of the newly revised Retirement Income For Life and I’d like to give it away to a lucky reader.

If you want to enter for a chance to win a copy of Retirement Income For Life, leave a comment telling me when you took (or plan to take) your CPP benefits and why.

Deferring CPP to age 70 is one of the author’s five enhancements for retirement income planning, but in reality this option is almost never taken. I’ve written before about when it makes sense to take CPP at 60, and when it makes sense to defer CPP to age 70. I’ve also explained why taking CPP at 65 is rarely the optimal choice.

The contest will close on Wednesday November 4th at 5pm EST. I’ll randomly select a winner from the entries and announce the winner in my next edition of Weekend Reading.

This Week’s Recap:

On Thursday I explained exactly how I invest my own money. Thanks for the great feedback on this article!

From the archives, here’s which accounts to tap first in retirement.

Remember travel? Here’s how I redeemed more than 1 million points for travel last year.

I’ve pivoted to cash back rewards in “these times” and hope to share exactly how I did that in the coming week.

Weekend Reading:

Looking to level up your rewards credit card game? Credit Card Genius has you covered with the best credit cards in Canada.

Here’s a heartbreaking look at five people who lost their jobs during the pandemic.

NPR looks at stuck at home moms and the pandemic’s devastating toll on women:

“The uncomfortable truth is that in their homes, women are still fitting into stereotypical roles of doing the bulk of cooking, cleaning and parenting. It’s another form of systemic inequality within a 21st century home that the pandemic is laying bare.”

The Evidence Based Investing blog explains the dangers of trading from home.

Rob Carrick shares several reasons to stop worrying the pandemic will be followed by a plague of tax increases. I agree.

Michael James on Money says that owning today’s long term bonds is crazy.

PWL Capital’s Justin Bender looks at tax-loss selling with ETFs in his latest investing video:

Does that sound too complicated to implement on your own? Check out this post on tax loss harvesting at work with Wealthsimple.

Pension plans will use a new method for calculating commuted values as of Dec. 1 that may reduce defined benefit plan payouts.

Here’s a smart take by Millionaire Teacher Andrew Hallam on what to do when financial experts say a giant crash is coming.

A Wealth of Common Sense blogger Ben Carlson says the question you should always ask when searching for higher yields is, what’s the catch? 

Finally, Morgan Housel has a few questions that are relevant to everyone and apply to a lot of things.

Have a great weekend, everyone! (and don’t forget to comment below to enter to win a copy of Retirement Income For Life)

Our kids were off school during Thanksgiving week so we took a much needed mini vacation to Canmore / Banff. There were plenty of deals to be found that week and so we splurged on a penthouse condo with a private hot tub (through Airbnb). 

It was so nice to get away from the mundane routine that we’ve found ourselves in over the past seven months. Don’t get me wrong, our daily walk around the community lake is fine but it doesn’t exactly hold a candle to the mountains and lakes in beautiful Kananaskis Country.

I can see these close-to-home mini vacations becoming more popular in the coming months (years?), and Airbnb is best positioned to capitalize on this trend. I wrote about my experience using Airbnb vs. hotels last year and highlighted my preference to have an entire place to ourselves, with a kitchen and a separate bedroom for the kids. 

Hotels simply aren’t well suited to this type of accommodation, not to mention their other disadvantages for hosting travellers during a pandemic, such as shared entrances, elevators, and dining (forget the breakfast buffet).

Airbnb filed for its long awaited IPO this summer with the intention to go public later this year (rumoured to be in December). After business collapsed for the short-term rental platform during the lockdown stages of the pandemic, Airbnb has experienced a resurgence with weekly revenues hitting new all-time highs. Indeed, Airbnb’s revenues have comfortably surpassed Marriott’s for the first time.

Airbnb hopes to raise $3 billion in its upcoming IPO and achieve a valuation of more than $30 billion. 

While the outlook for the travel industry remains incredibly bleak, the demand for short-term vacation rentals continues to grow and Airbnb stands to benefit the most from this trend.

