CPP Deferral debate - Fred Vettese article discussion

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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StuBee
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Re: Clippings 2017

Post by StuBee »

longinvest wrote:I've always claimed that there is a pretty big risk for the heirs, not for the pensioner himself. The delayed pension allows him to safely spend more, while alive, than by taking the pension early. But, this comes with a relatively good probability that the heirs will get less after the pensioner's death, except when the pensioner wins the longevity lottery.
I am trying to get my mind around all of this...

I think that you are saying that the late pensioner (beginning at age 70) has to wait about a decade to catch up to the early pensioner (with respect to total QPP received) and he will probably end his life poorer. In exchange he will have been able to spend more. ISTM that this means that the early pensioner will end his/her life richer (since the other one is poorer). Don't you think that if the early pensioner were to spend a bit more that both scenarios will come out equal?

StuBee

P.S. Sorry if I am being a pain in the a**.
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Re: Clippings 2017

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StuBee wrote:
longinvest wrote:I've always claimed that there is a pretty big risk for the heirs, not for the pensioner himself. The delayed pension allows him to safely spend more, while alive, than by taking the pension early. But, this comes with a relatively good probability that the heirs will get less after the pensioner's death, except when the pensioner wins the longevity lottery.
I am trying to get my mind around all of this...

I think that you are saying that the late pensioner (beginning at age 70) has to wait about a decade to catch up to the early pensioner (with respect to total QPP received) and he will probably end his life poorer. In exchange he will have been able to spend more. ISTM that this means that the early pensioner will end his/her life richer (since the other one is poorer). Don't you think that if the early pensioner were to spend a bit more that both scenarios will come out equal?
OK, I left a few assumptions undisclosed. Here they are:
  • First, you have to read (and fully understand) this post Delay OAS to 70, spend 8.8% more at 65!. By bridging the gap between 65 and 70 using a non-risky GIC ladder, no market risk is introduced (and no more than a hint of inflation risk). As a result, spending is safely increased.
  • For the "smaller/bigger bequest" thing; I am assuming that CPP actuarial tables are fair. As I am a male, and males have lower life expectancy than women, I expect that taking CPP early is generally advantageous for men, and taking CPP late is generally advantageous for women, while being neutral for the theoretical unisex person.
  • Because spending is (safely) increased by delaying to 70 using a GIC ladder bridge, the break-even age to get as big of a bequest is delayed further than if spending was kept equal, making it likely, from an actuarial point of view, that the bequest will be smaller.
If actuarial tables are fair, it won't make a probabilistic difference for a unisex retiree to draw his pension early or late (if spending is kept equal). This is an actuarial calculation; for each and every individual, there is a single best decision which can only be known after death.

I was also playing on the psychological aspect. Psychologically, one will generally feel to be getting more back from CPP/QPP and OAS by taking the money as soon as available. One will enjoy drawing the stream of income for a longer time in all cases; regardless of date of death (as long as one gets at least one installment).

Complication: I ignored the fact that certain segments of the population have a higher or lower life expectancy than average. I think that statistically, the poorest of our society people have a lower life expectancy than average, regardless of gender (somebody correct me, if I am wrong). So, maybe it's not as clear cut as I said above.
Last edited by longinvest on 11 Mar 2017 17:59, edited 1 time in total.
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Re: Clippings 2017

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StuBee wrote:I am trying to get my mind around all of this...

I think that you are saying that the late pensioner..
Have you read the two Fred Vettese articles that prompted this discussion? longinvest linked one on March 7 http://www.theglobeandmail.com/globe-in ... e34209897/ and the second on March 9 http://www.theglobeandmail.com/globe-in ... e34244279/
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Re: Clippings 2017

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longinvest wrote:If actuarial tables are fair, it won't make a probabilistic difference for a unisex retiree to draw his pension early or late (if spending is kept equal). This is an actuarial calculation; for each and every individual, there is a single best decision which can only be known after death.
Well, that doesn't help me at all!! Thanks for the explanation none the less.
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Re: Clippings 2017

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DavidR wrote:
StuBee wrote:I am trying to get my mind around all of this...

