CANADA PENSION PLAN JUST ANOTHER GOVERNMENT PROGRAM PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

CANADA PENSION PLAN JUST ANOTHER GOVERNMENT PROGRAM PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

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Our last post discussed the financial discrimination of Old Age Security (OAS).  This post discusses the financial discrimination of the Canada Pension Plan (CPP).

CPP is part of the Pillar 2 plan of Canada’s retirement income system for seniors.  Some of the attributes of the plan are:

  • Federal government and Provinces are joint stewards of the CPP
  • Provides retirement, survivor, and disability benefits
  • Universal coverage of all workers in all industries
  • Employees and employers make equal contributions (4.95% each – 9.9% combined in 2015?) on earnings up to annual maximum of $54,900 (2016)
  • Defined Benefit – up to 25% of the average wage
  • Fully portable
  • Inflation-indexed to CPI
  • Actuarially sound for the next 75 years
  • The maximum CPP benefit for 2016 is $1,092.50 per month.

Unfortunately, most Canadians do not realize that the average Canadian will not receive the maximum CPP on retirement.  In fact, most will only receive about $643 per month of CPP maximum.  Why is this so?

Jim Yiu from ‘Retire Happy’ in his article “How much will you get from Canada Pension Plan in Retirement?” states (words in italics are my words):  

‘When planning for retirement, the first piece of advice given is not to plan on getting the maximum.  When you look at the average payout of CPP, it’s just a little over $643 per month in 2016, which is a long way from the maximum. In other words, not everyone gets the maximum. At the most basic level, the amount you get from CPP depends on how much you put into CPP.

Why is it that so many people do not qualify for the maximum amount of CPP? The best way to answer that is to look at how you get the maximum retirement benefit. Eligibility to receive the maximum CPP benefit is based on meeting two criteria:

  1. Contributions – The first criteria is you must contribute into CPP for at least 83% of the time that you are eligible to contribute. Essentially, you are eligible to contribute to CPP from the age of 18 to 65, which is 47 years. 83% of 47 years is 39 years. Thus, the way to look at CPP is on a 39-point system. If you did not contribute into CPP for at least 39 years between the ages of 18 to 65, then you won’t get the maximum. If so, then you might get the maximum but there is another consideration.
  2. Amount of contributions – Every year you work and contribute to CPP between the age of 18 and 65, you add to your benefit. To qualify for the maximum, you must not only contribute to CPP for 39 years but you must also contribute ‘enough’ in each of those years. CPP uses something called the Yearly Maximum Pensionable Earnings (YMPE) to determine whether you contributed enough. (For 2016 the YMPE is $54,900 – EQUIVALENT TO ABOUT $25 PER HOUR).

Basically if you make less than $53,600 of income in 2015 ($54,900 in 2016), you will not contribute enough to CPP to qualify for a point on the 39-point system…..As you can see, it’s not easy to qualify for full CPP especially with the trend of people entering into the workplace later because of education and people retiring earlier.  If you have 39 maximum years of contribution you’ll get the maximum CPP amount. If you have 20 maximum years of contributions you will get approximately half the maximum (you might get some partial credits for part years).

Planning your retirement needs and income requires some understanding of how much you will get from CPP. Many people either assume they will get the maximum or assume they will get nothing at all because they fear the benefit may not be there in the future. Both these assumptions have significant flaws. Take the time to personalize the planning by understanding how the CPP benefit is calculated and how much you will receive.’

ANALYSIS

Reasons why CPP is financially discriminatory to singles with low/moderate incomes and the poor:

    1. The YMPE 2016 salary to get maximum CPP benefits is $54,900 (up $1,300 from last year).  If average annual hours of work equals 2,200 hours then YMPE salary will be approximately $25 per hour.  Many singles and the poor do not have $25/hr. jobs.  In addition politicians, government, and businesses generally refuse to increase the minimum wage or ensure a living wage for all Canadians. If the YMPE is increased by $1,300, why aren’t the wages increased by the same amount for the poor so they can also contribute more to CPP?  Even those persons who work faithfully at full time jobs for forty years, but don’t have $25 per hour jobs will not receive full CPP benefits.  (Is this really what they deserve after working faithfully for their country for forty years)?  So who benefits most from CPP?  It is the middle class and wealthy who have at least $25/hr. jobs and, therefore, are able to get full  CPP benefits.
    2. Early retirement – who gets to retire early?  It is generally the upper middle class and wealthy married or coupled family units because of the marital manna benefits they receive, high incomes and the net worth they have.   In reality many of these families really do not need full CPP benefits.  From personal experience of this blog author, some married or coupled spouses will say both spouses do not need to work when really both spouses should be working or because of their high income only need one spouse working.  (To get full  CPP benefits each Canadian born citizen needs to contribute into CPP for at least 39 years between the ages of 18 to 65.   And, Canadians must not only contribute to CPP for 39 years but they must also contribute ‘enough’ to maximum of YMPE in each of these years).
    3. Marital manna benefits – Married or coupled family units have received many marital manna benefits that allows them to achieve more wealth than many singles and the poor.  One such example is the Child Rearing Drop-out Benefit.  CPP benefits may be increased for years that spouse did not generate income because of staying home to rear child from ages 1 to 6.  This is not necessarily a bad thing in and of itself, but those who are more likely to be able to stay home for child rearing are those with healthy incomes.
    4. Perception of financial  need –  Many politicians, governments, and financial planners have misconceived perceptions that financial goals should be for Canadians to have equal or higher pension income than while working.  In other words, if poor, it is okay to always be poor even in retirement.  For middle class or wealthy they say the goal should be equal or more pension income than working income even with high net worth and assets.  In reality, institutions like the OECD states less wealthy need 100% retirement income  of working income, while wealthy need retirement incomes that are much less of working income.  What is left out of these perceptions is quality of life.  Equal or higher pension income than income while working for singles with low/moderate incomes and the poor especially if paying rent or mortgage in retirement often does not equal a good quality of life.
    5. Proposed enhancements to CPP contributions and benefits – Proposed enhancements where CPP retirement pensions will be higher if taken after age 65 and./or will be higher if person works past age 65 are very good things. However, it is likely that singles and the poor are not the ones who will be able to postpone receiving their CPP benefits, and it is also more likely that singles and the poor are the ones who will need to work longer.  As for increasing CPP contributions now so that CPP benefits can be increased in the future, this generally is a good thing; however, the stress of having to contribute more will be more financially distressing for singles with low and moderate incomes and the poor rather than the middle class and the wealthy.

CONCLUSION

It seems to be more important for politicians and governments to ensure that upper-middle class and wealthy maintain their standard of living than it is to treat ever singles, early divorced singles, single parents and the poor fairly in benefits they receive (cpp).

Upside-down financial systems (upside-down) and marital manna benefits have created a nanny state where married/coupled persons want it all and once these benefits are in place, it is very difficult to eliminate them because of voter entitlement.  Upper middle class and wealthy married/coupled persons have been made irresponsible by their own politicians and government.  Many are not living an equal life style in their retirement, but a much better lifestyle.  A further question is whether these programs will be financially sustainable because upper class and wealthy married or coupled family units have not contributed enough to pay for these benefits.

Much is required of all family units regardless of marital status to educate themselves on what their actual retirement income will be.  If you don’t work, you won’t get CPP.   You won’t get CPP if you don’t work.  You won’t get CPP if you don’t make CPP contributions, for example, working ‘under the table’.  (And, wouldn’t it be nice for parents to pass this financial information onto their children so that their children will also make wise financial decisions)!  Much is required of financial planners to educate themselves on quality of life issues, not just equal or higher pension incomes.  Much is required of politicians and governments to educate themselves on how financially discriminatory many of the pension benefits are and to make changes so that there is financial equality and fairness in distribution of pension benefits for every Canadian,not just middle class married or coupled family units and the wealthy.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).

CANADA CHILD BENEFIT PROGRAM SHOWS FINANCIAL DISCRIMINATION AT ITS BEST

CANADA CHILD BENEFIT PROGRAM SHOWS FINANCIAL DISCRIMINATION AT ITS BEST

(These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice). 

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From CBC News-”New Canada Child Benefit program payments” July 20, 2016 (cbc) – Analysis of new Liberal Canada Child Benefit program and old Conservative UCCB program

The old Universal Child Care Benefit or UCCB (Conservative) provided $160 per child per month for children under six and $60 per month for children aged six to 17. That money was paid out to families regardless of income level.  The Conservative philosophy was that there should be some component of assistance for families that was universal.  However, this benefit was to be included as income and required payment of taxes.

Conservative universal approach could be viewed as all families should receive some component of assistance.  Just because they make a lot of money they should not be penalized, they should not be losing out and not getting any government benefits,  (Note: only for families, ever singles don’t matter).

The new Liberal program Canada Child Benefit (CCB) begins this month and combines the CCTB and UCCB into one payment that is entirely income tested up to $190,000 of income. The new payment is also tax-free making it more expensive than the UCCB.   Less than $30,000 in net annual household income generates benefit $6,500 for each child under six and $5,400 for children aged six through 17 tax free. 300,000 fewer children would live in poverty in 2016-17 compared with 2014-15.  The Liberals also reduced the tax rate from 22.5 per cent to 20 per cent for middle-class Canadians earning between $44,700 and $89,401 a year.  The Liberal (Trudeau) approach is that these benefits should be based on income testing.  Wealthier families can carry more of the load…they don’t need additional government handouts.

