Thursday, June 7, 2018

Our Expectations Need to Be Realistic

A Facebook post caught my friends’ attention.  They reacted by sharing the message.

The post read:

Time for change..

The base rate for old age 

pension in Canada is $586.00 

Time to raise it to $2,000.00 

Share if you agree.

It’s true enough that the base rate isn’t sufficient to pay anyone’s monthly bills but is it the responsibility of the Government of Canada to do so? 

When the first old-age pension was implemented in 1927, the government’s intent was to provide some financial relief for the elderly. What started then as a monthly benefit of $20 per month has now increased to a benefit of $589.59.  

In the early years, many deprived Canadians had to verify their need for financial support by undergoing a means test revealing their income and assets.  Even children had to prove they were unable to provide financial support for their elderly parents. History has shaped and changed the rules since 1927.

In 1951, The Old Age Pension of 1927 evolved into the Old Age Security Act.  At the height of Canada’s prosperity following World War II, the government passed legislation for a universal monthly pension benefit of $40 for all men and women who were 70 years old and older.  The best outcome was seniors did not have to undergo a means test to prove their eligibility.  However, one requirement was they must have lived in Canada for twenty years.  Eventually this condition was reduced to 10 years along with further changes.

The most notable change to the Old Age Security (OAS) benefit was when the legislation of the Canada Pension Plan was passed in 1965.  The qualifying age was changed from 70 years of age to 65 and continues to remain as such unless you chose to defer your Old Age Security benefit to age 70.   

It’s difficult to fathom the total cost to finance Canada’s largest pension plan until we have a grasp of the number of Canadians entitled to the OAS benefits.    The latest quarterly report, published by Employment and Social Development Canada, indicates the number of benefits paid in January is 6,062,989.  The amount paid in millions is $3,364.9.  No one contributes directly to the Old Age Security program; the benefits are paid from the Government of Canada’s general revenue accumulated from personal, corporate and sales taxes. Of course, the cost escalates even higher when the other social security programs, Guaranteed Income Supplement, the Allowance, and the Allowance for the Survivor are included.  

The off-handed comment made on social media to increase the Old Age Security benefit was probably done with minimal consideration.  Currently, the federal and provincial governments fund many programs, including major ones like health care and education. Prior to the federal government’s recent acquisition of the Trans Mountain pipeline, their current spending continues to increase the deficit; the promise to return to a balanced budget in 2019 is unlikely to occur.

The lesson on budgeting is to work with what we have.  We should try and operate with a balanced budget. The magic formula is:
There is no negative sign in front of the zero value.  Everything balances.  The after-tax income stretches over our day-to-day spending including debt repayment and savings.  From time to time, we find borrowing money necessary because we do not have sufficient cash on hand for major purchases. 

The pledge to yourself is to prepare for the future. The plain and simple fact is one day we will be old and will not be able to work.  The stark reality in 1867 was that most Canadians did not “retire”.  We are told, “Canada was then a largely pre-industrial, agricultural society.  Most people lived and worked on farms well into their old age.  When they were physically unable to work, they were supported by their families on the farm.Those without family support had few options.”

Today, we have more options if we are unable to work due to disability or injury.  However, the intention is not to rely on the government to fund our “dream retirement.”  If we do, we can’t expect much. They will and can only afford to pay a minimum amount.  The combined Old Age Security and Canada Pension Plan generally equal 25% of a typical retirement income.

Our expectations need to be realistic.  Expecting the government to support us would be like our children asking us to support them for their lifetime.  This may sound like a good plan for them but for parents not so much.  We need to step up and share in the responsibility to create our desired income for the future with the resources we are given today.     

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