Published on 15 Mar 2017
This week, James & Antony discuss the case of Connecticut’s budget shortfall. The state hopes to solve their financial problems by raiding the retirement accounts of previous Connecticut government employees who have moved out of the state, and take 30% of those savings. This plan would hurt retirees, break promises, and trap many people in the state based on a policy that may be illegal.
March 16, 2017
February 24, 2017
Hey guys! I just bought marijuana for the very first time!
A thousand shares of a legal marijuana grower called Aphria, Inc. I am so conflicted — I don’t know whether I should feel counter-cultural or conformist…
I sold my last remaining Blackberry shares to cover most of the cost of the purchase, which (given Blackberry’s shrinking technological niche) was a bit of a relief.
Legal notice: Nothing in the above post should be considered in any way to be professional financial investment advice.
March 11, 2015
March 5, 2015
At Worthwhile Canadian Initiative, Livio Di Matteo talks about tax free savings accounts (TFSAs), registered retirement savings plans (RRSPs), and why some people are getting upset that some Canadians benefit more from these financial tools than others do:
A major theme running under most of these arguments goes something like this — Registered Retirement Savings Plans (RRSPs) at least leave “a legacy of tax revenue to future governments” whereas TFSAs may generate “supernormal” returns that will escape taxation and on top of it will accrue primarily to the well-off.
However, when I think of RRSPs and TFSAs, I see them both as essentially the same. They are both “tax expenditures” that are designed to encourage saving by promising some type of tax incentive. The broader debate should really be about how we want to encourage more saving and then about “tax expenditures” in general rather than how much we should allow as limits to either RRSP or TFSA contributions.
However, if we are going to argue about RRSPs and TFSAs, to my mind what differs is the timing of the break. For an RRSP, you are getting the tax incentive upfront and deferring the taxes until you withdraw the money. For a TFSA, you are making the contribution with after tax dollars and allowing the contribution to accumulate tax free — the tax benefit comes down the road as the money grows.
Young households with children who face more cash constraints might find the RRSP more attractive while older households would probably find the TFSA more attractive. All other things given, both vehicles are of greater advantage to higher rather than low income earners because higher incomes are more likely to be able to save — period. If you are going to make the argument that TFSAs are somehow favouring the wealthy or higher income earners, you need to acknowledge that the same argument applies to RRSPs.
Update, 7 March: It kinda helps when I remember to include the correct link to an article…
January 6, 2015
Another example of unexpected consequences, this time from Frances Woolley at Worthwhile Canadian Initiative, who says we need to beware of middle-aged men waving feminist flags:
On December 12, 2006, Ontario ended “mandatory retirement.” As of that date, employers could no longer base termination decisions on an employee’s age. Ontario was following the lead of Quebec and Manitoba, which stopped having a standard retirement age in the early 1980s. Within a couple of years, mandatory retirement had effectively ended right across the country.
Fast forward to 2014. The first Ontario professors to elude retirement are now collecting their pensions. Yup, Canada Revenue Agency requires people to begin drawing their pensions at age 71, regardless of employment status. The average salary of a full professor in Ontario is around $150,000 per year […], and university pension plans are generally fairly generous. So a typical professor working full-time into his 70s will have a combined pension plus salary income of at least $200,000 a year, often more. No wonder professors 65 and older outnumber the under 35s […]. Who would willingly give up a nice office, the freedoms of academia, and a quarter million dollars or so a year?
Now if the professors fighting to eliminate the standard retirement age had said, “we have a very pleasant lifestyle and we’d like to hang onto it, thank you very much,” I could have respected their honesty, if nothing else. But instead, they draped themselves in the feminist flag. A standard retirement age of 65 was wrong because it hurt women. Thomas Klassen and David Macgregor, writing in the CAUT (Canadian Association of University Teachers) Bulletin, challenged ageism in academy on the grounds that “Mandatory retirement at an arbitrary age is devastating for female faculty who often began their careers later than males and may have had interruptions to raise children.”
Two thirds of university teachers between 65 and 69 are men […], as are three quarters of those over the age of 70. This is not simply a reflection of an academy that, 20 or 30 or 40 years ago, when these folks were hired, favoured men over women. Let’s rewind five years, to when the people who are now 65 to 69 were 60 to 64. This is more or less the same group of people, just at two different points in time.
