Entries from February 2020 ↓

Pension pooched

Made your RRSP contribution yet?

Wait, keep reading. This isn’t another tedious piece on tax-free compounding, using a retirement plan to split family income, making a contribution without having any money, how to remove funds without being taxed nor how the entire system is dramatically skewed to benefit high income-earners, medical professionals, lawyers and the self-employed. You already know that stuff.

Instead, let’s revisit a fav topic: how pooched everyone else is.

How much do you need to retire? That depends on when you hang ’em up and how much you spend, of course. Plus if you have kids or wish to leave an estate for others to squander on stuff you’d never buy. There is no static answer. Some people say 30x your annual working income is the right number. Investment giant Schwab suggests $1.7 million is a reasonable goal. Fidelity says you need enough saved/invested to replace 80% of your work salary. Anyway, the Internet teems with financial calculators you can use to come up with your own target.

Then compare your readiness with this dismal set of facts:

  • As mentioned before, people retiring without a defined corporate pension have an average of $3,000 saved. Yeah, they probably have a house, too. But you can’t eat that.
  • About a third (32%) between 45 and 64 have saved… nothing. Seriously.
  • Roughly a fifth (19%) have less than fifty grand. But the average amount Canadians have saved/invested for the future is $184,000. That tells us a small slice of folks have saved a boodle. A giant slice of people are heading for a future of KD and CPP.

Now on that point, we all need to understand clearly the public pension system in Canada will not save you. Not with the recent enhancements, either. If you’re a Millennial, the higher benefits (a max of just over $20,000 a year) don’t click in until the average moister is 76.

Today the max someone can collect in CPP is $1,175 a month, but very few qualify. So the average received is $672, or eight grand a year. Grocery money. Old Age Security goes to everyone at age 65 (for now), and that adds $613. So the total in government pogey the average person receives is $15,420. If that were your only income, then the GIS (Guaranteed Income Supplement) kicks in at a max of $876 per month, bringing  the grand total of public assistance to $25,932 – or about two thousand a month.

Married people get less GIS, but it’s still possible for an average household of two to receive a total of about $45,000 annually. Maybe all the people with little or nothing think this is enough to get by on, which is why they don’t save or invest. Given that the median household income in Canada is north of $90,000, this translates into a 50% drop in retirement. So ask yourself, could you suddenly live on half the money you’re getting from employment?

Let’s compare with the deplorables in Trumpland (which some people think may soon be the home of Bernie’s Sandersnistas).

The average monthly Social Security payment in the US is $1,471, or about $1,900 in moose money. Therefore it’s three times more than CPP pays (on average). By the way, the max SS payment of $2,210 at age 62 is about twice as generous as CPP – and it grows from there: $2,900 a month if you wait until 66 and $3,770 monthly ($45,300 US) at 70. So a couple of wrinklie old pensioners who worked all their lives could actually see up to ninety grand a year.

But what about household savings?

A new survey by TD Ameritrade says 50% of Americans have more than $100,000 – way better than us. Most of this is in the hands of people over the age of 40 (no surprise there), yet Millennials in the US are the ones most often stuffing their Roth IRAs (the American equivalent of our TFSA).

Hmm. The average American has saved more money for retirement, and the US system is far more generous with public pensions. So how did we get so smarmy and snooty, believing the States is a land of dumpster-divers, people who spend everything on Glocks and trailer park rednecks where financial illiteracy reigns supreme and society is divided between billionaires and losers?

Beats me. The CBC maybe. Or our political elite. Maybe it’s the whole real estate-government complex.

After all, the US rate of home ownership is lower than in Canada by almost 10%. American households carry far less debt, and actually reduced borrowing a ton after the housing market blew up. Plus the median cost of an American house is just $228,000. The average paid by first-time buyers is $219,000. There are porta-potties in Vancouver worth more.

Thus, when it comes to the financial state of Canadians, this pathetic blog’s thesis stands. It’s suicide by house.



