Fewer than 1% of eligible recipients choose to take their CPP benefits at 70. Most Canadians take CPP at age 60, as soon as they’re eligible, perhaps unknowingly giving up substantial lifetime income.

Dr. Bonnie-Jeanne MacDonald, Director of Financial Security Research at the National Institute on Ageing, wants to change the conversation around when to take CPP. Her latest research looks at the substantial (and unrecognized) value of waiting to claim CPP/QPP benefits.

I had the pleasure of speaking with Dr. MacDonald about this research and her key findings. She says the financial services industry needs to reframe its messaging to clients about the decision to take CPP. Rules of thumb aimed to make decisions easier can ultimately lead to confusion and even incorrect solutions.

The study describes three reasons why retirement planning practices currently encourage Canadians to take their benefits early.

1. Lack of advice – More than two-thirds of Canadians nearing or in retirement do not understand that waiting to claim CPP benefits will increase their monthly pension payments.
2. Bad “good” advice – Canadians who do seek retirement financial planning advice are being encouraged to take CPP/QPP benefits early using concepts like “breakeven age” to explain the decision. More on this later.
3. Bad “bad” advice – This includes poor anecdotal advice from friends and family, and advice influenced by potential conflicts of interest from a financial advisor.

Dr. MacDonald says the breakeven approach is misleading and has been proven to powerfully influence the decision to take CPP early. 

“It pushes people to mentally gamble their subjective life expectancy against the “breakeven” age.”

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.

CPP Lifetime Loss

Changing the conversation around CPP starts with using behavioural psychology to reframe the problem. Enter the “Lifetime Loss” concept that demonstrates the expected financial loss of taking CPP earlier rather than later. It encourages Canadians to look beyond the short-term and consider their entire financial future.

“An average Canadian receiving the median CPP income who chooses to take benefits at age 60 rather than age 70 is forfeiting over $100,000 (in current dollars) worth of secure lifetime income.”

Dr. MacDonald says we should be using behavioural psychology techniques to influence the CPP uptake decision, such as changing how the information is framed by advisors (using lifetime loss framework instead of breakeven age), to the application forms sent out by Service Canada, which may be unknowingly encouraging Canadians to apply for CPP early.

Finally, Dr. MacDonald and I discussed the issue of retirement spending for older Canadians. Most people believe expenses will decline as we age since we’re no longer spending as much on travel and hobbies. But Dr. MacDonald says that long-term care is a greater concern, and that 75% of home care for older Canadians is currently provided by family members (unpaid).

That dynamic will change in future years. Retiring Canadians now have fewer adult children, and those children are more likely to be geographically separated from their families than past generations. 

“Without adequate family support, work that has traditionally been done for free (e.g., transportation, daily care, preparing meals, etc.) will come at a cost, and those services are expensive to replace.”

This makes deferring CPP an attractive option, as you’re essentially purchasing a very secure pension at an excellent price. The financial incentives are even higher than we think. By deferring CPP from age 65 to 70, you will increase your retirement benefit by 42% (0.7% for every month you defer). But this fails to account for the inflation-adjustment applied to CPP benefits. The real increase is closer to 50% (49.2%).

I encourage you to read the research paper – it’s lengthy but written in plain language with clear visuals that explain the key findings and solutions.

This Week’s Recap:

There was a lot of interest in my post highlighting Emerge ARK ETFs and their eye-popping returns. Several of you asked if I would invest in these myself. The answer is no. I’m 100% dedicated to my total market approach to investing, and I avoid anything that will tempt the irrational part of my brain to try to chase returns. 

But just because I’m an emotional robot when it comes to investing doesn’t mean that you are. Many readers (and clients) have dabbled in tech stocks this year (through ARK ETFs, or Invesco’s QQQ, or by simply picking individual stocks). It’s hard not to get caught up in the frenzy when tech stocks have been driving the stock market returns for many years.

I don’t advocate for picking individual stocks at all, but I recognize that some investors want to express themselves through their portfolio by owning what they know, or what’s new and exciting, or what hedges their fears.

That’s why I’d prefer to see investors build some guardrails around their behaviour by limiting their “explore” to no more than 5-10% of their portfolio, avoiding individual stocks, and instead choosing a thematic (and more diversified) ETF to scratch that itch. 

My guardrails include avoiding stock market news (“What investors need to know about the stock market today”), avoiding looking at my investments as much as possible, and staying 100% invested at all times. This way I’m rarely tempted to do anything with my portfolio.

Promo of the Week:

Just a reminder to join our new (private) Facebook group – Personal Finance Canada – where we’ve been having some great discussions about investing, retirement, credit cards, and more.