In 2005-6, just before the standard retirement age ended, 65 percent of academics aged 60 to 64 were male […].
In 2010-11, when that same cohort of people were 65-69, 68 percent of those working as university teachers were male. There is hardly any hiring of individuals into university teaching in that age group. The only plausible explanation of the three percentage point increase in the proportion of men in the academia is that more women than men retired in that cohort.
The PhD students in the pipeline are 47 percent female […], as are 46 percent of Canadian assistant professors […]. Just 23 percent of full professors, however, are women. Replacing over 65 full professors with PhD students would result in a more gender-balanced academy.
I’m not trying to argue that we should reintroduce mandatory retirement in order to achieve greater gender balance. I am merely pointing out that who thought the end of mandatory retirement would disproportionately benefit women and promote gender equity were mistaken.
August 17, 2014
Of the many problems discussed and solved in this work, it is proper that the question of retirement should be left to the last. It has been the subject of many commissions of inquiry but the evidence heard has always been hopelessly conflicting and the final recommendations muddled, inconclusive, and vague. Ages of compulsory retirement are fixed at points varying from 55 to 75, all being equally arbitrary and unscientific. Whatever age has been decreed by accident and custom can be defended by the same argument. Where the retirement age is fixed at 65 the defenders of this system will always have found, by experience, that the mental powers and energy show signs of flagging at the age of 62. This would be a most useful conclusion to have reached had not a different phenomenon been observed in organizations where the age of retirement has been fixed at 60. There, we are told, people are found to lose their grip, in some degree, at the age of 57. As against that, men whose retiring age is 55 are known to be past their best at 52. It would seem, in short, that efficiency declines at the age of R minus 3, irrespective of the age at which R has been fixed. This is an interesting fact in itself but not directly helpful when it comes to deciding what the R age is to be.
C. Northcote Parkinson, “Pension Point, Or The Age Of Retirement”, Parkinson’s Law (and other studies in administration), 1957.
May 10, 2013
An interesting report from the Harvard Gazette on some research into a possibility of reducing some of the effects of aging, specifically aging of the heart:
Two Harvard Stem Cell Institute (HSCI) researchers — a stem cell biologist and a practicing cardiologist at Brigham and Women’s Hospital — have identified a protein in the blood of mice and humans that may prove to be the first effective treatment for the form of age-related heart failure that affects millions of Americans.
When the protein, called GDF-11, was injected into old mice, which develop thickened heart walls in a manner similar to aging humans, the hearts were reduced in size and thickness, resembling the healthy hearts of younger mice.
Even more important than the implications for the treatment of diastolic heart failure, the finding by Richard T. Lee, a Harvard Medical School professor at the hospital, and Amy Wagers, a professor in Harvard’s Department of Stem Cell and Regenerative Biology, ultimately may rewrite our understanding of aging.
Research of this type may be very important as the baby boomer generation enters retirement age … not necessarily to extend total lifespan, but to increase the chances for healthy activity longer into our existing lifespan. Few of us would want to live to 100 if the last 20 years are pain-wracked, immobile, and inactive … but being able to live that long and managing to keep doing the things we like to do for most of that time? That’d be much more appealing to many of us.
April 25, 2013
We all know the NFL is in serious trouble as more evidence comes out about the relationship between playing professional football and brain damage in later life. But what we know may not be true:
Dr. Everett Lehman, part of a team of government scientists who studied mortality rates for NFL retirees at the behest of the players’ union, discovered that the pros live longer than their male counterparts outside of the NFL. The scientists looked at more than 3,000 pension-vested NFL retirees and expected 625 deaths. They found only 334. “There has been this perception over a number of years of people dying at 55 on the average,” Dr. Lehman told me. “It’s just based on a faulty understanding of statistics.”
The scientists also learned that, contrary to conventional wisdom, NFL players commit suicide at a dramatically lower rate than the general male population. The suicides of Junior Seau, Dave Duerson, and Andre Waters don’t represent a trend but outliers that attract massive attention, and thereby massively distort the public’s perception. More typical was the death of Pat Summerall, who passed away quietly last week at 82 after a productive post-career career.
Indeed, a 2009 study by University of Michigan researchers reported that NFL retirees are far more likely to own a home, possess a college degree, and enjoy health insurance than their peers who never played in the league. The myth of the broke and broken-down athlete is just that: a myth. A few surely struggle after competition ceases; most apply their competitive natures to new endeavors.
