This page has been archived and commenting is disabled.
Is 70 the New 65?
The Canadian Business Journal reports, Raise retirement to 67, think tank says:
A policy think tank believes increasing retirement eligibility by two years may fix an impending demographic crunch.
The Mowat Centre for Policy Innovation,
a think tank affiliated with the University of Toronto, published a
report today calling for a raise in eligibility ages for the Canadian
Pension Plan and Quebec Pension Plan from 65 to 67, and the earliest
ages from 60 to 62.
“By 2050, an age
increase would reduce CPP expenditures by about $15 billion per year
and increase contribution revenues by about $5 billion per year,” the
report said. “Increasing the eligibility ages is a fair solution for
financing the costs of population aging, because doing so divides these
costs across younger and older generations.”
The
report, Is 70 the New 65? Raising the Eligibility Age in the Canada
Pension Plan, was written by Martin Hering and Thomas R. Klassen,
compared Canada's situation to similar legislation enacted in Australia,
the United States and throughout Europe.
You can download the full report by clicking here.
Table 1 above shows that even though the retirement age increase would
be implemented gradually over a relatively long period of time, its
impact on the CPP’s finances would be significant after 2025:
Specifically,
policy makers could reduce the CPP’s minimum contribution rate (the
rate required to sustain the CPP), from the current 9.82 to 9.06 per
cent, without affecting benefit levels and while maintaining the
required size of assets.8 Alternatively, benefits could be increased
over time while maintaining current premium levels.
A
reduction of the minimum contribution rate from 9.82 to 9.06 per cent
would create a significant buffer between the minimum and the legislated
contribution rate. This would make it more likely that plausible
demographic and economic developments— such as a higher than expected
increase in life expectancy, a slower than expected growth of wages, or
lower than expected investment returns—would have a much smaller impact
on the sustainability of pension finances and would reduce the need for
significant policy shifts, including increased premiums or reduced
benefits.
The table also shows
that a gradual increase in retirement ages increases contributions and
decreases expenditures each year, so that by 2050 the CPP has $982
billion more in assets than otherwise would be the case. An important
measure of the CPP’s financial health is the assets in years of
expenditure: by 2050, the CPP would have assets of 11 years of
expenditure, and thus twice the legal minimum of 5.5 years. Put
differently, the plan’s funding would grow from about 25 per cent to
about 50 per cent of liabilities.
The
consequence is that an increase in eligibility age creates a cushion
for the CPP, allowing the existing contribution rate of 9.9 per cent to
remain unchanged if demographic and economic conditions were more
unfavourable than expected. In our projections, we assumed that
employees would delay their retirement by 2 years and used the same
assumptions regarding retirement rates that the Chief Actuary used in
the 2006 actuarial report on the CPP (see Appendix B). Specifically, we
expected that about 40 per cent of workers retire at the earliest
retirement age, about 30 per cent at the normal retirement age, about 20
per cent between the earliest and normal retirement ages, and less than
5 per cent after the normal retirement age.
The
assumption that a very high proportion of workers— about 40 per
cent—chooses to receive an actuarially reduced CPP benefit at the
earliest possible age primarily reflects the role of private
retirementincome sources, especially occupational pensions, in the
retirement decisions of individuals (Wannell 2007b, 2007a). The
assumption that Canadians would change their behaviour significantly and
delay their retirement by 2 years allows us to estimate the potential
size of the effect of a retirement age increase. If individuals did not
delay their retirement by as much as we assumed, the impact of an age
increase on the minimum contribution rate and on the level of funding
would be smaller than that shown in our estimates.
Even
though an increase of eligibility ages would certainly lead to savings
because individuals would have to postpone their receipt of CPP benefits
at least until age 62 and would receive reduced benefits if they
retired before age 67, it would not force them to wait until age 67. For
example, workers who plan to retire at age 65 could still do so if they
accept a permanent actuarial reduction of their pension by 14.4 per
cent. In this case, the retirement age increase from 65 to 67 would
reduce expenditures but would not increase contribution revenues.
The
study is interesting but increasing the retirement age to 67 will not
be easy. Also, I worry that if we do increase it to 67, then in a few
years, who is to say policymakers won't try to increase it again to 70?