The group is administered by me and travel expert Barry Choi, but we also have other experts in the group on CPP, retirement planning, and investing there to answer your burning questions about money.

Please join us and leave a question or comment for the group.

Weekend Reading:

There’s still time to enter the $1,000 cash Christmas giveaway over at Credit Card Genius.

The Measure of a Plan website has updated its investment portfolio tracker – a spreadsheet for DIY investors.

My Own Advisor’s Mark Seed and Money Coaches Canada’s Steve Bridge explain what is a financial plan and what it should cover.

Michael James on Money explains how to transition your investment portfolio as you head into retirement.

Millionaire Teacher Andrew Hallam uses The Misguided Beliefs of Financial Advisors paper to show how advisors punch themselves by purchasing actively managed mutual funds and chasing past performance:

“I was surprised to learn the advisors ate their own cooking…and burned their own food. They bought themselves actively managed funds instead of index funds. In other words, they bought the same things for themselves that they recommended to their clients. That doesn’t reveal a lack of ethics–just a lack of knowledge.”

File this under something I usually ignore, but is interesting nonetheless. Maclean’s “charts to watch in 2021.”

Rob Carrick shares a new option for safely parking U.S. dollars, plus a 2.3% TFSA savings account.

Jason Heath continues to descend into the particular, this time with ways to unlock retirement savings in a LIRA.

Morgan Housel shares another gem with “A few things I’m pretty sure about.” I completely agree with this one:

“Most professions would benefit from at least one a day month where you did nothing but think. No meetings, no calls, no deliverables. Just a seat on the couch thinking about what’s working, what’s not, and what to do about it.”

Finally, a must-read by Zandile Chiwanza on why she had to use her “white-passing” middle name to get an apartment in Toronto.

Have a great weekend, everyone!

HSBC Canada made history this week when it announced a 0.99% mortgage rate – the lowest advertised rate ever offered in Canada. The 0.99% mortgage rate is available for high-ratio insured purchases (i.e. for those putting less than 20% down). It’s not a fixed rate, but a steeply discounted variable rate of prime minus 1.46%.

RateSpy.com also reported that HSBC launched three more record-low mortgage rates, including 1.39% on a 5-year fixed rate mortgage (high-ratio insured purchases), 1.59% on a 5-year fixed rate for uninsured purchases and switches, and 1.64% on a 5-year fixed rate for refinances. Incredible.

It seems like a no-brainer to take advantage of a 0.99% variable rate mortgage, given that the Bank of Canada has pledged to maintain its key lending rate at a historic low until at least 2023. That’s at least two years of sub-1% borrowing.

“At this point, we can’t blame any well-qualified insured borrower for wanting a piece of this rate. And HSBC’s floating-rate features are fantastic. It’s a standard-charge mortgage that’s fully open after three years and you get to convert to a fixed rate anytime without penalty (not that we’re advocating that). That’s not to mention the much more favourable 3-months’ interest penalty of a variable versus a fixed.” – RateSpy.com

I remember when BMO made headlines in 2012 when it offered the first sub-3% fixed rate mortgage (a 4-year with conditions, if memory serves). Eight years later, HSBC has broken the 1% barrier.

Meanwhile, I have clients and readers who still have mortgage rates above 3%. If you find yourself in that position, it’s time to seriously consider refinancing your mortgage. A mortgage broker can help you run the math and determine if it makes sense to pay a penalty to break your existing mortgage and refinance into one of these record low mortgage rates.

This Week’s Recap:

I was happy to contribute to Young & Thrifty’s Financial Literacy Month piece with my top financial lesson for Canadian millennials.

Last week I explained why I switched back to the Scotia Momentum Visa Infinite card for my everyday spending.

Stay tuned for a couple of interesting profiles coming up on the blog – one that looks at a small family of ETFs with eye-popping returns, and another that looks at a new online service for arranging funerals.

I was happy to see that Wealthsimple Trade (the zero-commission trading platform) has launched a desktop version of its platform (currently in beta and not available to all users). I moved my RRSP and TFSA to WS Trade in January and so far have really enjoyed the experience.

I’m also amazed at the resiliency of the stock market. When my portfolio was down 34% in March, I would have never predicted it would rally and actually be up 7.41% on the year. Unbelievable. I might have an outside shot at reaching my $1M net worth milestone at the end of the year. 

Wealthsimple Trade is Canada’s first and only zero-commission trading platform where investors can trade stocks and ETFs for free in an RRSP, TFSA, or non-registered account. Sign up for Wealthsimple Trade today and get a $10 cash bonus.

Weekend Reading:

Our friends at Credit Card Genius have the best credit card offers, sign-up bonuses, and deals for the month of December.

