Posted by Canadian Dream on April 27, 2009
Right now you are slowly dying. The key word in that sentence is: slowly. Death is something people shy away from but when it comes to personal finance and retirement planning facing certain realities is a good idea.
Life insurance is not a fun topic to discuss with anyone, but the question becomes do you want to die without it? If you are single and have no debt, then the reality is you likely don’t need much if any life insurance. If, on the other hand, you have a few kids and/or a spouse who partly depends on your income you will want to consider having some life insurance to protect them in case your life is suddenly cut short.
Generally speaking term life insurance is the best bang for your buck for the majority of people. Shop around for prices as they can vary by a lot. Also consider dumping your mortgage insurance from your bank if you have it. My experience has been that it is expensive coverage compared to what you can find elsewhere.
How much you need is highly dependent on your lifestyle (spending), what you want your kids to do (ie: post secondary education), and what your spouse and you have for income and what other coverage you already have.
For example, with my wife and I we decided to take the difference between my wife’s daycare income and our spending and times it over 18 years and then times it out to get a rough estimate. Since our spending also contains an amount for RESP contributions we decided that was enough for the boys education. Then we deducted what I already have for coverage and bought insurance for the remaining amount. Then for my wife we just made that amount equal to my coverage to give me the option of working part time while the kids were young if she died.
In retirement planning you do need an estimate of your death, unless you are planning to leave a large pool of money to your kids. If that is the case you might not actually need an end date to do a plan since you can just plan to live off the interest and dividends and not touch the capital.
For everyone else you do need to pick a death year to plan how long your money should last. That year is often based on either a wild guess on the conservative side, typically age 95 or even 100. Or you can do a bit more research into when you expect to die and try to come up with a better estimate. After all there is an entire science to planning when people are going to die, how else do you think insurance companies issue annuities?
The trade off of picking a conservative date versus a bit more detail is the standard one. If you lean to the conservative side you have to save more and work longer than actually required. If you lean too far to the other side you can run out of money or have to face a reduced standard of living if you live past your planned death year.
So what did you pick for your death year in your retirement plan? I picked 95, but I’m in good health, don’t smoke and my grandparents all lived well into their 80′s.
Posted by Canadian Dream on April 24, 2009
During last week’s Green Spot post the comments ended up on a side track of if the world’s problems are really population related. So to test that theory out I ran some numbers. You see in Canada we love to blame the oil sands for our hugely increasing green house gas (GHG) levels, but is that the only reason? So today we start with a quiz. How much has Canada’s GHG emissions increased on a per person basis from 1990 to 2007?
Is the answer:
- 0%
- 5%
- 10%
- 20%
- 30%
I’ll post the answer later in this post. You see I’ve got a theory that the issue isn’t so much related to what we are doing? (Yes in North America we are wasteful, so don’t consider this an excuse.) Yet is related to the number of us doing it.
Each person in the world requires a certain amount of energy input to produces the basics of life for them and luxury items for the rich of the world. So by increasing the number of people on the planet we are consuming more and more finite resources like fossil fuels which is driving up our CO2 numbers. In addition there are more and more stresses on local food production which causes overworked top soil and uses up fresh water resources.
People for what ever reason tend to glaze over the concept that in 1970 we had half the world population we have today. Is it any wonder things seem to be getting worse in the world? Also should I point out we are expected to increase to about 9 billion people by 2050. So just imagine that we are going to cap CO2 emissions and reduce them by 80% by 2050, but also increase the world demand for energy by 33% via population growth. It’s not looking very good and it’s plain to see why.
Perhaps global warming is really just a symptom of a bigger issue. There are too many of us on the planet and we are stressing the systems that keep this planet running. I’ve also wonder how applicable this is to other stresses in human populations. Are wars, metal illness and crime increasing as well on a per person basis? I’ve yet to find that out, but I’ve only started looking at this a bit in the last week. Interesting quesions, oh, speaking of which the answer to the quiz is #2, 5%.
So what do you think? Is there a people problem and if so what are all of its effects?
Posted by Canadian Dream on April 23, 2009
Well if you didn’t hear about this report, I’m not surprised. I didn’t even hear about it until one of my news searches picked it up. It’s a report by the Special Senate Committee on Aging on the increasing aging population in Canada and lists a massive 84 recommendations on how to improve things for seniors.
Of course the government has no obligation to do any of the recommendations, but they are interesting to read. Some suggestions include:
- Establishing a volunteer tax credit
- Work with the provinces to change the Canada Pension Plan so that individuals between the ages of 60 and 65 who want to apply for CPP and continue working no longer have to quit work or earn up to the maximum of CPP in the months prior to the application
- Make OAS/GIS benefits non-taxable if they are the only source of income
- Work with provincial governments to increase the income replacement rate for the CPP (currently 25% of income up to the average wage) and/or to increase the maximum pensionable earnings beyond the average wage
- Introduce an Age-Based Expenditure Needs Component to Equalization
That is just a sample of some of the ideas the report gives. Overall I have to agree with a fair number of the ideas. They make sense. A volunteer tax credit is a great idea regardless of an aging population. Also not taxing those who only make OAS/GIS again makes sense (I would guess the revenue loss to the government would be very minor as most people do get some CPP income).
It’s the fourth point I’m a bit frightened of happening. Why? Because any sudden policy change on CPP at this stage is going to mean an increase in premiums for all the younger workers to cover all the benefits of the older works who are now just about ready to leave the work force. There is no way the baby boomers can dump enough cash into the CPP program in a handful of years to offset any significant increase in benefits.
Actually in general this is going to be a problem for the government to balance off in the future. As the baby boomers retire they will start paying much less tax and as that revenue vanishes, the younger generations are going to have to start to pay more in tax to pick up the slack or the government will have to start cutting services.
In some regards this entire market crash which has forced many boomers to push off retirement is a blessing to the government. They will continue to get income tax revenue from those that would have likely pull out in just a few years.
So in general some of the recommendations in this report to keep seniors engaged and involved are even more critical to a government that is doing any long term planning. The issue I fear is long term planning is out the window utterly until the economy recovers. And even when that happens governments are not known for their ability to do long term planning, so likely this report will be forgotten about in just a few short months.
So what are your thoughts on this? What should governments be doing to prepare for the aging population?
