02/22/2014 01:26 EST | Updated 04/24/2014 05:59 EDT

Top 10 Dumb Things People Say About Pensions

A lot of Canadians don't save enough for retirement and many oppose any suggestion to increase CPP or set up new supplementary pension plans. Here are their reasons:

10. I plan to work 'til I drop!

That would be great if you stayed healthy and you always had a job. Canadians are certainly living longer, healthier lives but not everyone. 24 percent of seniors have multiple chronic conditions and take on average 5 different prescription meds.

Older workers who lost their jobs in the late 1990s had three times as much difficulty getting new ones as their younger counterparts and they either got jobs within the first two years or not at all . 30 per cent of Canadian retirees have had to return to work to pay off debts.

9. I can live on CPP and Old Age Security

Old Age Security pays a maximum of $6,618 a year, CPP $12,500 for maximum total of $19,000 - enough to live on while you're living your parents' basement but not when you're 65 and paying for the roof over your head plus other incidentals like food.

8. I expect a sizeable inheritance when my parents die

Great if they die healthy. Otherwise, long term care costs could eat into that inheritance to the tune of at least $20,000 a year and that's in a publicly funded nursing home. Private retirement residences charge upwards of $5,000 a month and home care is not entirely covered or even available.

Besides, your parents may feel they've sacrificed enough for you and go SKI-ing - "Spend the Kids Inheritance!" That's why it's never a good idea to plan your financial future around other people's money.

7. I have a house and nearly $100,000 in RRSPs

Very good. Only $800,000 more to go. BMO Harris Private Banking reports that most people think a minimum of $908,000 in liquid savings is needed if you plan on living off your investments. They're about right. If you earn $60,000 a year now and want to live on $40,000 (plus CPP and OAS) once you retire, then you need $1 million earning 4 per cent per year! Doable, but first you need the million dollars.

6. I can do better on my own

Could be true -- if you have been earning 8-10 per cent on your savings over the past several years as have the major pension funds like CPP, Ontario Teachers' Pension Plan or the Healthcare of Ontario Pension Plan or many private pension plans, all of which were hit in the market downturn but have since bounced back. Did you? Many retirees who were devastated in 2008 - 9 did not recover their savings, some have had to return to work.

But chances are that you won't match the record of the professional investment managers and more important, they can invest in super funds with high returns that you and I cannot access unless we're investing millions at a time.

5. I'm not giving the government any more of my money

Money you put into a supplementary pension plan does not go to the government, it is invested and returned to you with interest when you retire. A recent study reported that almost 80 percent of the pension cheque is actually investment income earned on your contributions.

In fact, it costs the government money because you can deduct the contributions and save on taxes - as you do with RRSP contributions. Do you make any RRSP contributions? Didn't think so. Most Canadians don't do that either.

4. Government should just lower my taxes and I will save on my own

Refer to #7 and # 6 above. Have you paid a million dollars in taxes?

3. Government says that the economy is too "soft" for people to divert money into savings

So we should do our patriotic duty and spend the economy out of recession as George W Bush exhorted Americans to do after the Wall Street crash? Sounds like advice from your local pusher: c'mon just one more!

2. The government will take care of me

With what? Besides OAS and CPP (see #2) there is nothing on the books to help people if they do not help themselves. And if you're like most Canadians, you'd rather stick pins in your eyes than go on welfare.

1. The number one dumb thing people say about pension: We need to cut down the gold-plated pension plans that MPs and civil servants have

And that helps you how? Reduce your taxes maybe (see #4). But the right answer is that all of us should be able to save affordably in a large well managed pension plan that help us get that "golden" retirement the travel ads keep telling us about.


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