According to the National Institute on Aging, 95 per cent of Canadians take CPP at the age of 65 or earlier, with only 1% deferring until the maximum age of 70. 

Michael James on Money offers a case study on his family’s CPP timing choice.

My Own Advisor Mark Seed interviews CPP expert Doug Runchey on the survivorship benefits for CPP and OAS.

A detailed and excellent look at CPP’s commitment to Canada 2050 (Canada’s path to net-zero emissions).

Working longer appears to boost longevity. Here’s Andrew Hallam on the retirement solution that could extend your life.

MoneySense’s Jason Heath shares some unique ideas for your last will and testament.

Rob Carrick answers a reader question about whether it makes sense to use preferred shares as a bond substitute.

Why wouldn’t you want to invest in the companies leading a new world-changing technological paradigm? Ben Felix explains in his latest Common Sense Investing video:

Our vision of the good life is stuck in the twentieth century. Max Fawcett says it’s time to reinvent it—starting with home ownership:

“If you showed someone from the late 1950s the typical Middleton life today, they would probably think society had made extraordinary economic advances. How else could someone middle class afford a beautiful car, an enormous new house (relative to what was normal, say, seventy years ago), and access to the kind of food and wine once the exclusive preserve of royalty and the very rich?”

Rich as I say, not as I do. Nick Maggiulli (Of Dollars and Data) takes issue with many so-called personal finance experts who have gotten wealthy by selling advice to others rather than by using their own advice.

Wealthsimple CEO Michael Katchen says the best path to financial literacy is to build products that people actually understand.

Finally, I want to share this excerpt from Global’s Money123 newsletter (subscribe to it here). It’s an answer to a reader question about retiring on a low income. Here’s the must-read advice from low-income retirement specialist John Stapleton:

“Max out your tax-free savings account (TFSA) when you can and any equivalent employee contribution while working. Avoid RRSPs if you are under age 65 and cash them out slowly before age 65 if you have them. Pay the tax penalty. Put the leftover money in a TFSA.

Take the Canada Pension Plan (CPP) early at 60 unless you receive social assistance.

Apply for Old Age Security (OAS) one month after you turn 64. The OAS application is the same form as that for the Guaranteed Income Supplement (GIS). Apply for the GIS. Don’t tick the box that keeps you from applying for GIS.

If you are GIS-eligible at 65, register for an RRSP with any money you have between ages 65-71. If you don’t have money, consider borrowing from the same institution where you open your RRSP. OAS and the GIS begin at age 65. But people can keep contributing to RRSPs until they turn 71. Contributing to an RRSP effectively lowers your income for purposes of GIS eligibility.

Pay attention to fees. Avoid actively managed funds. Make sure your financial advisors commit to fiduciary standards. Buy inexpensive, well-diversified mutual funds such as D-series funds and always buy from a discount brokerage that you can find online. Never buy or sell individual securities.

Get a no-fee credit card with a low limit. Use it to pay for things but pay your credit card balance in full every month.

Maximize tax-advantaged savings vehicles like registered education savings plans (RESPs) if you have children and TFSAs for each family member who is eligible.

Maximize all entitlements but do everything you can to avoid social assistance whenever possible.

Print this page and keep it with you.”

Have a great Sunday, everyone!

Long before I started travelling and collecting travel rewards, I used a cash back credit card for my everyday spending. I loved to collect cold-hard cash back on every purchase and then use the rewards to fund a short-term goal, like a family vacation or a weekend away with my wife.

My go-to card for cash back was the Scotia Momentum Visa Infinite Card. Simply put, it had the highest earn rate in the categories where I spent the most money on daily living. It truly was Canada’s king of cash back rewards.

As a self-professed rewards credit card junkie, I’ve tried all types of cash back and travel rewards cards to find one that best fit our lifestyle at the time. This year, I’ve come full circle and returned to my beloved Scotia Momentum Visa Infinite Card.

Here’s why:

Still the Cash Back King

The Scotia Momentum Visa Infinite Card still reigns as Canada’s cash back king, earning accolades from the Globe and Mail, MoneySense, Red Flag Deals, and our own friends and partners at Credit Card Genius as Canada’s top cash back credit card.

• Customers earn 4% cash back for every dollar spent on groceries, recurring bill payments, and subscriptions.
• Customers earn 1% cash back on all other purchases – with no cash back limit.
• Customers earn 2% cash back on daily transit (buses, taxis, trains, rideshare – like Uber – and more) and on gas purchases.

Scotiabank added some additional perks to the card, making the Scotia Momentum Visa Infinite one of the most robust cash back credit cards for insurance protection.

