If You're Retiring Early, What Happens To Your CPP? | Retirement Unpacked Ep 031

Welcome to episode 31 of Retirement Unpacked. Uh myself, Adam Bourne, I got Gordon Manzer, uh who is one of our financial planners on our team, and we're going to jump through a bunch of questions that you guys left below. And again, if you have questions off this podcast or anything else, leave those questions comments below and we do our very best to get to them. So, yeah, Gordon, welcome and let's jump into it. Thanks very much. Thanks for having me. Uh I'm going to jump right into question number one. I am still awfully fuzzy on

the OAS delay. My current plan is to delay old age security in Canada pension plan to 70 to maximize both at the highest level for a lifetime inflation protected income and we'll use the 5 years of lower income tax room to aggressively draw down my RRSP. Matthew and Adam both appear at the start to support this but then immediately start waffling. Adam waffle — I never waffle. uh that it's easiest to start old age security at 65 and for most clients we usually start at 65. Uh basically the question is that because it uh makes the most financial sense to start at 65 or more about the psychological I want something now kicking in at 65 that you default to it. What we'll do I mean we play with the numbers. We're numbers people. We look at earliest, latest, and somewhere in between. Uh, typically to find out when I'm doing plans, you know, I tell people a lot, retirement planning is about people. It's not about money. So, it can sometimes be really hard, and I'm glad the person asking the question went to the psychological part of it. It's really hard to constantly tell Service Canada, "No, thank you for that money. I'm good over here. " Uh, and so if I'm running the numbers and the client is able to achieve their goals either at 65 or 70, I will usually model at 65 just to say, "Hey, look, yes, mathematically, if you defer, you'll have more money in your later years, your slowgo years, your no-go years. But if you really want to say yes to something, here's the one to say yes to. " And you can see here, because we've modeled it at 65, you can still achieve all of your other retirement goals, your spending goals. It's not a detrimental impact for taking it early. — Exactly. Yeah. And you know the waffling isn't so much everyone is better well pretty much everyone would be better off delaying their old age security until 70. Like that's just the numbers. It's not as beneficial as CPP obviously where we you know where we say it's maybe the easiest and I don't know if that's a term we use but taking at 65 is if you retire at 60 and you've gone 5 years and you know you could have collected CPP but you delayed it and now it's like ah you know like you start getting the itch, right? And we've seen it with clients. If you're going to start one, you got to start old age security over CPP. That's just the no-brainer decision. So that's why a lot of the times our team will say, "Look, start old age security at 65. " When you get to that point, review it. Get your plan updated. If you're like, "Yeah, I got no age to start it. Delay it. " You know, again, worth it to get a plan update. Figure out where that money should come from. But again, like this viewer said, you know, they're planning to wait till 70. Use those extra five years to draw down. that is the perfect pond like that you know they kind of describe the perfect way to do it. Uh but again a lot of people get that I want my government money itch and so they look to start something and that's why psychologically if you're going to start something then definitely have the old age security starting not uh kind of pension plan. Uh, next question around

old age security as well. When delaying old age security, would every additional year also add 140th for those who have lived in Canada for less than 40 years? And uh, it's actually answered, I just noticed this, by the person that had the question, canoe station for the first one. Uh, he goes into it great. Uh, and I'm just going to read it because it's the answer. So, uh, no, you're only allowed to get one of the two benefits. So from 65 to 70, you get 6% per month for every month that you bump it. Now, if you haven't lived 40 years max in Canada or uh qualify for 40 years in Canada, then th those years could also qualify. So if you let's say at 65, you've only been here for 35 years. Well, waiting till 70 gives you that extra 5 years. But you don't get both. You don't get the extra year and the 6 bump. So that's the difference. You can't it's one or the other. and you can calculate which one's going to be the greatest benefit for you. Um but you can't have your cake and eat it too. — Yeah, that's right. The one time that it does make sense um is if because your partial benefit qualification starts after you've been a resident for 10 years. So, if like they were saying in the answer there, sometime during that age 65 to 70 is when your 10-year minimum hits, uh, then yeah, you're going to use the years that you're now accumulating to get to that minimum amounts and then you can switch over to getting the bonus for deferring the benefit amounts for the last couple of years. — Exactly. And it's a great point, Gord. Absolutely. Yeah, I'm it says re won't read the whole answer, but it's on there. Um, but that's it. Like you can't have your cake and eat two, but yeah, you can do one for a bit. get the 10 years and then take the other.

