Do you keep your money in the bank? Why?

We don't trust the stock market as Canadians. We are risk averse, meaning we don't want to lose our money. As a result of this fear,  we are holding on to our assets in cash. According to one story we have over 75 billion in excess cash. The investment community wants us to invest and the bankers want us to keep our money in the bank. 

Some economists suggest Canadians are sitting on $75 billion more in cash than they should be. Cash positions are close to $750 billion but that’s $75 billion more than normal because of “risk aversion” that is abnormally high.

We did this before back in 1987 after the stock crash, cash positions of Canadian households jumped by 20 per cent. After the 2001 correction and the great recession in 2008, cash positions jumped by 30 percent. We don't trust the stock market as much as we trust banks. The reason is that Canadian banks do not fail easily and we are naturally conservative people when it comes to our money.

In 1997 investors added to their cash positions for 18 months while the market gained 20 per cent. In 2001, The same thing happened as investors missed out on the 2003 bull market. This time out, the economists argue many investors will miss the boat again.

The problem with keeping our money in the bank is that we lose capital every year. When we look at how much we are earning in the bank we forget to calculate the rate of inflation. We may get 2% on our savings at the bank, but inflation is at 2.5% so we lose .5% of our capital every year. The loss is subtle and not as dramatic as losing on the stock market, but we are still losing money.

Here is an idea, educate yourself. Whether it’s risk-aversion or analysis paralysis, you need to take action and get your retirement savings working for you. Speak with a financial planner who can help you make sense of your investment choices and risk tolerance. Read books, blogs, and magazines to try and educate yourself about investing and how to build a portfolio.

A good place to start is to look at model portfolios and find one that is suited for your risk tolerance. 

When Death comes...

A friend of mine is 81 and we were talking about health issues and I hope to be in as good a shape as he is when I am his age. Death is a fact of life that we do not talk about very much, except at a Celebration of Life event. I came across a poem which spoke to me and it was by a poet named Mary Oliver. 

I found out that she was a celebrated poet and she died January 17, 2019, at the age of 83. Before you read the poem here is some information on her. She was a winner of the Pulitzer Prize, wrote rapturous odes to nature and animal life that brought her critical acclaim and popular affection.

She won the Pulitzer in 1984 for American Primitive and the National Book Award in 1992 for New and Selected Poems. In 1998, she received the Lannan Literary Award for lifetime achievement. Her fans ranged from fellow poets Stanley Kunitz and Rita Dove to Hillary Clinton and Laura Bush. She wrote often of mortality, but with a spirit of gratitude and completion. In Circles, she pronounced herself “content” not to live forever, having been “filled” by what she saw and believed. In When Death Comes, she hoped that at the end of life she could look back and see herself as a “bride married to amazement".

I suspect everyone's experience or thinking of their own mortality is different; informed by who they are and where they are in their lives. But this poem, written by Mary Oliver, who died from lymphoma, is an interesting take on death.

When Death Comes
When death comes
like the hungry bear in autumn;
when death comes and takes all the bright coins from his purse
to buy me, and snaps the purse shut;
when death comes
like the measle-pox;

when death comes
like an iceberg between the shoulder blades,
I want to step through the door full of curiosity, wondering:
what is it going to be like, that cottage of darkness?

And therefore I look upon everything
as a brotherhood and a sisterhood,
and I look upon time as no more than an idea,
and I consider eternity as another possibility,

and I think of each life as a flower, as common
as a field daisy, and as singular,

and each name a comfortable music in the mouth,
tending, as all music does, toward silence,

and each body a lion of courage, and something
precious to the earth.

When it’s over, I want to say: all my life
I was a bride married to amazement.
I was the bridegroom, taking the world into my arms.

When it’s over, I don’t want to wonder
if I have made of my life something particular, and real.
I don’t want to find myself sighing and frightened,
or full of argument.

I don’t want to end up simply having visited this world

Ready for change?

Sometimes when you're ready for a change and you kind of know it but won't admit it, when it comes, not only are you surprised, but it hurts.

Yeah, I know that doesn't help much unless you remember the "ready" part. Because there is simply no change that might ever transpire in time and space that happens before you're fully able to use it for your own growth and glory. 

Love watching you create

Canada Pension Plan premiums are going up: is it a tax or an investment?

Two sides to the same coin. If you view the CPP as an investment in your retirement funds, you see the logic of the following argument. 
The last time CPP contributions were increased was 1997. During the entire seven years, the increase was phased in, employment rose and the economy steadily grew – and that time benefits to workers weren’t even increased. 

From 1997 until 2019, the CPP retirement pension replaced one-quarter of your average work earnings. This average is based on your work earnings, up to a maximum earnings limit each year. Other sources of income—such as the Old Age Security program, workplace pensions and private savings—make up the rest of your retirement income.

