The federal government recently announced changes coming to your Canada Pension Plan (CPP). Starting in 2012 the penalty for taking money out before age 65 but after age 60 will go up to .6 per cent per month to a maximum of 36 per cent. The old penalty was .5 per cent up to 30 per cent. However, starting in 2011 anyone who starts taking money outafterthey turn 65 will have extra money added to their payment by .7 per cent per month to a maximum of 42 per cent.
In other words, a pensioner will lose more if he or she starts taking money out before age 65 than in the past, but will receive more if he or she takes CPP later in life.
The other change is that starting in 2012 if you are a wage earner and take out CPP and keep working you and your employer will have to keep paying into CPP until age 65. Self-employed people will have to keep paying both parts of the CPP premium until they reach 65 years of age. After age 65 a person canchooseto keep paying into CPP or not.
Also in 2012 a person will not have to quit work or a business or drop income to start taking out CPP. I hear by the grapevine that the rule to quit work is more or less not used even now, but the official rule will start in 2012.
In my personal opinion, a person is better off taking CPP as soon as possible after age 60. Generally when we figure the numbers we add up the dollars a person would take out from CPP for the 60 months from age 60 to 65. Then we could figure how many years a person would have to take out CPP startingafterage 65 to break even. Most of the time a person would have had to live to around age 74 to break even. Some do and some don’t.
I have not worked the numbers yet but seems to me if the penalty for early withdrawal goes up and a person has to keep paying into CPP if he or she keeps working, then the break even period will take longer. If anyone has accurate numbers of this do send them to me at [email protected]
If a person can start to collect say $700 a month at age 60 that adds up to around $8,000 a year of extra income. But paying into CPP could cost a farmer say $3,000 a year and about half is a personal and half is a business deduction. A person would still be better off by $5,000 a year of taxable income, which shrinks the after-tax benefit a lot.
If my brain is correct, the new rules will reduce the benefit of taking money out early especially for higher income earners. But it would raise the income for lower income earners which would reduce the amount of money low income earners would collect from income supplement programs since most programs include CPP money in their calculations.
The break-even period will go up for anyone who takes CPP out early, but I would think from the cash flow point of view it will still pay to start taking CPP as soon as possible. If you have numbers that show a different picture let me know and save me a bunch of work.
I think this is one more way to make sure CPP is statistically viable for years to come.
UPDATE ON STOCKS
In early January Cliff Natural Resources (CLF) bought out Consolidated Mining (CLM) for $17.25 per share. That was about $2.50 more than the market value at the time. We had about 6,200 shares that cost around $8 per share so we turned $48,000 into about $108,000 in six months. I really would have liked to keep those shares because I figured they would go up to $30 in a couple years but I guess Cliff saw the potential, too. I will miss CLM. It was a gift from above. CLM grew from a developer to producer in 2010.
I think this shows just how sure major companies like CLF and others are sure that the market for iron ore and coal is going to be strong for years to come. CLM was going to double production in late 2011 or early 2012, and even after doubling production the mine in Labrador would likely produce for over 50 years. And there likely is more iron ore in the area. I don’t own CLF.
As a potential replacement for CLM, I’ve found a copper mine in British Columbia (stock symbol CUM) that I think is going to grow from being a developer to a producer in 2011. I have started to buy shares in CUM and sold calls on some already. A batch of 1,000 shares cost us around $6,800 and I sold a call for April and collected almost $800 worth of premium (11.7 per cent) which is a nice return for three months.
SILVER AND GOLD
Gold company OSISKO (OSK) is almost ready to start crushing gold ore so it will grow from a developer to a producer later in 2011.
I think I mentioned before that I like silver as a commodity and thus I like silver stocks. So I have used some of the profits from CLM to buy more silver shares. We now own 2,000 shares of SLW which doesn’t own silver mines but buys silver from other companies. And we own 2,000 shares of a silver company in China stock symbol SVM.
I sold calls on all 4,000 shares around the middle of January and collected something like $6,000 of premiums for two months. We’ll see how that works out.
Since early 2009 our big winners were Teck Resources (TCK. B) (from $12 to $38); CLM (from $8 to $17.50); and OSK (from $8 to $14), and I collected extra cash by selling some calls along the way on some shares. I call these our growing steers and heifers.
Then Yamana (YRI) and USU were what I call milk cows that earned over 20 per cent year for us even though the shares have stayed flat. Our losses included RIM and shares in Agnico Eagle (AEM), but overall the winners out ran the losers by a country mile.
We have also learned a lot on how to read charts so we can more predictably sell calls above the price of the day on rising stocks and below the price of the day on falling stocks and make good money whether the shares go up or down or stay flat. Our stocks can bring in cash flow eight to 15 times a year, so I jokingly say our “cows” can throw eight to 15 “calves” a year.
For Christmas in 2010 our children, their spouses and Pat and I decided to give goats to families in Nairobi instead of exchanging gifts. We all are richly blessed and it was nice to see our children suggest the idea and do it.
A goat cost $75 through Plan Canada or a herd of 12 cost $750. The kids pooled their money and I topped it up so we bought two herds and the federal government matched them three to one. So a bunch of nannies and a few billies ended up with families in Nairobi. I paid the kids their tax deduction amount so I’m claiming the whole cost of the 24 goats.
In the process, I checked on other charities. The Food Grains Bank is a common charity in Western Canada as you know and the federal government matches contributions four to one I believe. One of their plans goes something
like this: $75 will supply a family of eight with food for a month. I suppose one $75 goat will help a family out for years.
Along the way I found some statistics on how much of each donated dollar actually goes to the needy. Here are a few numbers:
The Plan Canada Number came from a person working on the goat donation and I asked her how they get paid. She said 20 cents of each dollar I donated went for overhead. A reader told me they had checked out World Vision and were disappointed at the high cost and so donated goats through another charity that used 78 cents per donated dollar for the needy. I also heard that Greenpeace spends 95 cents of every donated dollar trying to get the next dollar. If someone has a more official number do let me know.
I did read the salaries of top dogs in those various organizations and they ranged from something like $13,000 for the Salvation Army guy to $1.2 million for the CEO of UNICEF, plus perks.
Andyismostlyretired.Hehasataxbusiness, writes,playswithhisgrandchildren, gardensinsummerandmanageshisown portfolio.Andyalsopublishesanewsletter calledStocksTalkwhereheexplainswhathe doeswithhisstocksandwhy.Ifyouwantto readitfreeforamonthgotoGoogle,typein StocksTalk.net, clickonfreemonth,clickon forms,filloutfourlinesandclick
If a person can start to collect say $700 a month at age 60 that adds up to around $8,000 a year of extra income