— Moving on to question number three. Responding to the post about delaying CPP and taking old age security. Totally understand that it is very much tailored toward a person or couple's financials. But what if we stopped working early for example age 55 I'm trying to understand the implications as we would have 10 years of zero income which I think goes against CPP and yeah so your number of years worked obviously continue to add those CPP credits to the eventual benefit that you will receive and so by working 10 years less say retiring at 55 instead of 65 you have less time contributing to the plan and so therefore or your benefit at the other end comes out a bit lower. I actually did a couple of numbers cuz we're numbers people. Uh so I did a PWL calculation, okay, for a female aged 55 who's just to make my life easier made maximum contributions for life into CPP and has already used eight dropout years already. So part of the provisions with CPP, your eight lowest earning years can be dropped out of the calculation entirely. So they're not bringing down your average benefit amount. So in this scenario, those eight years have already been used. When they were younger, let's say they went to medical school and took a year off, whatever. If they retire at age 65, okay, the monthly benefits for CPP at 65 is $1,87. At age 70, it would be $2653. If they retired instead at age 55, then the benefit at 65 would be $1,259 or at 70 would be $1831. All right, so we're talking about, you know, a decent benefit difference here. So $822 a month uh at age 70 or $9,800 a year. All right, so yes, it does have an impact. What we do through our planning process is see what that impact looks like, right? Do you have the additional assets somewhere else that can make up that difference? Are you just okay just in your own mind knowing that yeah, I'm going to make $9,800 less and my spending will need to reflect that. I've got other assets that I can pull from. You know, we it's one of those levers that we will pull, but yes, you are correct. Uh that it will reduce the total amount that you'll have a available for earning. — Yeah, but that doesn't mean you should start CPP early either. Like the second part of this is well because I've you know all these dropout years and I actually I just recorded a video this morning that'll should be on YouTube by now or will be coming out very soon. Um but I talked about that like you know the example was and it was a question from another viewer of I went to school from 18 to 24. So I had no ear earning I paid max all the other years. I'm retiring at 59 except for one year I didn't work. So you know 1824 zero one other year zero everything else maxed out retiring at age 59. And so I ran a plan uh with him taking CPP at 60, 65, or 70. And the difference, and again, there's other assets there, etc., but um he was going to collect by waiting till 70 about $2,000 after tax adjusted to inflation every single year. Again, integrating all his other income sources and stuff, but delaying CPP just because he had all these dropout years, he was leaning to take CPP early, and all the numbers pointed to taking it late. So yes, it does affect you obviously, but just because you have more dropout years doesn't mean to take CPP early. And I think that's one thing people ought to keep in mind. — Yeah. And I mean, you're already going to receive a lower benefit because you have fewer contribution years or fewer higher contribution years. If you take it at 60 instead of 65, now you're also taking another 36% off the top because of the amount that you lose for each month you took it early. — Exactly. Yeah. Uh fourth question, uh

what are benefits of delaying CPP when the added benefit pushes you further into OAS clawback territory? Um seems silly to me to wait and just have that money clawed back. And we do see this once in a while. Uh yeah, I mean if you push the thing is pushing your CPP shouldn't mean you have more income. It means you have more years to draw down your registered accounts. So, I think we're missing a bit of information in here. Delaying CPP. Yes, it might I actually my other video I recorded this morning was on old age security clawback or pension recovery tax and just saying like there's ways to delay it. So, maybe delaying CPP and OAS for this client. Doesn't mean they're getting rid of old aid security clawback. But if we look at the whole picture, does it give them more after tax in their pocket? Does it give a better tax strategy, a better estate plan? All of it, right? more flexibility often in their plan. So the lane CPP I mean Gord you see a lot of plans come through. I would say that it shouldn't mean that you have more OAS clawback. You might have OAS clawback but it doesn't mean you have less total after tax income altogether. — Yeah, that's true. And the thing that I find too is old age security clawback can be placed in like one of those silos that you're always talking about, right? It's I'm just so focused on this clawback and the government's