It’s true that skill-position players on rosters for five or more years in the NFL faced elevated levels of Alzheimer’s, Lou Gehrig’s, and Parkinson’s disease deaths. But some perspective is in order. Of the 3,439 retired athletes studied by Lehman’s group, less than a dozen succumbed to deaths directly attributable to these neurodegenerative killers. Had Parkinson’s killed one rather than the two retirees it did kill, for example, its rate would have been lower among players than among the general population.
It’s quite possible the NFL is concerned (and ensuring that it is seen to be concerned) primarily because of the need to address public perceptions, rather than as a defensive move against future or ongoing legal challenges.
March 24, 2013
In the Telegraph, Colin Freeman looks at how the banking crisis is impacting ordinary Cypriots and retired EU citizens in Cyprus:
Last weekend, the small Mediterranean island was plunged into the epicentre of the eurozone crisis when Brussels finance chiefs, led by Germany, demanded a levy of up to ten per cent of savers’ deposits in return for a 10bn euro bail-out of the country’s ailing banks. The move left many of Cyprus’s 60,000-strong British community facing heavy losses on retirement nest eggs — and as the week rolled on, that looked like being just the least of their worries.
On Thursday, unhappy at the Cypriot parliament’s rejection of the deal, Europe’s Central Bank then threatened to cut financial life support for the island altogether, a move that would have led to its banking sector collapsing, and savers losing not just a percentage of their money, but all of it. It was only thanks to a last-minute agreement hammered out on Friday night, which is expected to restructure the country’s banks and restrict the levy to deposits of more than 100,000 euros, that all-out chaos was averted. For now, anyway.
[. . .]
Since last weekend, when all of Cyprus’s banks were shut to stop a run on withdrawals, work has ground to a halt, as the repair man has been unable to buy in the materials he needs from suppliers, who are all now demanding cash. The job symbolises the malaise of the wider Cypriot economy, built on shaky foundations, and now in a state of paralysis, with thousands of shops, businesses and restaurants unable to operate properly because of the financial uncertainty.
“None of my food and drink suppliers are taking bank payments any more,” said Yiota Vrasida, 43, who owns a café in the winding streets of the capital, Nicosia. “We can keep going until this weekend, but that is about it.”
[. . .]
“Nobody will want to leave so much as 10 euros in any Cypriot bank any more,” said Dino Karambalis, 49, an IT worker, standing at the end of a 30-people-long queue at the Laiki Bank, where he had 90,000 euros in savings. “They say this levy is only for Cyprus, but why should anyone believe that? This is undermining confidence in the euro as a whole, and in the whole EU project itself. I was pro-European before, but not now.”
This weekend, the Cypriot parliament sought to reassure smaller savers, saying those with less than 100,000 euros would face at most a levy of less than one percent. State television also talked of a one-time charge of up to 25 percent on savings of over 100,000 euros held at the Bank of Cyprus. With that in mind, capital controls will be imposed to stop a run on the banks when they reopen next week.
But whatever new measures come in, some damage has already been done by declaring savers’ accounts to be fair game in the first place. Britain’s Business Secretary, Vince Cable, warned on Friday that it could lead Northern Rock-style runs on banks all over the eurozone in future.
January 28, 2013
January 16, 2013
When you draw it down long before retirement to pay ordinary living expenses:
This trend has been in place since the financial crisis, but the fact that it is accelerating is extremely disconcerting. First off, this is not the kind of behavior that should be witnessed in an “economic recovery.” Second, we need to remember the huge percentage of Americans on food stamps and/or disability. As we have discussed previously, many of them also have jobs. So essentially, a wage and a check from the government is still not enough to survive. They still need to tap into a loan from their 401k plans.
From the Washington Post:
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
[. . .]
“We’re going from bad to worse,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Already, fewer private-sector workers have access to stable pension plans. And the savings in individual retirement savings accounts like 401(k) plans — which already are severely underfunded — continue to leak out at a high rate.”
A report due out this week from the financial advisory firm HelloWallet found that more than one in four workers dip into retirement funds to pay their mortgages, credit card debt or other bills. Those in their 40s have been the most likely culprits — one-third are turning to such accounts for relief.