When you sign up for Airbnb with a referral link, you’ll get up to $95 off your first trip. How it works is you’ll get $75 off your home booking, and then another $20 to use towards an Airbnb experience. An “experience” is an activity hosted be a local expert.

This Week(s) Recap:

I wrote about the growing demand for Green Bonds and RE Royalties’ secured 6% annual return.

In a follow up post from my Canadian Financial Summit interview I addressed the major gaps in your retirement plan.

I’m reading poker star Annie Duke’s latest book, How to Decide. It’s an excellent follow up to her previous work – Thinking in Bets – and is really a hands-on exercise to help you make better decisions in your life. Definitely worth a read.

You can also hear an interview with Annie Duke on a recent episode of the Rational Reminder podcast.

Promo of the Week:

I moved my RRSP and TFSA to Wealthsimple Trade at the beginning of the year. It took some getting used to the mobile-only platform but overall I’m happy with Canada’s first and only zero-commission trading platform.

If you’re tired of paying $9.99 per trade just to buy or rebalance your ETF portfolio then Wealthsimple Trade is definitely worth a look. It’s a no frills platform so don’t expect a ton of performance data and market research. But it works great for me and my one-ETF investing solution (VEQT).

Get a $10 cash bonus and commission-free trades when you open a Wealthsimple Trade account and deposit and trade at least $100. Sign-up today to take advantage of this offer.

You can also read my detailed Wealthsimple Trade review here.

Weekend Reading:

The newly revamped Aeroplan program takes flight on November 8th and the Credit Card Genius team explains what you need to know about the transition.

In a surprising development, WestJet is now offering cash refunds for flights cancelled during the COVID outbreak.

Financial author Farnoosh Torabi explains why and how she plans to die with an empty bank account.

No, seniors aren’t moving out in droves. Jason Heath explains the retirement downsizing myth and its potential impact on the housing market.

Rob Carrick looks at the cost in money, isolation and family stress when seniors choose to remain in their own private homes.

A guest post on the Blunt Bean Counter blog explains the pitfalls of two common strategies to try to avoid probate fees.

Jonathan Chevreau shares strategies for Canadians who are retiring without a defined benefit pension plan.

A great piece from Morgan Housel on why incredible progress that occurs slowly over time is less attention grabbing than a one-time disaster:

“Good news always takes time, often too much to even notice it happened.

But bad news?

Bad news is not shy or subtle. It comes instantly, so fast that it overwhelms your attention and you can’t look away.”

Rob Carrick explains how the cost of playing it safe as an investor is plain as day.

Of Dollars and Data blogger Nick Maggiulli explains why we should own bonds even with rates so low.

Millionaire Teacher Andrew Hallam also shares why you should still invite bonds to your portfolio party.

PWL Capital’s Ben Felix is back with another Common Sense Investing video. This time he shares the truth about day trading and your odds of success:

On that note, can advisors pick winning funds in advance? An overwhelming body of evidence suggests not.

A great idea from behavioural finance expert Shlomo Benartzi about reinventing the employer retirement savings match, framing it as a fixed-dollar rather than a percentage:

“Psychologically, it’s easier to forgo a “6% match” than to pass up “$1,200.” And the fixed-dollar approach could be particularly helpful for lower-income workers, for whom the set amount would represent a larger share of salary.”

Larry Bates explains why the greatest opportunity for retirees to make their savings last longer may be to reduce their investment fees. Indeed, a 2% fee on a $1M portfolio can be a retiree’s largest annual expense.

Most traditional money advice is built on shame, often packaged as tough love and personal responsibility. What if we tried empathy?

Retirement expert Fred Vettese says that since 2003, Canadians would have been better off renting than buying.

Michael James takes a thorough look at variable percentage withdrawals for retirement spending.

Finally, here’s an eye-opening review of a monstrosity known as the 2021 Cadillac Escalade – king of the oversized SUVs.

Have a great weekend, everyone!