taking some of this money that I've been contributing for years and years as part of my income taxes and I want that back. — One of the misconceptions that I sometimes find with clients is around clawback or pension recovery tax. My review with Brett is coming up pretty soon. So, I got to make sure I get that right. Yeah. Brett, we'll hammer you on that. — So, one of the misconceptions I find with clients occasionally when they see, oh, I've got clawback. Well, let's just back this off a bit. It's not a dollar fordoll clawback. So it's not you go over the threshold by $1, we take $1 of old age security back as part of the recovery tax. It's 15 cents for each dollar you go over. Right? So if you want to claw back, let's say $1,000 or so you want not to claw back, but you want to get rid of a $1,000 clawback in Old Age Security, you have to drop your taxable income by over $6,600 in order to get that 1,000 back. And I have not once in all the plans that I've done, Adam, had anyone say, you know what, let's take out the travel budget that year because I don't want that claw back. Not one time has anybody asked for that. You know, we look at the whole thing as one unit in income planning, not necessarily just each thing on its own. — Yeah. And like I said, the OAS video I did talked about that, right? Okay. Yeah, we have clawback. How do we work around this? How do we move the numbers around? And so, make sure to check out that video. should be out now as well. Um, but yeah, OA has clawback. I would say it's a good problem to have, right? If you have clawback and we've done everything we can and we've, you know, we've reduced it and we've created the best situation. You still have it. It's a good problem. It sucks, but it's a good problem to have, too. Like, most people want to run into that because that means you're making, you know, $94,000 a year. Um, that's a pretty nice income in retirement, especially if you're married or common law. Um, you know, again, singles lose out there. They don't have that person to income sweat with, but um, it's what it is. But, uh, yeah. Next question here.

— Estate planning for passing on generational wealth. Disposing of a family home as in real estate and renting versus staying in the house as you age. What are the pros and cons? So staying in your home um if it's a paidoff home. Okay. Uh the goal if the goal is to leave it to your estate and the end of life pro is that there's a principal residence exemption on any growth in the value of your principal residence. So, it's a tax-free transfer of wealth. We also look at it when we're doing our plans and we don't require any uh accessing any of the value from a principal residence. That's a great backup plan. If anything in the future goes sideways that we can't currently predict or don't know about, it's a great backup plan to know, hey, I've got all this equity that's just continuing to grow and I can access that whenever I want. You also have the ability of customizing your home for accessibility. If you own the home, right? If you sell that home and move somewhere else to rent, you're operating under the landlord's restrictions or requirements. Maybe you can't have your pet anymore. Maybe you can't install a ramp if you have mobility issues later on in life. If your landlord sells your place and you might have to find a new place to live. Um, selling the home though, I mean, you've got liquidity now, right? So, you've got access to funds any time. You're not relying on the real estate market and how quickly you can uh realize that money if you need it in a short amount of time later on. no maintenance. So, you don't have to worry about putting out for a new furnace at $6,000 or replacing a roof at $25,000. Those larger maintenance issues no longer become your concern. Um, you do lose a little bit of autonomy when you go to renting because you don't control the rent amount anymore. Uh, and also there the fact that you have to now manage the investments from the proceeds that you receive from the sale. Some people love their invest investment management. They love to do it themselves. They love to talk about it and research it and that's how their one of their hobbies during retirement. Others not so much, not so inclined. And so it's just considerations to make for sure. — Yeah. And you know, if you cash out, you have this non-registered account. Um that can go back into our previous questions of old age security clawback, right? So now, and we've had lots of clients, it's like, "Yeah, I sold my house. I'm going to Well, now you have this million dollars of non-redge and it's actually climbed back your old age security. It's a big tax bill. You're never going to spend all this money. So, again, for I mean, for people that need to sell because yeah, I need the cash show. I need to live retirement. That's one conversation for sure. But if it's just for estate planning, for generational wealth transfer, blah blah, but you know, I don't ever need the equity, like I'm going to sell the house and all those