I think that you are saying that the late pensioner..
Have you read the two Fred Vettese articles that prompted this discussion? longinvest linked one on March 7
I had glanced at them quickly. I do not doubt the results. IMO, the last sentence of the march 9th article explains it all:
that this deferral strategy will pay off in the long run
The underlying premiss is that the pensioners live a long time. I quite agree that it makes no difference for those who have died early. They will have subsidized the more fortunate ones with the loss of their own lives. For this reason the math works.
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Re: Clippings 2017

Post by ig17 »

I ignored Vettese's articles and the follow-up discussion. I immigrated to Canada at age 29. I plan to retire no later than 55. I will have a few years of zero income that I can't drop out even if I take CPP at 60. Delaying past 60 means more years at zero income that I can't drop out. It's possible that delaying past 60 still makes sense in my case, but I doubt that the difference is material. The benefits of delaying will be fully or partially negated by the extra years of zero income.
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Re: Clippings 2017

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Shakespeare wrote:I'm quite aware of your post.

The calculation is actuarial and the result depends entirely on *your* life expectancy: if you die before taking delayed CPP, you lose (and for a few years afterwards) because you never get the money.

In other words, it depends on if you feel lucky.
The use of mortality tables to calculate the optimum timing for drawing pensions and optimizing OAS is a little flawed as it treats these pensions similar to insurance policies where the individual is hedging towards above average lifespans. Morbidity tables predict an average person may live up years 10 years before death with at least one major disease that significantly affects quality of life.

If you know you can get by in later years maximizing quality of life early in retirement may bring the best overall use of funds.
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Re: Clippings 2017

Post by gaspr »

http://www.michaeljamesonmoney.com/2017 ... as-to.html

More on deferring benefits and the emotional irrationality involved. Part of the problem here is that a lot of us do not properly understand what longevity risk is. It is not the risk of dying young, it is the risk of outliving your money.
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Re: Clippings 2017

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Another risk is how does the government cut pension cheques in a not so distant world of robots and millions and millions unemployed. I think the get what you can while you can is a pretty strong argument.
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Re: Clippings 2017

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Profit not Prophet wrote: 20 Mar 2017 14:07 Another risk is how does the government cut pension cheques in a not so distant world of robots and millions and millions unemployed. I think the get what you can while you can is a pretty strong argument.
I suppose that is possible. It is also possible if you take your benefits early, that you will in your old age be unable to afford food and shelter. Which scenario is more probable?
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Re: Clippings 2017

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gaspr wrote: 20 Mar 2017 14:35 I suppose that is possible. It is also possible if you take your benefits early, that you will in your old age be unable to afford food and shelter. Which scenario is more probable?
Gaspr,

I really like your idea of weighting the various risks against each other. :thumbsup:
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Re: Clippings 2017

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longinvest wrote: 20 Mar 2017 16:30
gaspr wrote: 20 Mar 2017 14:35 I suppose that is possible. It is also possible if you take your benefits early, that you will in your old age be unable to afford food and shelter. Which scenario is more probable?
Gaspr,

I really like your idea of weighting the various risks against each other. :thumbsup:
I wish it was my idea. I just read somewhere recently that we should all learn the difference between possibility and probability and learn to focus on what is probable. Seems like a rational approach that allows for adjustments as time goes by, new possibilities appear, and as probabilities change...
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Re: Clippings 2017

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gaspr wrote: 20 Mar 2017 11:59Part of the problem here is that a lot of us do not properly understand what longevity risk is. It is not the risk of dying young, it is the risk of outliving your money.
Yup I have a 20% chance of dieing before 85 and an 80% chance of dieing after 95. From a planning perspective, I have to go with the latter.
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Re: Clippings 2017

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kcowan wrote: 21 Mar 2017 13:21
gaspr wrote: 20 Mar 2017 11:59Part of the problem here is that a lot of us do not properly understand what longevity risk is. It is not the risk of dying young, it is the risk of outliving your money.
Yup I have a 20% chance of dieing before 85 and an 80% chance of dieing after 95. From a planning perspective, I have to go with the latter.
You won't be doing much at age 95 even if you make it there. Doesn't take much money to sit in an institution (whether assisted living, independent retirement home, etc.). Buy an annuity at age 90 just to be sure. I have known a number of 95 yr olds and CPP/OAS takes/took care of the bulk of their needs.
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Re: Clippings 2017

Post by IdOp »

Methinks 95 was a typo, should have read 85. (As written the statement implies 0 chance of dying between 85--95.)
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Re: Clippings 2017

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IdOp wrote: 21 Mar 2017 14:29 Methinks 95 was a typo, should have read 85. (As written the statement implies 0 chance of dying between 85--95.)
Not really. The probability of dying goes up for every year one ages. At some age, 95 I think, the probability of one dying in the next year is actually 100% (in actuarial tables), but if you make it to 96, the probability of dying before 97 is still 100%.

