Weekend Reading – More money or more pension?
Hey Everyone,
I hope you had a great week…
This subject caught my eye this week, would you rather have more money now or more pension later?
Some thoughts in a bit!
First up, a few recent posts on my site:
Last weekend I wrote about the stock market being not-so-easy to beat, which I agree with – although I’ve always felt in Canada when it comes to our market specifically, you could fire any Canadian-focused money manager, buy some Canadian individual stocks for income and growth, and earn similar if not better at times returns than our TSX index.
While inflation is challenging, and high inflation is not good for anyone, I tried to look at the upsides to inflation including built-in government benefits and any tax-free savings room coming January 2024.
Weekend Reading – More money or more pension?
“Mo Money Mo Problems“?
Ha. We all wish. The quote is in reference to a song by American rapper The Notorious B.I.G., released through Bad Boy Records and Arista Records, back in 1997.
You might recall Sean John Combs founded Bad Boy Records, better known as stage names like Puff Daddy, P. Diddy, or Diddy, and there could be more!?
On a serious note, I got the inspiration for this week’s headline from Rob Carrick at The Globe and Mail. He asked:
“What do Canadian workers need more right now – higher salaries or better pensions?” – Article (subscription).
My answer: pensions or at least your own pension.
I will explain.
From my upside to inflation narrative, at the most basic level, inflation is an increase in the price of goods and services over time. Basically, the ebbs-and-flows of supply and demand in action and those actions can impact you and me.
While much more money, now, seems like a great idea for sure, I believe more spending and more money in circulation is actually not going to cause inflation to go down (where it should).
Economies and businesses within economies, cycle.
Inflation, too much expansion in fact, and contractions from time to time, are very normal.
Check out this graphic, related to this point, from the Canadian Encyclopedia:
Source: https://www.thecanadianencyclopedia.ca/en/article/recession
While can I appreciate inflationary spikes and too much inflation is not good for anyone, myself included, since we all have to react vs. plan to that situation, I would MUCH rather have a viable pension in my future to rely on vs. a small cash infusion now.
The key reasons:
- There are too many unknowns when it comes to any (financial) future. The more certainty, the more dependable income, the better.
- My human capital is high now but I know my ability or capability to earn a living will decline as I age. I suspect the same for you. That’s just the way life goes.
- The top reasons, today, for offering employee retirement benefits relate to both employee retention and employee recruitment – with the objective to help mitigate overall financial stress. That’s a win for employees but also a win for employers. The first and really only rule of any responsible manager is: hire and retain good people.
Sure, I’d love more income now to spend against inflation. We all would. But the better and more responsible solution is always forward looking.
Here are some interesting comments from the Globe article. Stay for the comments. 🙂
“The average Canadian doesn’t fully understand the question, let alone have the answer. I strongly believe that the average worker would be better served by having meaningful (sufficient) defined and indexed income for life. Properly designed, a pension is the least expensive and most efficient way to make that happen. The pooling of mortality risk is the primary reason, something that is simply not available to an an individual, no matter how much they make or save. Mention an annuity, and peoples heads explode.”
And…
“People have to learn to take responsibility for themselves. How much tax money would be saved if we cut programs and just had one universal basic income. What if we simplified the tax system and had maybe 2 or 3 tiers and that’s it. We wouldn’t need so many government workers to administer programs. The tax savings would be enormous. I know simplifying the tax system would never happen because making it complex is how the government creates jobs. And politicians wouldn’t have the power to give out money in return for subsidies, kickbacks, and votes.”
And…
“CPP (in combination with OAS and GIS) essentially establishes a guaranteed annual income for retirees over the age of 65. CPP ensures every retiree has a pension–even if it is just a small one.
OAS ensures every retiree who doesn’t have significant additional income from other sources has some more money.
GIS ensures that seniors who have less than a certain income (currently about $21,000 per year) have their income increased to that certain income.”
Thoughts folks? Open to your comments too!!
Beyond more money or more pension…
Early retiree Carl is hardly concerned about a pension. He took matters into his own hands years ago. He shared a few big ass spending experiments here. One of them was a helicopter ride that cost $1,400 USD for the fun of it. Good on him!
I enjoyed Jon Chevreau’s summary of the FIRE movement (I have the same take) and why he keeps working, now into his 70s, as part of his Victory Lap Retirement.
I know quite a few 60-somethings that would absolutely keep working if they could, to remain engaged via reduced hours and stress – right now. Unfortunately, most organizations are not established this way – the irony is – by many Boomers themselves.
Most near-retirees would keep working if they could reduce hours and stress
A smart set of thoughtful answers from Dividend Daddy is found here on The Passive Income Podcast.
As My Own Advisor, you know I tilt part of our portfolio towards dividend growth stocks. I believe and own dividend-paying stocks because I believe dividend investing is a common way for many investors to help build an income stream over time – myself included!
However, there are many different approaches to dividend investing. Those approaches may lead to very different outcomes and those outcomes may be better suited to certain investors, depending on their financial needs and goals.
As with investing, it always “depends”.
Well, my recent recording with TD is out!
In that webinar, I joined Adrian Starinieri from Passive Income Investing, and Henry Mah from Your Ever Growing Income where we discussed the potential benefits of dividend investing as a way to build wealth compared to other investing strategies. I shared what works for me/us as a hybrid investor and how it differs from both Adrian and Henry.
Here is the link!
Happy to hear your thoughts on what I shared, or what Adrian shared, or what Henry shared.
The Bank of Canada says “I’ll hold” on Dale’s Sunday Reads.