December 18, 2012
Andrew Coyne briefly praises the CPP before advancing a plan to (eventually) supplant it entirely:
By most measures, Canada’s retirement income support system is an outstanding success. The poverty rate for Canadian seniors, with just 4.4% living below half the median income, is among the lowest in the world. The Canada Pension Plan, once careening towards insolvency, is now on a sounder footing. Millions of Canadians contribute to their Registered Retirement Savings Plans every year, with a view to replacing more of their income than the 25% covered by the CPP; Tax-Free Savings Accounts are a fast-growing alternative. For most people, then, the pension system works well. There is no evidence of a generalized pension “crisis.”
[. . .]
Suppose an additional levy were tacked onto CPP premiums. Only instead of going into the regular CPP pot, the funds would accumulate in the contributor’s own personal fund — like an RRSP, only compulsory. To avoid wasting money on management fees, funds would be invested strictly passively (ie buying the indexes), with the particular asset mix varying as the investor aged: more stocks when younger, more bonds when older.
Any increase in benefits would thus have to be fully funded; at the same time, since legal title to the funds would rest with the contributor, there would be no way politicians could raid the kitty. Moreover, with such a direct link between contributions and the size of their nest egg, contributors would be less likely to see the rise in premiums as a tax increase, and more as savings, mitigating labour market effects, at least on the supply side.
On its own, this would be vastly preferable to CPP expansion. If we liked the results, we might even think of going further. Over time, one could imagine migrating more and more of the regular CPP over to these mandatory personal accounts, allowing the CPP fund to be slowly wound down. Rather than simply expanding the CPP, the challenge of population aging presents an opportunity to reform it.
October 16, 2012
Depending on where you draw the demographic line, I’m either a (very) late Baby Boomer or an early arrival from the next generation. I “get” the anger that some younger folks feel about the BB’s, because I came along too late to benefit in the same way that the early boomers did:
But, have baby-boomers really enjoyed a cozy ride through life? The truly lucky were their parents, who worked in the post-Second World War “Golden Age” of low unemployment, rapidly rising real wages, rising house prices, and expanding public and private pension plans.
The postwar boom was petering out by the late 1970s and early 1980s, just as many baby boomers were entering the job market. The 1980s and 1990s were marked by two severe recessions, and by an increase in jobs which often did not provide steady wages or a decent pension.
The unemployment rate for the baby-boomers, then mainly in their early thirties (age 30-34), was more than 10 per cent from 1983 to 1985, and over 8 per cent for the boomers in their late thirties during the recession years of 1992 to 1994.
Many baby-boomers never managed to find the secure and well-paid jobs characteristic of the 1960s and 1970s that lay the basis for a decent retirement. A recent study by former Statscan assistant chief statistician Michael Wolfson found that one-in-four middle-income baby boomers face at least a 25 per cent fall in their standard of living in retirement. (He looked at persons born between 1945 and 1970, and earning between $35,000 and $80,000 per year.)
The proportion of all persons age 65 to 70 who are still working bottomed out at 11 per cent in 2000 and is now 24 per cent, and about one half of persons aged 60 to 65 are still working today.
In my entire career, I’ve worked for only one company that provided a pension plan — and I was laid off before my contributions vested anyway. I don’t expect to ever voluntarily retire: I won’t be able to afford it. And I’m far from alone in that.
July 30, 2012
An interesting story in the Toronto Star:
After 40 years as a registered nurse, Yvonne Gardner never thought she’d have to beg to get her federal pension benefits.
For 14 months, the Toronto retiree has been struggling to prove to Service Canada that she’s eligible for the $500 monthly Old Age Security (OAS) pension.
In the latest twist, she was asked for copies of plane tickets for all of her travels in and out of Canada since moving here from England in 1975 — a mission impossible — as proof she has lived here the minimum 10 years required to qualify.
Deprived of the pension she was counting on, Gardner, a native of Suffolk, England, is 10 months behind in rent on her one-bedroom downtown apartment and faces eviction.
If this woman’s issue is typical, then I will probably also have problems claiming OAS, as my family came to Canada in 1967 and I know for certain that we did not retain any of our travel documents from that far distant time.
However, the story is in the Toronto Star, which certainly has been willing to creatively tell stories that make the government look bad in the past. Here’s a comment on the story that has to be a joke:
I have no idea why this person thinks the story has anything to do with Capitalism, but he or she is certain that the answer is Socialism. Doesn’t much matter what the question is, I guess.