Edited: To correct last part of last sentence....
Last edited by AltaRed on 21 Mar 2017 18:56, edited 1 time in total.
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Re: Clippings 2017

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Re: Clippings 2017

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AltaRed wrote: 21 Mar 2017 14:50
Not really. The probability of dying goes up for every year one ages. At some age, 95 I think, the probability of one dying in the next year is actually 100% (in actuarial tables), but if you make it to 96, the probability of making it to 97 is still 100%.
Sorry, it wasn't clear what I was referring to, but it was this statement of kcowan's in which "95" seems to be a typo:
kcowan wrote:Yup I have a 20% chance of dieing before 85 and an 80% chance of dieing after 95.
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Re: Clippings 2017

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gaspr wrote: 21 Mar 2017 16:09 A good longevity illustrator

http://www.longevityillustrator.org/Profile?m=1
Very Good link :thumbsup:
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Re: Clippings 2017

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IdOp wrote: 21 Mar 2017 17:23Sorry, it wasn't clear what I was referring to, but it was this statement of kcowan's in which "95" seems to be a typo:
kcowan wrote:Yup I have a 20% chance of dieing before 85 and an 80% chance of dieing after 95.
Yeah, I saw that. Think he probably meant 85 too, but is still not correct IF one makes it to 85. Probabilities are re-calculated at every age one attains.

Added: Bottom line for me is that I believe there is way too much angst about outliving one's money at age 90 or age 95 or age 100. The actual number does not mean anything IF one annuitizes for that risk at an appropriate time. For example, throw all remaing funds if one wants to at age 85 into an annuity and learn to live on the annuity plus CPP plus OAS forever thereafter.
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Re: Clippings 2017

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How much you will need depends on how you intend to finish your days. In the case of me and my wife, we plan to stay in our present house, hiring help as necessary. In the end, it may turn out to be very expensive, but then we likely won't be taking many trips then.

If we were to move to a nursing home or assisted care living, we would be the first in either of our families. Not ready to start a new tradition.

I used to think I would annuitize at 75. Now I've moved the date to age 85. That's my life expectancy, and I only need longevity insurance beyond that.

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Re: Clippings 2017

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Whether one stays in one's own home 'to the end' or not likely depends on the social interaction you are likely to have (or not have) with others (family and/or friends) who would come by to visit. I've seen very lonely old people sitting in their houses with minimal social contact. It is not a pretty sight. Then I've seen old people in an independent living facility having great interactions with staff and fellow 'inmates' with social teas and coffees, board and card games, etc.

Different strokes for different folks of course, but I (we) have no intention of sticking around in a 'lonely' house as we age to diminishing abilities.
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Re: Clippings 2017

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AltaRed wrote: 21 Mar 2017 20:43 Whether one stays in one's own home 'to the end' or not likely depends on the social interaction you are likely to have (or not have) with others (family and/or friends) who would come by to visit. I've seen very lonely old people sitting in their houses with minimal social contact. It is not a pretty sight. Then I've seen old people in an independent living facility having great interactions with staff and fellow 'inmates' with social teas and coffees, board and card games, etc.
My mother has just moved from a seniors apartment building to a nursing home. The catalyst was her diminishing ability to take care of herself. But your last point - which my sister and I anticipated - has already come true.
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Re: Clippings 2017

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Living in your own home could work. Make sure you can live on one level, make sure that you have wide doorways, and a spacious washroon to accommodate a walker (or wheelchair) if it becomes necessary.
There is also the retirement living option before assisted living and long term care homes. Your own autonomous apartment, up to 2 bedrooms, no stairs, fancy dining room and meals, library, events, outings, cleaning, etc. Of course it does mean selling your house and decluttering a lifetime of 'stuff' yourself, rather than just leaving it to the family to do after you're gone.
It is likely that long term care homes will have waiting lists that are too long anyway (they are already long).

Has anyone looked at their health-adjusted life expectancy (HALE)? There are some studies that have quantified the life expectancy impacts of cancer, diabetes, hypertension, weight, income, and education. Unadjusted life expectancy tables may be optimistic.
For example:
https://www.canada.ca/en/public-health/ ... nada.html
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3842774/

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Re: Clippings 2017

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OnlyMyOpinion wrote: 21 Mar 2017 21:02 Your own autonomous apartment, up to 2 bedrooms, no stairs, fancy dining room and meals, library, events, outings, cleaning, etc. .
Precisely what I meant by 'independent living' above. That was where my mother went for the last 3 years of her life (after leaving her home). Tried to convince her to go sooner but alas, she spent too many years basically as a social recluse in her own home.
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