proceeds will just sit on the sideline. Uh I don't know if it makes a lot of sense. you know, you lo, like you said, Gord, you lose control of where you live. You could get kicked out. No one wants to move homes in their 70s, 80s, 90s. It's not a good situation. So, um, you, 99% of the time, you're better off holding on to the house, dying in the house. Um, maybe you sell it shortly before you pass away, like if you have to take care home and your, you know, uh, power of attorney can sell that for you. Perfect. like that is a great situation to have but it is one of the TFSA and homes in Canada they grow and pass on taxfree huge benefit so by selling it you're taking away that benefit and again potentially now if again if money you don't need and you'd prefer to rent you got other money for rent etc or maybe you're moving into the basement of your kids or you know that kind of stuff yeah you could sell and actually give that money with a warm hand so that could be an option but I think for most people it's best to hold on to the real estate and dispose of it at death or shortly before death. Um, next question. Not

sure if I understand or agree with the comment, uh, purchase a car, why always cash? So, I talk about a lot if you when you purchase a car, pay cash. Don't finance a car. Uh, he goes, I have the cash, but the financing is at a very low interest. Uh, isn't my funds better served as investments with a higher rate of return? Yes, obviously. You know, if you can get a car loan at 0% for seven years, which I don't know if you can do that anymore, but uh you used to be able to all the time, um that makes sense obviously. But again, the key here is I have the cash, right? This is not I'm boring. I'm buying a vehicle that I can't afford. You know, it's going to take me forever to pay off, etc., etc. Look, if there was an emergency and you needed to pay it off tomorrow, that's the key. Just don't go outside of your comfort zone. You should have the cash. Not saying you have to use cash. If it makes if you can get 0% for seven years and you can make 5 to 8% on your investments with your cash, obviously that's a much better decision. But the problem is in our society and I mean I live in Langley and I drive down the street and every driveway has a$1 to $250,000 of vehicles sitting in the driveway. They don't use their garage because they store all their junk in their garage and they put their $200,000 of vehicles on the driveway. And I'm sure a lot of people are paying, you know, they they're paying cash for it. But I think most people are financing their vehicles. They can't afford it. You know, $1,000 plus a month in car payments. And it cripples people. It delays your retirement. Puts you in a bad financial situation. And you know, people wonder like, "Wow, why can't I retire on time? " Well, it's because you had a brand new truck for the last 40 years of your life that just like ate away slowly at your cash. — Again, a lot of times, you know, retirement is not about money. It's about people. And a lot of retirees, and you can put the numbers in front of them, say, "Look, I'm going to earn 8% and this is only going to cost me 3% in interest to finance this vehicle. " They just don't want debt in retirement. They don't care what the numbers look like. I don't want debt. I don't want that sitting there psychologically. It just sits better with them. They like the known rather than the unknown. The known being the paidoff vehicle sitting in my driveway, probably not garage, versus the unknown, which is potential future investment returns. We don't know, right? So, uh, it also, you know, if you're if you really want to look at that math and go down that path, it also depends where you're accessing those funds from. If you're going to have to use your RIFF to pay for this vehicle as a lump sum or overtime, okay, maybe now we've got a conversation because you're going to increase your tax bill. Uh, but the same applies if you're paying that finance payment out of your RIFF as well. Are you cutting back on your budget somewhere else so that your RIFF withdrawals remain steady and your tax bill stays steady or are you increasing those and now paying more tax as a result? You got to factor that into the interest cost as well. — Yeah, absolutely. And that's yeah, if you're buying a and you know a lot of people have to buy a vehicle new or used in retirement, build that into your plan. How are you financing it? Where's the money coming from? And again, if you're someone with you know good pension, I got some RIFF and a little bit of TFSA. Yeah, like maybe like cash flow wise you're good and you can afford that vehicle. That's not what I'm saying. I'm not saying don't go purchase it. Just a lot of people are delaying their retirement because of stupid car purchases, right? And if you go back, there's a lot of, you know, social media posts on this where, you know, what's the worst uh money mistake you made? Cars are like number one, I would say 100% of the time, but yeah, it's way up there.

