The criticism of the Canada Pension Plan that I hear most often is that the survivor’s benefit is too small. But a pension expert has raised another shortcoming that was backed up by comments I received from a reader who just turned 91.
The pension expert is Gerry Wahl, who argues in an article in the Canadian Investment Review that the annual inflation adjustments made to CPP retirement benefits aren’t sufficient to cover the rising cost of household spending. Mr. Wahl argues for a more generous inflation adjustment, which he believes could be paid for out of the CPP’s investment earnings.
Another voice speaking out for better inflation protection for retirees is Harris Gulko of Richmond, B.C. Mr. Gulko recently wrote a letter to Prime Minister Justin Trudeau in which he said seniors have been given short shrift in CPP reforms that will improve benefits for future retirees. “There seems to be no regard for people who have been retired for 20 or 30 years,” Mr. Gulko wrote. “They have been marginalized or forgotten. It is quite true that their pensions are increased yearly to account for inflation. But inflation is one thing, AGING is quite another.”
Here’s a sampling of the costs Mr. Gulko faces:
- $180 a month for a cleaning service (he can no longer take care of this himself)
- $4,600 in the past three years for wheelchairs, an electric scooter and special canes
- $200 a month for painkillers and vitamins
- $90 a month in extra grocery costs for buying prepared meals (he can’t do much meal prep on his own)
Mr. Wahl figures that an annual increase in the CPP inflation adjustment of 1 to 2 per cent would help retirees maintain their purchasing power. “Both retirees and millennials should make this an election issue,” he writes.
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Rob’s personal finance reading list…
How an economist taught her daughter about money
Teri Courchene, a former economist at one of the big banks, writes about how she taught her daughter different money lessons as she grew up, from counting and spending change at age six to an intro to investing at age 18.
A disturbing trend in personal finance
A senior vice-president at the huge U.S. online brokerage Charles Schwab reports on survey results showing women are scrimping more and working harder than men, yet women also have less saved and are investing less.
Too many people are overbuying their cars
Overbuying is buying more car than you need or can properly afford. It’s super easy to do with car loans that extend to seven years or longer. Can’t afford the vehicle you really want? Just spread the payments out over a longer period of time.
How to finance a gap year
A gap year is a period of travelling for students making the transition from high school to university. Here are a bunch of good suggestions on how to afford the gap year without going into debt.
Today’s financial tool/app
Check out this new retirement calculator and tell me what you think. It’s designed to see if your money will last through retirement.
Ask Rob
Q: I have read the article on “Why seniors should have more money in bonds.” The idea of preserving one’s investment assets in later years by sticking to mostly bonds seems different to most advice I read in the Globe. It would be interesting to see a graph of performance for a conservative, bond-only portfolio versus a blue-chip, dividend-paying portfolio over the last 50 years. Can you point to such a graph?”
A: Forget the comparison of returns between a conservative portfolio mostly in bonds and one with dividend stocks. The dividend portfolio would crush the conservative portfolio over most time frames. If you’re comfortable with stock-market risk, then the dividend portfolio may suit you well. The conservative portfolio with lots of bonds is for people who are willing to accept small returns in exchange for less risk of losing money. For some people, capital preservation is the top priority.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Featured video
Carrick Talks Money: Bonds not doing it for you? Try these alternatives
In case you missed these Globe and Mail personal finance-related stories
- How can these retirees maximize their savings while minimizing taxes?
- Fixed vs. variable: Why last week’s BoC rate hike shouldn’t change your mortgage strategy
- David Rosenberg: Beware, markets haven’t hit rock bottom yet (for Globe Unlimited subscribers)
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Rob Carrick