And finally, I enjoyed this post from Fritz over at The Retirement Manifesto – Ready Aim Fire – On taking a leap of faith to retire:
“We both instinctively knew it was the right thing to do, so we pulled the trigger without having a clue how we were going to execute the dream. We made the decision and took the first step, and it’s led to something that’s become a major purpose in our retired lives. Four years later, I’m thankful that Freedom For Fido is part of our lives.”
Save, Invest, Prosper!
As always, check my Deals page – partnerships and discounts to help you make the most out of your money – some of them you can’t find anywhere else!
Check out my partnerships with:
- Dividend Stocks Rock with me, including my lifetime discount with Mike!
- 5i Research
- StockTrades.ca
- LegalWills
- Borrowell
- and more!
As always, you can also consider hiring me for some low-cost financial projections services – anytime.
Just reach out.
This is a service founded by DIY investors for DIY investors without the conflict of any advice.
Have a great weekend!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hi Mark. I agree that a defined benefit pension plan is more valuable than a higher salary, and I’m fortunate to have one as I move towards pre-retirement in the next few years. However, as a hiring manager who has done a lot of interviewing in my sector the last few years, I’m finding the younger generation coming into the workforce is more interested in chasing after a higher salary and not taking into consideration how valuable our DB pension plan and benefits are. That generation, for the most part, doesn’t see themselves staying in any one place long enough to take advantage of a company pension that would be significant, so they are focused more on higher salaries. With inflation now, plus the high costs for the basics like food and housing, this approach to finances is even more desirable for them. In my opinion it’s short sighted, but I can certainly understand their perspective right now.
Interesting comment, Tim.
That’s too bad when it comes to the younger generation, more of a mindset? re: a generation that doesn’t see themselves loyal to a long-term employer? I do understand that perspective. There are tradeoffs when it comes to employer benefits/total compensation.
Mark
“More money or more pension?”
The answer for me was not complicated. Always funded the RRSP as a priority, usually to the maximum allowed knowing this would open up a number of options in the future. In some ways I prefer the RRSP over increased company/government pensions. YMMV
You’ve done very well, Lloyd, largely because of personal responsbility I suspect!
When I first started teaching I worked with someone who was well into her 70’s. She wanted to retire but financially couldn’t.
When she first started working she had the option to opt out of her pension. She did to take home more money. But that unfortunate part is she didn’t use that money to save for the future so was stuck working longer than she wanted to.
The benefit of more pension vs more money is the forced savings. We may not be diligent enough to save with that consistency on our own.
I see it the same way, Maria. A pension is essentially saving most people from themselves financially.
I hope all is well!
Mark
Enjoyed the broadcast from TD Mark.
I’m what you refer to as a hybrid investor as well, just I invest a little differently. Global dividend index ETF in the TFSA’s, global balanced index ETF in the RRIF’s, and over thirty individual Canadian dividend stocks in the non-registered allocated to seven sectors. Some of the equities in the non-registered have been sidelined. Very low dividend growth or no dividend growth. These things can and do happen. Blue chip companies can also disappear leaving investors with nothing but losses. Edper, Royal Trustco, Seagram, Laidlaw and Nortel all come to mind, and all paid growing dividends at one time.
Like you, I think about future possible black swan events as well. How could people forget the financial sector during the crisis in 2008 through early 2009, Aside from a dividend cut with Manulife, Canada sailed through it all quite well. For the U.S., Britain and Continental Europe the results for investors were catastrophic in financials and REITS. Going back further to the tech sector meltdown in the early 2000’s I read that Jeremy Siegel calculated that investors got back 10 cents on the dollar. Perhaps one of the reasons going back to the inception of TD’s e-Series funds in 1999 up until now, the TSX actually outperformed the NASDAQ. Date dependent of course. Too many Investors get caught up in recency bias. The herd instinct I guess. I prefer to be contrarian which helps me think about adding to the lagging sectors in our non-registered.
As pointed out in the video, when it comes to investing, we’re all different.
I absolutely think about future black swan events. Stuff can and will happen. It is my hope that a dependable dividend income stream with long-term part-time work should work in our favour throughout our 50s (without any mortgage debt). I can appreciate everyone is different and I know I’m biased but my/our bias to stocks, that pay dividends and also offer price appreciation as well (i.e., lower-yielding, higher growth stocks) should work in our favour. That’s the plan! 🙂
I appreciate your comments and feedback.
Mark
A pension is nice if you can get one. Fewer than 20% of private sector employees in Alberta have company pensions according to a 2021 Fraser Institute report. Most private pensions are defined contribution. You pretty-much have to work for the government to get a defined benefit pension. Most of us figure it out ourselves.
Yes, depending on the employer (government, unionnized or not, etc.) DB pensions are definitely harder to come by. Lots of choices/considerations when it comes to employment for some but I can appreciate some folks don’t have very many options based on background, education, experience, etc.
Mark
Hey Mark – listened to the TD webcast you were on…you did an excellent job articulating your points – and also taking into account the opinions of others. And, of course, I liked your investing strategy approach the most (seeing as I follow it as well). 😉
Great stuff MikeyP and I appreciate the feedback!
Continued success on your investing journey!
Mark
Hello Mark. For us, having a defined pension and the available government benefits has given a core income base that has been appreciated and used well. Some cost of living adjustments are part of the package, so that helps too. Having a secure , dependable, regular base income has allowed us to continue to hold, use and build a strong supplementary income flow from quality dividend growth type stocks. We are very financially comfortable and grateful . Mike
Awesome, Mike. That base income should serve you very, very well and all Canadians would be well served to have that stability. So, I’m agreeing with myself. 🙂
Have a great weekend.