— All right, move on to the next question. Uh, which is very short and sweet and I love it. So income splitting with couples is beneficial. — Uh typically question. — Yes. — Yeah. — Here. Yeah. — So yeah, if especially if one spouse's retirement income is higher than the others, yes, it's beneficial. Really, the goal here with income splitting is to average out the tax bill across the couple with the hopes that the household now pays less overall total income tax. uh if you have the same income or very similar income, you're not going to see as much benefit to pension income splitting because you're already on a level basis. Um but yeah, that's generally beneficial. Yes, when you've got one spouse especially who's earning more income. — Well, we live a in a progressive tax system, meaning that you know the first 15 16,000 is taxree and then you pay you know 20% then it's 25 like it goes up. So instead of having 150,000 of income in zero, you're much better taking 75 off the top, moving it to the other person. That's where the big So if you're Yeah. Like G said, if you're very lopsided, income splitting can be a massive like it can be a, you know, 10,000 plus tax savings could be massive. Um, if you're both very level, then not. And that's why it's important if you plan to retire before 65, understand what type of assets and income sources you're building up towards retirement. That's where spousal RSPs and this kind of stuff. Like you have to plan ahead for some of this stuff because again a lot of times you know a lot of Canadian households there's one income earner and you know you got one big RRSP and the other person has none and you haven't really planned ahead and it's like well I'm going to retire early. Okay. But you have a very lopsided tax bill because you can only income split uh certain incomes at certain ages. So um super helpful but make sure you plan ahead for it too. — Yeah. And we will sometimes see that with spousal RSPs where people they've planned ahead far enough to contribute to a spousal RSP, but they haven't planned far enough ahead of the retirement date because there is that three-year income attribution rule. So if the spouse who owns the spousal RRSP, so not the contributing spouse, but the lower income spouse, uh if they have that spousal RSP, say the three years has passed even, but um the they're under 65, there's still no opportunity to income split. So, if you can't start drawing out from that spousal RRSP because it's been within 3 years that the last contributions have been made, then you could still find yourself in a situation where the higher earning spouse uh is taking on the brunt of the income taxes because it's just not possible to split it without either triggering the income attribution um or uh or just not having that income at all for the spouse who's got the spousal RSP. — Yeah. And that's why we always say like, you know, you want to get a plan 5 to 10 years before you retire. like there's that runway and it's not just confirming can I retire how much blah blah but it's have you structured stuff in the right way like that's you know that's really important uh next question here

one thing at least that I don't understand if I die why do I need insurance to cover my debt will not pass to my kids will it uh yeah it will it goes into your state and definitely CRA or any person that you're indebted to could come after your estate and we've seen it there's case law around it in Canada here where yeah I mean debt has had to been paid by kids. So let's say you know my dad passes away and he was in a bad financial position and left some debt for me and my two brothers uh that debt would fall onto us. Now again we could fight it etc. But the reality is it does fall onto us. So yeah, if you're someone that has debt later in life, you made some bad choices uh and you're still insurable, it might not be a bad idea. — Yeah, it does fall onto us one way or the other, right? So it might not, you know, if my father signs up for a credit card, runs up a bill, you know, I didn't sign for that credit card, so that debt doesn't come to me, but the credit card company still has a claim on the assets in his estate. Okay? So that's where it's, you know, one way or another, I'm helping to pay for it because I'm not getting that money back through the estate. Um, so that's exactly it. It falls one way or the other. Um the only one that you know maybe you could say argue doesn't would be secured debt because that follows the asset not the person. Okay. So um technically speaking you know if you die with a mortgage the kid doesn't have to repay the mortgage. The asset has So whoever takes ownership has that mortgage debt that's still hanging over them. — Yeah. which if you bought a house a few years ago, um you may be underwater and you may be your mortgage might be higher than the actual value of your portfol or your uh your real estate. So yeah, and that's why it's important as you have aging parents, keep an eye on them like you know where are they spending money. I remember my great-grandpa this is years and years ago when he passed away he had like 50 subscriptions to magazines because someone had got a hold of him and just sold him every magazine under the sun. And uh it was not until shortly after he passed away that you know we realized it and so you know he had all these magazines and didn't read any of them of course but he was paying thousands of dollars for these magazines. So keep an eye on your elderly parents. Um you know they're prayed on a lot and uh you know there's a lot of financial scams out there. So it's a good reminder. keep an eye on them for sure because you don't want to take on that debt or part of your inheritance is being kind of you know lost because of uh of that as well. So — yeah. So yeah, it comes down to as the parent, the person who is we're projecting to die with this debt. Uh you know, what kind of feeling do you want to leave the family with after you're gone? You know, you could take care of it. Either pay it off while you're alive now, buy some insurance, it's going to pay it off. Um or maybe the insurance doesn't pay it off. The insurance goes to the kids because that bypasses probate. That's taxree. So the insurance benefits go to the kids and whatever is in the estate pays the debt. Yeah, exactly.

