Indebted to nanny state for life

You may have noticed that your CPP contributions went up this year.  If you’re one of the fortunate ones making over $55,000 a year, you just got a boost to your retirement fund. That “boost” will continue to grow next year, and the next, and the next until 2023.  

Of course you’ll have less to live on today. That’s kind of the way savings work. You have to put off today for what you want tomorrow – even if there’s a small possibility you might be dead.  

Not to be overly morbid, but if you fail to live into your 60s, you’re not going to see that CPP money and neither will your children (only your spouse/partner is eligible, up to a maximum).  

Now if the fear of early death is the reason you choose not to save for retirement, you must be incredibly short-sighted or engage in high-risk behaviour like skydiving to work every day. 

In all likelihood, you’ll need even more than the CPP and Old Age Security you’ll be getting from government. You’ll need some of your own savings. That’s the hard part, where self-discipline comes into play. 

We can complain all we want about the government making decisions for us when it comes to retirement, but the fact is, most of us need a little help in our finances. 

I still can’t quite get my head around this, but Canadian households owe $1.78 for every dollar earned as income. That’s comparable to American debt before the Great Recession. Total principal and interest payments now amount to 15% of Canadians’ disposable income. That’s the same percentage we’re advised to set aside for retirement.  

I can understand that housing prices play a role in this. And interest rates are also historically low, making borrowing less costly. But this is still a heck of a lot of debt. And when you consider a good portion is credit card debt, I start to feel a tightening fist form deep in my chest. 

Trying to save the recommended 15% of your salary for retirement is a monumental task, but it's even harder when you’re paying off loans. I get it when Millennials complain about falling behind. Now to be sure, everyone at that age feels like they’re behind. There’s a natural progression as you get older to become better off. But what if you don’t get the secure job that results in pay increases every few years? What if you don’t have a work pension plan? What if you develop a health issue? 

These are common scenarios, and they make the CPP increases all the more relevant. As humans, we need a little nudge from our government, that supportive parental push to get us to do the right thing. 

Call it the nanny state if you want, but nannies take a load off families. Not only do we not have to worry about what kind of investment to choose and what kind of risks to take – we can rest assured that we’ll have at least something government guaranteed. The CPP now aims to cover a third of your retirement income. 

 But how much more you’ll need is a matter of debate. Investment gurus suggest you’ll spend 70% of your current annual income in retirement, but some say this is likely too high. As we age, after all, we tend to buy and do less. By the time you’re 85, for example, you'll likely be driving the same Mustang you bought at 65 (although working the clutch starts to get tricky).  

Is this a reason to sit back and spend like there’s no tomorrow?  

All I can say is, it’s your life. And yes, even the ultra-rich enjoy working into their 80s. 

But at least they have a choice.