Nevertheless, with people living longer and healthier lives, increasing
the retirement age may be an option worth exploring.
»
- advertisements -
Also note that this is NOT about the retirement age, but about when benefits kick in - a slight difference. It also rests on the assumption that people that age don't get laid off or forced out, and that they are still employable as something beyond Walmart greeters at that age.
My brother-in-law had trouble finding work in his profession after getting laid off at age 50. Fortunately he had enough skills acquired over the years to turn a former hobby into a business, though the money was still a lot less than his profession paid.
This reminds me of the Georage Carlin sketch from about five or six years ago - google the American Dream - where he warned that pensions would be the next thing those in The Big Club would go after as they wouldn't be satisfied until they had it all. He was right.
It's not just about social security and CPP though - I've known people who got screwed out of pensions they'd paid into for decades when the company they worked for went bankrupt. There was a case in Canada where the managers I believe were found liable for underfunding a company pension and I suspect we'll see similar lawsuits in the near future.
So how does increasing the retirement age work in a period of decreasing lifespan? It seems to me that if we are going to simultaneously (or shortly thereafter) cut medical benefits, increase insurance costs, etc. then this will necessarily contract the longevity of life as credit contracts. As the amount of resources piled into medicine is decreased (despite an increase in demand).
So, not only is there a proposal to raise retirement age, but there is also a proposal to reduce lifespan. Thanks guys. Again, stare at the magician's hands, not his assistant's sparkly tits (or, in this case, her mustache).
According to Krugman 2010, the reduction in life span thingy will be delegated to the govt Death Panels that Krugman 2009 said couldn't exist. Black pill=problem solved.
Why don't they just give us zip. Most of my generation will be room temp by 65 anyhow. What a joke when a ny cop gets 150k per year forever plus medical at 50.... Yep 50! Not Even the military come within 60% of that number
The Ponzi in Canada is more needy since Canada's demographics are much worse than in the US. D-E-M-O-G-R-A-P-H-I-C-S--very important to pension schemes, but I have never seen Leo mention it. Go figure!
i believe leo did a graph on it once but it doesn't set off the alarms that it should. garth turners 'greater fool' real estate blog and 'financial insights' both highlight it regularly. goldman sucks owns our central banker and the government . citizens have more personal debt than americans at their heyday. td bank is offering collateral loans of %125 of assessed home value. seems that the gobernment wants to keep parity with the greenback. they will succeed i'm afraid.
canadian re bubble popping. since most canadians have their wealth in real estate i think it is fair to say that their retirement bubble is also popping.
http://financialinsights.wordpress.com/2010/11/17/olympic-village-in-receivership/
Yeah 2 years is not going to solve the problem. They need to get more aggressive . . . something like: "Fuck You, what money? I don't see any money. You paid in for 40 years and planned on getting some back? You got an SS benefit statement in the mail with numbers on it? Whoopty do. You don't like it? Die now." You know, start the negotiation like you mean it.
Bastiat, it says right on the statement something to the effect that "This statement really doesn't mean anything, the law can be changed at any time." What I think will end up happening is that you will get the benefit that you were promised in nominal dollar amounts that will have been debased to the point of worthlessness.
Yep, that's what I expect. Although they may raise the age to add insult to injury--you know just to let people know they are not Goldman and they don't get 100 cents on the dollar--even 100 inflated cents.
I just did a quick calculation and I should be able to retire...
6 months after I'm dead
The real problem is the nature of 'work', its very essence, and why it causes such a negative reaction when it is even suggested that people work one year, two years, or 5 years more to reach 'retirement age'.
It's not for nothing that the allegorical curse of Adam and Eve was to be thrown out of Eden and forced to flip burgers for a living. Whoever wrote that story knew a thing or two about the horrid nature of work.
The better answer might be found in asking the question: Why do so many (my father was one) voluntarily continue to work when they don't have to?
What is it in the nature of the work that some are bereft when they are not permitted to work or forced to retire, and others, the majority apparently hate their work so much they simply put in their time counting the days till they can escape the workplace?