exactly. — Uh, great content. Thank you for that. I have a question around the cash wedge trigger. You say, "Don't sell at a loss, but you did not define what a loss is. For example, if I've owned an all market ETF for years and I'm up over 40%, but it tanks with the market and I'm only up 20% now. Do you consider selling that at a profit still? In my mind, I look at the aggregate and see the 20% drop in stock assets and would consider deploying my cash wedge regardless of the individual position. But what's your opinion? Um, we even on our planning team have multiple opinions about this. Uh, it comes down to a few things. You know, individual risk tolerances, personal investing biases. I know I've heard you, Adam, in a previous video say if it's down period from like yesterday, I'm not selling that asset. Uh, me personally, I'm more of a like year-to- date 12 month kind of guy. Um, you know, looking at the way things are as of today, if I sold something today, I'm selling it for what it was worth in December. I'm okay with that. You know, it's personal preference. Um, but really, you know, do you want to have to, you know, if you've built up that cash wedge, do I want to have to sell it at a 20% drop now just because, you know, even if especially if I've got the fixed income or cash assets sitting there that I can utilize instead, or do I just let this play out and then sell it later on to top up my cash wedge later on again? Right? That's it might be the more comforting way, let's say, of dealing with it. — Yeah, I' I'd agree. Like in this like if you go for 40% up, yeah, you're still up, but you're down 20%. Like this is where the cash wedge and yeah, I mean maybe if it's just down in a day, I don't jump into it. But definitely once we hit 3 5% down, it's like, okay, I'm dipping into my cash wedge. So it could be a short-term thing. And again, like you said, Gord, everyone's a little bit. What's your comfort level, right? The key is to have the cash wedge and then based on your comfort level is okay, yeah, we've hit the trigger of I'm down 3% or 5% or year to date or a one-year period, whatever that number is, I'm down and I'm going to start using my cash wedge and then I'll I'll, you know, once the market comes back up, then I'll uh replenish that cash wedge. So, there's no specific number. I think more comes down. But, I think this is an extreme like he's down 20%. Like that that's a big drop. Like, definitely you're dipping into your cash wedge. Like, yeah, you're up, but you should be up. like that's compound interest over time or compound growth over time. Like you should be up on your investments, but you are down 20% shortterm. Um cash wedges and this is exactly why you have a cash wedge. Like this case scenario right here is exactly why you need a cash wedge. — Yeah. And if I mean the reason why we will usually recommend somewhere between like three and five years for the cash wedge is because if you pull the lens back far enough off of the markets you know a 36-month period is typically enough time for any of those dips to come back at least to par if not more. You know there's a couple of instances the 30s where it took a little bit longer. Um, but for the most part, you give yourself that three-year buffer in the cash wedge for exactly that reason because historically speaking, over the next three years, whatever dip we're going through is going to have resolved itself. — Yeah, absolutely. Perfect. Let's jump into what we learned. We got Peter from our team uh talking about old age security and some of the changes that potentially are coming down the pipeline. All right, what we learned

this week, we got Peter from our team. Peter's been with us for a while now. based out of Quebec. So, we do have planners uh in Quebec and a lot of you have actually requested to work with Peter out of Quebec. So, that's fantastic. But uh yeah, Peter, maybe share with us what you learned this week. — Yeah. Thanks, Adam. Happy to be on and thanks for spreading the word about Quebec. We're on the map, right? — Yeah. — So, yeah, what uh what did I learn this week? I've learned a lot this week about, you know, uh how some of this uh some of this talk around OAS is impacting a lot of our clients. As you know, many of our clients just contact us just prior to uh retirement. So, they've been sort of banking on this idea of old age security for uh for a while now. There's been uh some articles on the news regarding a think tank based out of BC uh that's been talking about, you know, some ways that program might be reorganized. That's creating a little bit of anxiety with some of our clients. So, I guess what I learned this week is just, you know, how wide that spectrum of, you know, from people that don't care at all about it to other people that are really concerned about potentially losing out on old age security. So, I'd say that's the biggest thing that I learned uh during the week. And uh just a couple of facts I I think would be interesting to our viewers just to understand a little bit more about the program