Virus. Oil sands crisis. Pipeline constipation. Pop-up FN blockades. Tumbling oil prices. Vanishing capital. A timorous federal government. Oy. The news lately has been dire.

Well, for all you people in Alberta, stranded by illegal protests, watching real estate equity fade, seeing energy jobs snuffed by the Forces of Greta, feeling alienated and wondering why people burning tires on railway lines are getting more attention than you, stop being so darn selfish. I mean, sheesh, there are people in Toronto who actually can’t afford a nice, seven-figure house.

Seriously, the divide is growing. Yawning. Covid-19’s impact on the price of crude is just the latest assault, as the black stuff heads south of fifty bucks, and Canadian oil drops through $29 – down 6% on Tuesday. Ouch. As global economic activity is impacted, energy consumption takes a hit, with Calgary and our oil patch along with it.

Now the FN protests have turned a structural problem into an intractable mess. They’re not about just a pipeline anymore. It’s land. Residential schools. Missing aboriginal women and girls. Unceded land. Treaty rights. A thousand years of injustice and colonialism. Plus climate change. Just as crazy Bernie has mobilized America’s young in favour of wealth redistribution, endless tax and more government control, so have indigenous activists in the land of maple co-opted the kids who want climate revolution. Behold the faces on the urban protest lines.

Meanwhile it looks like the virus will end up pushing Canadian mortgage rates into the ditch. As stocks swoon and viral fears mount, money slides into bonds, driving prices higher and yields lower. Look at the return on a five-year Canada bond – down below 1.2% on Tuesday.

Lenders fund fixed-rate mortgages in the bond market, so a drop there of this size pretty much guarantees the cost of a home loan may be dropping again. Says mortgage blogger-brokerguy Rob McLister: “There’s now no doubt that this global outbreak has the potential to take fixed rates down another 1/4 to 1/2 point, if not more.”

You bet. And remember that the mortgage stress test was recently diddled by the finance minister, under direct order from T2. This means the anticipated new rate of 4.89% (a drop from 5.19%) could turn into something even juicier for newbie borrowers, increasing their ability to more easily slip beneath the waves of debt.

Therefore get ready for a five-year fixed at 2.5%. And don’t be surprised if some hopped-up CU comes out with a buck-ninety-nine offering for the prime rutting season. Combined with the current paucity of listings in the GTA (as in Vancouver and Montreal), it means more price pressure. More bidders. More borrowing. More unaffordability.

By the way, nobody seems to be enjoying this. A Zillow/Ipsos poll just found 77% of GTA residents are concerned they can’t afford the real estate they want. Also 70% of sellers/owners fret that they can’t either – which is exactly why listings have taken a kick. When people figure they can’t afford to move, they don’t sell.

The same survey found 84% of people think Toronto’s in a bubble, at risk of correction. Compare that with just 61% in YVR or a dribble of 8% in Cowtown. Like I said, we’re drifting into two economic solitudes. Worse, the very concept of our nation is being shafted and disrespected by the #ShutDownCanada movement, the FN rebels and their dewey-eyed young altruistic, Twitter-fed disciples.

Well, let’s see what the virus news is in a week, a month and a season. So far it appears poised to exacerbate tensions in the land of the beaver. Low oil, lost investment, pipeline gridlock and environmental rebellion on one side. Cheap money, FOMO and exploding household debt on the other.

It’s interesting an entire Calgary downtown tower is now standing empty – 600,000 square feet, no tenants. (The overall commercial vacancy rate is a withering 30%). In 416 these days kids are paying $1,200 to $1,400 for a single square foot of space. A 500-foot condo can fetch $650,000, which is 50% more than a nice detached house on real dirt in Edmonton.

Outside the GTA on Tuesday activists shut down commuter train lines. On the west coast they blocked access to the Port of Vancouver. Elsewhere in BC, Ontario and Quebec roads and rails were rendered useless to traffic. And in Toronto there are apparently heavy casualties from the bidding wars.

Remember what this blog told you about being liquid and living quietly among the masses? Dancing with your dog? It’s time.