Why are so many jobs so damned fucked up that they must be fled from at age 50?
Solve that and at least one problem would be dispensed with.
Creating, of course, or exacerbating the other problem: There isn't enough work being created in places like Greece, the disUnited States, European countries, and everywhere else, for the people TO DO, so they have to retire those who are working to make way for those who are reaching working age.
We have a chronic worldwide problem of too many people chasing too few well paid, meaningful jobs.
It looks from here that what the world needs is 1) a departure from the wage/slave mentality that now describes the everyday workworld for most people, 2) a better matching system of people's natural talents and energies to the work available and 3) many entrepeneurs to create the companies that will employ many hundreds of millions of workers.
Many of our sociological, cultural, and economic dilemnas would begin to diminish if we could ever develop more Apple, Googles, and FedExes.
Progress reduces jobs and replaces them with entertainment, just like phone answering systems.
I submit that 99.9% of the world's problems have something to do with "too many people" one way or another.
The retirement age is going up in europe already.
In Greece they just raised the retirement age from 48 to 50 if you are are in a special job category. Bad shit.
My friends who work for the Canadian government will get full pensions by their early 50's. I think it's 30 years of work to max it out. Great benefit package too. Makes me sometimes wonder why I try.
For the Canadian military it's 25 year for full pension. I know shitloads of ex-majors that retired at 47 with 80k pensions and then in the same year go back to work as consultants making 500-700 a day.
The endless fucking double dipping of the useless civil servant.
+1000000000000000
It's also crazy how the full pension is based on the income of the last few years too. I have a relative working one more year who can expect an additional $6-7K a year in retirement based on her recent new salary alone.
At the same time,raising the age for everyone else is absurd. If you were to go by recent job ads, everybody out of work and over 30 should just be 'sent to carousel'.
Ironically one relative of mine just died at age 70. It's been shown (somewhere official, cant' remember now) that the later after 62 someone retires, the less they live afterwards.
"A Canadian policy think tank believes increasing retirement eligibility by two years may fix an impending demographic crunch." Who the hell is paying them for that absolutely brilliant idea? Leo how much do they charge for 1hr of think-tanking? Can we join that TANK?
You've got to be fucking kidding me!
Postpone retirement benefits two fucking years when people are going to live to 100+?
What a joke. Only a FASB-endorsed bean counter would consider this sufficient.
Even with modern medicine, vanishingly few make it to 100. Shit, I bet most check out before 80.
Turd... what's going on with gold right now? Your thoughts would be appreciated!
AVP: Sorry that I've been more difficult to find lately. I was encouraged to start my own blog last week so I've been putting most of my commentary there. Please check it out. I'd love to hear your feedback.
www.tfmetalsreport.blogspot.com
AVP, what are yours?
Yep their predictions are based on made up future numbers ``best case scenario`` if wages increase, investment returns, inflation, ect... all best case scenario.
One of these is off, the whole thing collapses... which it will since wages will not increase much/fall... inflation will go through the roof... investment returns will not be there...
The whole thing is based on BS.
Prepare for cuts in benefits if not total bankruptcy of the entire pension system.
Leo,
This should tell you something.
The French have done it already.
It is wrong, immoral, and unjust to PROMISE someone for 30-40 years that you will pay them X amount at 65 if they only slave away for you; and to then go back on your word.
Those two years (65-67) may very well be the last two years of many of those people's lives, and of course, that is what the "cost savings" is about - to not have to pay people who kick off.
Breaking promises and the rule of law = CHAOS
Period.
Second !!
Let's start by reducing headcount in government by a flat 50%. Then we'll talk. How many wasted programs, pporly thought out expenditures, and excess compensation reside within the ranks of government. Let's start there first. Then we'll talk SS.
DollarDive,
Kudos on your note. We are still have a little war in Afganistan but other than the military, do not, at this time, have large obligations in the world. It is time to spend some of that DC money on education. The people coming into the system will be supporting us all in the future.
Time to cut government. In my travels, I conclude that Washington DC is now the wealthiest large city in the United States. And, as illustrated by the Michelle Rhee story, DC cannot effectively improve its educational standards.
