I’m in my thirties and I’m facing the possibility of having more money taken out of my pay with very little return.
How little return, you ask? As someone under 45, the rate of return on my CPP “investment” -– is just 2.1%.
Let me repeat, 2.1%!!!
This bothers me but it doesn’t bother me nearly as much as hearing governments tell me that, because my retirement funds don’t fit into their narrow scope of what retirement savings look like, I am not doing enough to save for myself. According to the government, my stock portfolio, real estate and other non-registered investments will not help me in my retirement years.
Had CPP increased when I was younger, when every penny counted, I wouldn’t have the diversified portfolio that I do today. I was thinking about the future even while working for minimum wage and saving for, (later attending) university. I was not making a remarkable income when I took advantage of the stock dips of 2009 to start investing; then started my own business, and bought my first home.
What bothers me even more than governments expecting me to live up to their narrow view of financial planning is that they now want to force me, and all Canadians, to abide by their paternalistic notion of what is good for us. They are taking more money out of our paycheques, effectively removing our freedom to choose our own retirement options.
The government claims they are doing this for our young population. The generation that still has 40 years of work ahead of them is the only demographic that will see the full benefit from this increase. But here’s the thing: most millennials have their own definition of retirement. They also have plans TODAY. They are buying their first house, planning a family, travelling, starting a business, or maybe playing the stock market, like I did not too long ago. They want more of their money now and they want to define their own future, but boomers are patting them on the head and telling them “we know what’s good for you.”
I won’t get into the fact that CPP is already fully sustainable for the next 75 years. I won’t ramble on about the fact that 52 per cent of 25-34 year olds are on record as already saving for retirement, and that stat does not include real estate or non-traditional savings. Instead, I will point out the impact that 20% of additional CPP deductions would have meant to me over my working life so far, if governments had implemented the proposed CPP expansion when I was a young adult.
- I would have had to save up to an additional year to go to university.
- I would have been forced to purchase fewer stocks in 2009, which have at minimum doubled in value since I purchased them. In addition, I would lose all of the associated dividend earnings that have been reinvested over the years.
- I would have missed the chance to purchase my first home. I bought it while the building was still under construction and quite affordable. The units that fit my budget sold out very quickly and had I had to wait longer to accumulate enough savings for the down payment, I probably would have been out of luck. Also, the value of the property escalated substantially when construction finished, well beyond what I could afford had I waited.
- My partner and I would have had to make some significant budget cuts to our wedding, honeymoon, or both. This may seem superficial to some, but we planned, budgeted, saved and compromised on our needs vs. our wants for a celebration that was very important for both of us, a kick-off to our future together. We did not have an extravagant affair by any means but we ended up with exactly what we wanted.
- My small business would have gotten off to a much rockier start had I less to invest. Given that incredibly lean first year, I don’t know if I would have made it.
- I would have had to make some very difficult HR choices in my business.
- I would now have a lot less to leave to my loved ones, because unlike my current investments, CPP cannot be passed on.
These are just a few examples of why I’m against CPP expansion. With a looming 20% increase in my contributions, what future adventures, plans and goals will I have to give up?
The government plans to give me a return of 2.1% (less interest than I earn than in my TFSA, which I will no longer be able to contribute to) as a reward for taking 20% more of the 4.9% already coming off my pay. Many people older than me will have that additional 20% added to what they’re already paying with minimal return, and young people will have choices taken away from them. They are doing this despite the fact that Canadian seniors are the least likely demographic in Canada to be living in poverty. In fact, Canada’s elderly poverty rate is among the lowest in the world and is steadily declining. In addition, according to the Melbourne Mercer Global Pension Index, Canada has the 7th best pension system in the world.
Instead of sharing this information with Canadians, governments bombard with commercials and messaging telling us that we do not save enough – that there’s a “crisis” and hiking the CPP is the only way to stop it. I find this concerning: CPP should not be seen or sold as a full source of retirement income, since it was never conceived for this purpose. It is meant to be an income supplement in retirement to offset decreasing wages.
Last week, Ryan Mallough offered a millennial’s perspective on this issue. If you have not yet read his article, I suggest you take a look – A payroll tax hike hits start-ups hard.
I know that CPP expansion does not seem like a scintillating topic, but I promise you, Ryan’s article is quite interesting. More than that, though, it’s important. If CPP expansion happens, we have to keep in mind the cost of opportunities missed for young, ambitious, and responsible people who simply wish to have control over their earnings and the direction of their financial future. If you’ve already read Ryan’s article, sign the petition to stop the CPP expansion today. It’s not too late.