and maybe why this is a big deal, why changing old age security could potentially be a big deal uh for retirees. So one of the things that I did Adam was, you know, when I first heard about this uh this idea uh coming out of the think tank is I did a present value calculation to see, you know, first of all, how much are we talking about? How much is this benefit really worth if I took it all as a lump sum present value today? And you know based on my math and I use medium life uh medium life expectancy and I used the government of Canada real uh return bond yield as a discounting factor. Uh it turns out that OAS is worth about $180,000 in present value terms. Right? And since that amount is a taxable amount that would be roughly equivalent to $180,000 in your RRSP, right? So you can understand right 180,000 even if you have a large RRSP that's a significant you know amount of money and even if you're a higher income earner that you know that you would be — everyone wants 180 grand — exactly right you would want it right — uh you know if your portfolio is worth a million dollars that's 18% of its value if it's worth 1. 8 million that's 10%. If it's worth 900,000 then you're looking at 20%. So it's it's a significant number. The second reason I think that, you know, this rubs people uh a little bit the wrong way is that if you really think about what old age security is, it's a an annuity that lasts your entire life and it's indexed to inflation, right? — And that's kind of a rare uh item to have in uh in retirement. You can go and purchase that from an insurance company, but it's super expensive uh to purchase. said uh in reality many people resist the idea of buying uh an annuity with a lump sum. So the idea that it's there, the idea that it hedges longevity risk, uh it hedges inflation risk, it there's not many things that can really do that really well. Uh that's also a concern for for a lot of people, right? And then there's this idea that you know how is this program really funded, right? So, you know, if I go back to uh to what they were saying for that think tank um and this is not intended to be political in any way uh at all, but what they're saying is then we can you know scale back the benefits at the higher end and maybe fund uh benefits or enhance benefits at uh at the lower income thresholds. And I guess some of the push back that I've been getting from some of our higher income earning clients is that look, you know, the way this program is funded is from the, you know, the general tax uh revenue fund, which means that highinccome earners have paid more into the program over the years and now they're being told that uh they potentially uh won't it won't be there for them or there will be less there for them uh than they previously thought. Right? So uh for all these reasons this is something that is a bit concerning. What I like to uh to mention I think that's important is what we can do is focus on the things that are in our control right we can't dictate government policy the government's always looking at this kind of stuff but what we can do is we can plan for it and so one of the ideas that sort of emerged from our planner meetings is this idea let's run a scenario where those benefits are reduced to give our clients the peace of mind that even if uh these uh benefits are scaled back that they're probably still going to be okay because in most instances they'll still be okay. — Yeah. No, absolutely. And the conversation there has really been and before so years ago I think it was 2015 I could be wrong on the date but um old age security was kind of bumped from 65 start date to 67. Now that's obviously been pulled back 65 for many years now. The latest conversation like you talked about is more around uh clawback or pension recovery tax being at a young or at a lower threshold. So right now it's about $94,000. um they're talking about scaling that back to 60, 70, whatever it is. So, you know, you don't need as much income to get that pension recovery tax kick in. So, again, yeah, it hurts the higher income earners and I think it's a valid point, right? Higher income earners pay more into it. Is it becoming more like a not a welfare system process, but it probably leans more that way maybe going forward? — Yeah. No, very good points. And you're absolutely right about the Harper government having extended the age to 67 and then it being sort of scaled back to 65 again. Uh but that just shows you that OAS has been on the political agenda for some time now. Um I think that uh something like uh cutting benefits to higher income earners is probably politically more palatable than the idea of you know increasing the uh the age from 65 to 67. I don't think that's going to be very uh popular uh politically — but yeah know it's an interesting point and of course we also saw you know on the other side we saw the Trudeau government actually enhance benefits after age 75 right with that 10% — uh bump. So this is an important political item. Um and I wouldn't be surprised if we uh we see more conversation about this. — No, absolutely. And like you said, we've talked about it as a planner team and we said, look, for clients that are worried about it, let's just run old age security at 50% or 75 is as if they were getting clawed back in essence and just see are they going to be okay still, right? So that that's a good way to uh to run about it. So uh tip of the week