Chaos? Please! One of my aunts just died--three days before her 66th birthday. She was in absolutely no physical condition to be a threat to anyone. There will be no riots of oldsters in the streets.
Given how the AMA and insurance companies profit from longer life in the USA, I must disagree with your actuarial of 65-67 being the end of people's lives, unless you are of color are there are statistics that prove that the average age is far shorter.
People live much longer now, because it is profitable to keep those with no eyesight and hearing alive--a living coma. I happen to know two 90+ year old people that want it over with. But despite their living wills they continue to get saved by some provision that was not covered. Grammy wants to go. It has finally gotten to a hospice situtation--about 10 years too late but she will be free at last soon.
So whatever you are trying to say about 65-67 is ignorant and seems to lack any real understanding of the plight of the elderly that are continuously resuscitated when their best interests are not concerned.
Period.
Hell's bells Howard,
I am 75 and while I retired at 65, I went back to work in a consutant job (with control of schedule) to avoid boredom. I am now 75 and not through yet thanks to modern medicine. Of course, if I had to stay at home with by bossy wife, I might decide I wanted to die.
Physical imparment is another matter, of course. When people become impared they (possibly even me) may feel differently.
Your thesis presumes that healthcare will be around during a severe contraction in the same capacity. It will not.
Meanwhile.
Instead of "progressing" solar technology we got a bunch of junk equities to perpetuate the LIE.
I'm not saying you couldn't make money on Chinese solar equities. But you Progressive dipshit dickheads sent the necessary R&D back a decade so you could masturbate to the Energy Unicorn.
READ MY LIPS: FAILURE.
Stay tuned for Green Waste Stocks...they'll be all the rage.
And Leo those solar stocks/picks got blowtorched again ...9%,5%,5% ....WTF Some down 20%-30% in 5-10 trading days.
Man. I hope you can take that blood off your tie ...
Solar? Where do I get a piece of that action...;-)
Action like this? http://finance.yahoo.com/news/Clouds-loom-over-solar-ibd-3767991673.html...
Good luck with that!
Credit Suisse's big hedge fund clients wanted to load up -- and they did on Wednesday.
And out on Friday the same week like any proper sane trader would do.
Besides who fucking cares about Credit Suisse, piece of shit, two bit side show company with inbred blue blood management. Correct me if I'm wrong but aren't they still heavily in the red with multi quarter billion dollar losses? In fact it's a company in the same dirty boat that put the economy in this shape.
Leo's building a solar ponzi...but he needs "others" to support him ;-)
Leo, you make me laugh. As a pension expert, you know expected rate of return, expected liabilities, discount rate. Yet you never, ever, discuss another solution that helps balance the equation. Reduced benefits. It's coming, you know. Get your head around it. Start writing about it.
GoldmanSux,
They are already using that technique on people with private pensions. It is called inflation. I have one pension granted in ~1972 during a functional group sale to another company. It was fixed at $238.78 to be started at age 65. It was generous because it was well earned and would easily cover all living costs (including car, eating out and housing payments) for 2-3 weeks of the month. You know what it covers now. Different consumables, of course, have different rates of inflation but it is safe to say that the Federal Reserve Note, has been depreciated by a factor of 10 since.
What "wealth" is really about is buying power. Inflation may be necessary for stability of government, (to satisify the masses getting a raise each year that they are doing better) but it is an additional tax on personal wealth.
I thought you were going to say something about life expectancy. I think a lot of Boomers are going ot be dead before they can collect, even if full benes kick in at 65. As a generation, they drank and smoked a ton.
It's a short story titled; SOCIAL SECURITY: IT"S A PONZI SCHEME. Any change to the level of benefits is tantamount to theft or can be regarded as a pay cut.
I've done a lot of studying and thinking on this subject.
According to my calculations, Canadians and Americans can both give all their retirees a handsome monthly stipend, free medical care, free food, free houses, and free trips to Disneyland if they raise the retirement age to 97.
But only if they started working at the age of 18.
College students for example will have to work another 4 years extra untill they are 101 years old.
And according to my calculations, the state would also be able to give EXTRA FREE BUSTICKETS once they pass the age of 105!!
GO RETIREES!!