As of 2019, the Canada Pension Plan (CPP) is being gradually enhanced. This means you will receive higher benefits in exchange for making higher contributions. The CPP enhancement will only affect you if, as of 2019, you work and make contributions to the CPP.

The enhancement means that the CPP will begin to grow to replace one-third of the average work earnings you receive after 2019. The maximum limit used to determine your average work earnings will also gradually increase by 14% by 2025.

The maximum pensionable earnings under the Canada Pension Plan (CPP) for2019 will increase to $57,400 (from $55,900). The employee and employer contribution rates for 2019 will increase to 5.1% (up from 4.95%), and the self-employed contribution rate will increase to 10.2% (from 9.9%.

The enhancement increases the CPP retirement pension, post-retirement benefit, disability pension and survivor’s pension you may receive. Eligibility for CPP benefits is not affected. 

Your pension will increase based on how much and for how long you contribute to the enhanced CPP. The CPP enhancements will increase the maximum CPP retirement pension by up to 50% for those who make enhanced contributions for 40 years.

The enhancement also applies to the CPP post-retirement benefit. If you are receiving the CPP (or QPP) retirement pension and you continue to work and make CPP contributions in 2019 or later, your post-retirement benefits will be higher.

CPP contributions are not a tax. They are savings put aside in return for a pension benefit in retirement. They are an investment by workers and their employers into a pension plan that is safe and sound. The savings in the CPP will eventually be spent in 10, 20 and 30 years, and will help create jobs in the future.

Corporations have more than enough room to contribute to expanding the CPP, which will provide greater future retirement benefits for today’s workers. Companies outside the banking industry have seven times as much cash in the bank than they did last time CPP contributions were raised. Businesses’ income tax has also dropped 13 percentage points since the 1990s.

Increasing CPP premiums has never cost us jobs. In fact, people with better pensions will be able to spend more in their retirement – and that spending creates jobs. 

Small businesses know that CPP is the best value for their money with its low management costs, portability and security. As self-employed workers, owners are contributing and benefiting from CPP. Expanding the CPP gives small business owners the risk-free stability of a defined-contribution savings plan and a guaranteed defined-benefit pension plan for their workers. A poll of small businesses in Ontario showed that a majority of small and medium-sized businesses favoured an expanded CPP.

If you see the CPP increase as a Tax and believe that workers not society are responsble for saving for their own retirement without government help, then you will see the logic of the following argument:

One of the biggest challenges employers will face starting in 2019 is a multi-year schedule of Canada Pension Plan (CPP) increases, which will raise their payroll costs and leave them even less room to maneuver and make adjustments. Employees to face up to seven straight years of smaller paycheques, starting January 1.

With these hikes on the horizon, employers will have less capital to reinvest in their business in order to grow, innovate, replace equipment or reach new markets. Employees will also have less take-home pay to spend, which will hurt the Canadian economy and our competitiveness. In return, retirement, disability and survivor's benefits will begin to increase from one quarter to one-third of an employee's average work earnings.

In a report conducted in partnership with the University of Toronto's Policy and Economic Analysis program, it was found that the increases could result in 64,000 lost jobs, a loss 4.5 times greater than the government's predictions. The impact on jobs will continue to be felt until the late 2020s, after which it will mostly manifest in constrained wage growth for employees and the resulting higher deficits for the government. Employees could also see their disposable incomes go down by an average of $700 by 2025.

What's especially concerning is that most Canadians are misinformed about CPP, how it works and the effect it will have on them. For example, almost 40 percent of Canadians think the government pays for part of CPP (it doesn't). Three quarters don't know that it will take 40 years for the full increase in benefits to take effect.

But an even more jarring statistic is the number of Canadians who oppose the CPP increases when they learn of the potential effects on their wages. A full 70 percent oppose the hikes if it means that their wages may be frozen as a result, and that number rises to 83 percent if the premium hikes result in cuts. Clearly, the government has more work to do educating and consulting the public before pushing through the increases in 2019, but time is running out.

What the push to expand CPP contributions comes down to is a paternalistic concern that employees are not responsible enough to plan for their retirements and that the responsibility should be offloaded to employers. This, despite the fact that two-thirds of Canadians are actively saving for their retirement already.

If the government truly wants to help Canadians plan for their retirements, it would serve them better by increasing contribution limits on registered retirement savings plans and tax-free savings accounts, which are preferred by both employees and employers because they offer more flexibility than CPP. 

Policymakers should focus their efforts on educating Canadians about the savings options available to them, including Pooled Registered Pension Plans (PRPPs) and the importance of starting their retirement planning early. The government could also just increase the employee premiums on CPP to mitigate some of the most concerning effects that the hikes will have on jobs and wages.