The card offers insurance for your mobile devices, upcoming trips, car rentals and purchase security/ extended warranty protection on most items.

Note that to be eligible for the card, you must have a minimum annual income of $60,000 or a minimum household income of $100,000, or minimum assets under management of $250,000.

10% Cash Back Sweetener

What sealed the deal for me to sign up for the Scotia Momentum Visa Infinite Card was the incredible bonus offer of 10% cash back on all purchases for the first three months (up to $2,000 in total purchases) for new cardholders.

It doesn’t take a math wizard to see the potential to earn $200 in cash back on $2,000 in spending (within the first three months).

The annual fee is also waived in the first year for new sign-ups, so there’s another huge incentive to try out this cash back credit card and earn big rewards on your everyday spend.

I also love the enhanced insurance benefits on the Scotia Momentum Visa Infinite Card because it’s rare for a cash back credit card to have this robust of insurance protection. Trip cancellation insurance alone is a coveted feature as many would-be travellers have found out this year.

How I Plan to Maximize My Cash Back

I wasn’t just drawn to this card because of the 10% cash back bonus period, or the first-year annual fee waiver, or the additional suite of insurance protection. I also look for a credit card that can help maximize the rewards on my daily spending long after any promotional periods have expired. The Scotia Momentum Visa Infinite Card definitely fits the bill as my preferred spending card for the foreseeable future.

Here’s my plan for maximizing cash back rewards this year:

Like many of you, our travel plans were put on hold this year. We had to cancel our trip to Italy that was schedule for April, as well as a trip to the UK in July. What a disappointment!

That’s why I’ve pivoted to using a cash back credit card for my everyday spending. Every dollar counts in these trying times, and so I liked the idea of earning 10% cash back for three months while we get through this crisis.

In our daily life, we order groceries online at Save-On-Foods two or three times per month and I switched the credit card on file to the Scotia Momentum Visa Infinite Card to help me maximize the 10% bonus period offer. We continue to use the card and take advantage of the 4% cash back on groceries and recurring bills & subscriptions. More recently, we subscribed to an online grocery delivery service from Calgary called Spud.ca.

*This is a good time to note that this card comes with a high spending cap of $25,000 on each of the 4% and 2% spending categories, which for me means I can continue to earn a high cash back rate all year without worrying about reaching the limit.

We do have some recurring bill payments, such as our ENMAX energy bill, our TELUS cable and internet bill, our monthly gym membership, our Netflix subscription, and a Globe and Mail subscription. I’ve switched over those recurring charges to the Scotia Momentum Visa Infinite Card to take advantage of the 4% cash back.

Customers will receive their cash back once per year, in November, so by then I hope to have earned $500 in cash back on my spending. Indeed, I’ve already earned more than $250 in cash back rewards, and that’s in addition to the $200 earned during the 10% cash back bonus period.

Check out Scotiabank’s cash back calculator to see how much cash back you could potentially earn with the Scotia Momentum Visa Infinite Card.

Additional Perks and Protection

Mobile Device Insurance – My wife is looking to upgrade her iPhone this year and, if she does, we’ll definitely take advantage of mobile device protection insurance. This covers new cell phones, smartphones, or tablets purchased on or after August 1, 2019, when you charge the full cost of your new mobile device to your card, or charge all of your wireless bill payments for such device to your Card when you fund such purchase through a plan.

With mobile device insurance you may be covered for up to $1,000 in the event your cell phone, smartphone, or tablet is lost, stolen, accidentally damaged, or experiences mechanical failure.

Car Rental Discounts – Customers can save up to 25% off base rates at participating AVIS locations and at participating Budget locations in Canada and the U.S. when you pay with your Scotia Momentum Visa Infinite Card. This will come in handy when we (hopefully) are able to travel again in the near future.

Visa Infinite Concierge Service – I love the idea of luxury travel and what could be more luxurious than having your own complimentary concierge available 24/7 to help plan a trip, book restaurant reservations, or score VIP tickets to a show? I’ve never tried the concierge service before, but we plan to take advantage once the crisis is behind us and we’re able to travel again.

Final Thoughts

I’ve been really pleased to return to my cash back roots and come back to the Scotia Momentum Visa Infinite Card this year. I plan to maximize my cash back rewards, take advantage of the new insurance add-ons, and try out some of the Visa Infinite perks. I plan to keep the card and continue using it as my go-to card for everyday spending.

Want to join me? You can sign up for the card by February 28, 2021 and be eligible for a bonus offer of 10% cash back on all purchases for the first three months (up to $2,000 in total purchases). The annual fee will also be waived in the first year.

What are you waiting for?