She says you're on a bridge to nowhere and you're gettin' there fast
Put it in the past, put it in the past.
--Sam Roberts, "Bridge to Nowhere"
To go a little outside my comfort zone and borrow a catchy chorus from Canadian songwriter Sam Roberts, I'd like to see government pension bridge benefits put in the past.
If you work in the private sector, you may not know the term "bridge benefit," since your retirement in all likelihood will not give you this little-known feature.
If you're a government worker or you work in the public sector, chances are pretty good that you've heard of the bridge benefit, and you may well be celebrating your good fortune for having such a sweet deal in place for early retirement, one that other Canadians can only dream of.
Ordinarily Canadians who retire before age 65 and choose to draw CPP early receive reduced benefits for the rest of their lives. That makes sense as they will not have paid in as much in premiums. The bridge benefit allows many government workers to claim their full pension early, penalty-free. In most cases, it is roughly equal to the unreduced CPP/QPP benefit, and it is paid until age 65.
If this seems rather unfair, that's because it is.
The harsh reality is that the cost is borne by taxpayers, most of whom get no such benefit.
The Canadian Federation of Independent Business (CFIB) has just published a research snapshot breaking down some of the numbers of the bridge benefit across public pension plans in Canada. The federal government and most provincial public sector pension plans -- except Alberta, Saskatchewan and Manitoba -- offer the bridge benefit.
The perk also appears to be a financial incentive for government workers to stop working: 81 per cent of public sector workers retire before age 65, compared to 60 per cent of workers in the private sector, and fewer than half of self-employed people. No wonder it is civil servants who seem to be the largest group of younger retirees, wintering in Florida while the rest of us are hard at it.
The financial impact of the bridge benefit is put into stark relief when you consider that members of provincial and federal pension plans can retire as early as age 55.
It's expensive: the bridge benefit varies across public sector pension plans and falls in the range of $7,400 to $8,800 per worker, per year. In 2010 to 2011, about 55,000 federal civil servants received the perk at a total cost of more than $385 million.
The harsh reality is that the cost is borne by taxpayers, most of whom get no such benefit. And the cumulative economic effect of such perks is to create a bridge to underfunded pension plans and a stressed social safety net.
Some government organizations, including the Bank of Canada, have already seen the light, finding the bridge benefit to be unsustainable, and have eliminated it from their plans.
Governments across the country need to follow suit and move quickly to return sustainability and accountability to the public sector pension system. Commitments to current employees should be honoured, but this benefit should be phased out for those civil servants still far away from retirement.
In the context of an unfunded public service pension liability amounting to an estimated $300 billion as of 2012, it's even more critical than ever to bring government pensions in line with the rest of the working world.
Small business is calling for the end of the bridge benefit.
Play it again, Sam: "Put it in the past."
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Or at least have an idea of what you might want to do when that time comes. Your decision is not set in stone, but having an idea of what you want to do when you retire can help you work and save towards that goal.
So now that you know what you want to do when you retire, set a date for when you want to walk away from your career. That creates a set time for you to achieve your savings goals.
What you earn isn’t what you take home. Figure out how much you take home after taxes and figure out how much you spend. Be honest about your spending habits, and correctly identify your necessary monthly expenses. Many Canadians are shocked to find out that they’re not living within their means.
Once you know your actual take-home income, you can create a budget and stick to it. A budget will tell you exactly how much you spend per week/month and can help you find savings. Once you find those savings, you can put the extra cash towards your retirement.
We all could use a little expert help. If you’re not sure where to start, talk to a financial advisor, either privately or through your bank. They can provide guidance and advice to anyone thinking of retirement. Come with questions ready, and be prepared to take their advice to heart.
Forget spreadsheets; keeping track of your retirement is a simple matter once you properly implement financial software and apps. If you need help developing an ongoing budget, apps like Mint and Mvelopes are there to help. Some apps let you take a photo of your receipts so you don’t have to manually enter your spending at the end of the month, while others link to your bank account and send notifications when you hit your preset spending and savings limits.
Who has time to put money in a savings account every two weeks or every month? It’s far too easy to lose track and fall behind on your savings deposits. This is why automatic deduction from your main account to a savings account is such a great thing. You set your weekly/biweekly or monthly amount, set the date and forget about it. The money is taken out and placed where it can compound.
Compound interest is a fabulous thing. The more money you save, the more interest you earn. All that interest is then reinvested back into your savings or investment strategy and you earn interest on the new amount. Imagine how much you could save over decades.
If your employer has a defined contribution plan, sign up now. Plans like that will often contribute up to 100 per cent of your contributions. (Always read the fine print.) Now that’s a fine return on your investment!
Most of us are unsure what our retirement is going to look like and that’s okay. That’s why if you’re not sure about something, ask the experts, ask your friends and your parents. Just make sure you end up with a plan that’s right for you and your future.
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