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Why You Shouldn't Rely on CPP to be There When You Retire

BY: mathew jazenko | Category: Finance | Submitted: 2011-09-20 08:36:57
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Article Summary: "It used to be that age 65 is when a person typically retired, but with the boomer tsunami that will occur there will be increase in demand for CPP. In the last few years the annual CPP contribution rate has gone from 4.9% in 1995 to 6.17% in 2010 a projected 10.46% in 2030. There also rumours that the retirement age will be rais.."

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It used to be that age 65 is when a person typically retired, but with the boomer tsunami that will occur in the next 10 years there will be increase in demand for CPP. In the last few years the annual CPP contribution rate has gone from 4.9% in 1995 to 6.17% in 2010 a projected 10.46% in 2030. There also rumours that the retirement age will be raised and possibly reduced benefits. Don't rely on any public pension from the government as it may not be there. The retirement tidal wave that will occur in the next 10 years will put extra stress on public spending. The question who will pick up the slack? Who will pick up the tab for this massive retirement tidal wave? If your a smart investor, your going to grow your nest egg with the following helpful tips.

No fee or low fee is good

Look for financial advisers who suggest low or no fee mutual funds. You may pay a fee upfront for their advice, however, you can rest assured that their advice is independent of what products the mutual fund companies are pushing. Some adviser will tell you that you get what you pay for. Not necessarily because that fee is payable right off the top in good times and bad times. That fee eats into your returns very quickly especially if its in the single digits. Its good for both the adviser, the mutual fund company and not really the investor. Some funds beat the index regularly and that's ok too. That would be a good fund to keep. However, always look around and compare returns, fees and the make up of the fund. Look out for deferred sales charges as this is a way to keep you in the fund for a period of anywhere from 3 to 6 years. If the mutual fund performs poorly during that time, this is a strong incentive to keep you locked in. Look at your options, look at what else is out there. A comparable fund with a smaller management expense ratio (management's cost to run and maintain the fund) is better than the one with both the bigger return and MER. Calculate the total cost of owning the fund over say 5 years and compare that to other funds that are just as good as the high fee fund. Historical returns are no guarantee of future performance. Remember that when a fast talking adviser comes knocking on your door.

Some low cost funds include index funds which mirror the market like the TSX, ETFs (exchange traded funds) cheaper MER and trade like stocks. The total cost of ownership over say 10 years is cheaper than a mutual fund charging 3%. The ETF has a one-time transaction fee of the trading cost plus an ongoing management fee of around 0.50% or less.

A lot of banks are offering online trading for the do it yourself investor. The advantage is you save money on the trailer fees to advisers and you have control of where to invest and how much. Spend the time researching various companies and their dividend distribution. The better the performance of the company the better the dividend. That's a good thing. Above all else, take your time.

Investment timeline

How long you have before retirement will determine your investment style. A 20 year old has a different investment style then someone in their 50's. The 20 year old has lots of time to make up for any investment mistakes, market corrections than the 50 year old. The 50 year old investor has to look at the risk to their money as in 'can I afford a 20% drop in my portfolio and do I have the time to make it back?'


Very often a friend or a neighbour will tell you that their getting 15% return on their investments compared to your measly 5%. Before you pick up that phone to buy in, consider the risks involved. Risks include currency risks like a devaluation in the Euro or Canadian dollar, capital risks like GM going bankrupt. Oh that neighbour or friend didn't tell you that before they got such startling returns that they had to endure a few years of negative returns equal to or greater than your current return. Can you stomach such volatility? If not, then that investment is not for you. It doesn't hurt to get a second opinion from a financial adviser. Sometimes two sets of eyes are better than one.


Everyone talks about being diversified. What your really being told is don't put all your eggs in basket and spread your money around. Consider 1/3 equities, 1/3 bonds, 1/3 fixed income other than bonds. As the equities get beaten up, the bonds and fixed income will act as a counter balance. Don't get caught up in the market hype. A sector that is hot today will be tomorrows dog and vice versa. The strategy is to figure out which is which and when. As an investor your job is to figure out your investment style is and what is a comfortable loss in capital. Nothing goes up forever and being prepared is the best way to deal with it when it happens. Also look at demographics, as in age, sex, marital status, etc. A good example is the baby boomer demographic, which is the largest consumer demographic. This demographic is also a trendsetter in housing, vehicles, health care to name just a few.

About Author / Additional Info:
Mathew is the president of MRJ Financial Solutions and is dedicated to improving YOUR bottom line. Questions/comments: or visit us at

Comments on this article: (1 comments so far)

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