this week, Gourd, uh talking about not downsizing but upsizing your house. So we'll love to see this discussed in one of your videos. What are your views and experiences in dealing with retiring couples who are sort of doing the opposite of downsizing and moving to an area where housing is more expensive, such as from Alberta to Vancouver Island, which we've had a lot of clients do that. So, it might not be upsizing, but at least price-wise upsizing going into maybe you're moving closer to kids or whatever it is. So, um yeah, Gordy, you've had this actually come up in a few plans recently, so let jump into it. — Yeah, three actually in the last month and two are going to Vancouver Island, so it must be a happening spot out there. Um, everyone likes it. Uh, and then the third one was actually really interesting. Their goal is not so much uh upsizing because, you know, they want to move locations. Their goal is upsizing because they're kind of the hub for the family. So, when they have family gatherings and things like that, it all comes to their house and they want to upsize so that as their family grows with kids getting married and grandkids and things like that, they can house more people altogether. you know, elderly parents, they can bring them in. There's not, you know, this dance around that. So, that I thought that was really interesting. — Upsizing versus down, I mean, upsizing your home in retirement is just another retirement goal. And we plan around it just like we plan around with any goal. We have a lot of people who want to plan for home renovations during retirement. Kind of along the same vein, you know, whether you're renovating the existing home or you're not going to renovate this home, you're going to use that money and put it into a higher purchase price on a new home. Same idea. We run the numbers. We see if that plan works out for you and what the effect is short-term, long term. — Yeah. — And then we also have the conversation if you're upsizing now, does that mean that you need to downsize sometime in the future as well? Sometimes it's a two-sided coin, right? We're going to upsize now, but then in 15 20 years we want to downsize again because that's we're going to be older. That's going to be too much house for us. And so we can work both of those in, but you got to run the numbers. You got to do the plan. — Yeah. And the downsides might be later on might be required just from a cash flow perspective as well. So, and upsizing like there's, you know, this is a small handful, but I've done few videos around this or mentioned it where upsizing makes sense like we talked about earlier, right? You have your TFA like how do you want to grow money taxree in Canada? Taxfree savings account and your principal residence. So, if you're at a point where it's like, yeah, I got a big inheritance and I don't need it and maybe you don't have kids or you don't need up whatever it is that non-register becomes a tax burden. Like, does it make sense to actually let's upsize the house, take that like hopefully markets continue to grow in real estate grows over time. It's a place to shelter, right? My wife and I do that. We're, you know, we're finishing off in a house right now that we're upsizing essentially now while our kids are getting older and, you know, the plan is longterm though, like if our kids get married, have grandkids, etc. is something the house, but it is a place to kind of shelter that asset taxree. And I know there's already people commenting down below that, you know, taxfree homes aren't going to be forever here in Canada. Maybe not. Uh there's lower hanging fruit to go after for sure. Um but for now, they are. And that's what we have to plan around. kind of goes back to the very first comment today, Gourd of like we have to plan for the world that we live in right now. Um, we have to use assumptions, etc. And, you know, right now homes in Canada taxfree. So, we'll take it while it's here. — Yeah. And my clients can tell you like every time we talk about the principal residence exemption, I always include the line if the rules remain the same. — Yeah, exactly. Yeah. Never know. So, Peric, well, thanks for joining us in this episode. It's great having you on and we'll do it again soon. — Thanks, Adam. — All right. Bye. Thanks for joining us on this week's episode of Retirement Unpacked. If you found today's conversation helpful, don't forget to subscribe so you don't miss next week's episode. And remember, the ideas we talk about are general in nature. They may not fit your personal situation. Always consult a qualified financial planner before making decisions about your retirement. Take care and we'll see you next