Since provinces also provide some child benefits, there was concern that provinces would clawback CCB from children on social assistance.  So far eight provinces has indicated they will not clawback CCB.

Illustration provided shows Ava Williams as a Toronto social worker with a net income of about $30,000, who lives in community housing. As a single mother of four children between the ages of six and 17, she says the new program will boost her old annual federal benefit payment by about $6,000 per year with added benefit of the new payment being tax free.  Something does not add up for the totals given..  One wonders if she means an additional $6,000 to what she received in 2015.  Assuming her net income is under $30,000 and her children all under the age of 18, it appears she will receive somewhere between $21,000 and $26,000 in child benefits, for a total net income between $51,000 and $56,000 all tax free.  This is in additional to subsidized housing and other possible federal and provincial benefits such as GST/HST credits with no clawback of the benefits..

An example of additional benefits received on a provincial basis with no clawback is Alberta.  In Alberta the non taxable child benefits are applied to working families with children under 18 and a net income starting at $25,500 with phasing out up to less than $41,220 per year.  Total annual maximum benefits for one child could be up $1,863, two children $3,107, three children $4,073, and four children $4,762.  Ava if she lived in Alberta with four children could receive total tax free federal and provincial child benefits of approximately $55,762 plus subsidized housing ($30,000 net income $21,000 CCB and $4,762 Alberta child credits). (There is no clarification on her marital status, which should not matter, but many readers wanted to know where the father was).

SYNOPSIS OF APPROXIMATELY 2500 READER COMMENTS FROM TWO NEWS ARTICLES

Approximately 2500 reader comments from two news articles were reviewed.(not number of readers, as some some readers comment many times)  The majority of comments were classified into the following major categories:

-Negative comments (most were negative)

-Not happy with amounts received between new Liberal and old Conservative benefits or  it is not enough

-Positive comments (very few)

-Bashing of political parties (Liberals versus Conservatives)

-Worried about future debt generated by benefits

-Many comments bashing Ava and where is the father of these children

-Other programs would be more beneficial than the child benefit program

-Program will be abused

-Benefits given for children but seniors and disabled receive much less

-Singles feel they have been left out of process and families of all types bash singles

-Divorce and death of one parent as well as other causes have impact on poverty

-Child benefits not only on federal level, but also provincial level

-In addition to benefits, should also be teaching budgeting and financial responsibility

-Immigrants

-Education

-Advantages of Child Benefits

-Benefit programs – have lots of other programs in addition to child benefit

-Eighteen years a long time for benefits

-Misconceptions about what is benefit versus welfare

-In addition to benefits, income taxes also cut for middle class

-Net worth and assets

Because of the length of the post, only issues regarding ‘Singles’ and ‘Net Worth and Assets’ will be discussed here.  Other categories will appear at the end of the post for those who wish to review all other categories in their entirety.

Reader comments regarding SINGLES

Single response-We’re sending cheques to families with household incomes up to $190,000/year yet there’s nothing for the 30% of single female seniors living in poverty. There’s a number of programs for single female seniors. I’m sure though that you and I would agree that it’s not enough.

Reader response-For all you single people out there, if you want to get tax free money , you better get married and start having kids because that is the only way you will get a tax shelter.

Single response – Nobody ever wants to help single people with no kids. Ever occur to you that I have no kids because I am responsible and do not want to bring kids into a life of poverty?

Reader response –  According to the left if you are single and no kids you need no help. You are well off and should pay more taxes.

Reader response -or you are selfish and don’t want to spend money on anyone but yourself.

Reader response – Don’t worry, that ‘right person’ is out there somewhere.

Reader Response -Yet other people’s kids will be the ones to take care of you when you are elderly. Don’t you think that’s worth a little bit of investment?

Single response – If the govt had money to throw away they could have reduced the tax rate for all of us, not just those who think they are poor because they gave birth to 4 kids.. Single people get NOTHING, just pay up more.

Reader response – We don’t have another human depending on us for life and those who have taken that responsibility deserve the help managing the full time obligation.

Reader response – I doubt that that is what he meant at all. A sense of responsibility is not selfishness.  Having kids is one of the most important things you’ll ever do. Granted, you cannot anticipate every life outcome, but generally speaking a responsible adult has an idea of their finances, and where they expect their finances to be in future. Most adults can actually budget their grocery store purchases – I believe they can budget the price of a child.   And having babies is not a right. Nobody should be under any obligation to financially support a stranger’s kids.

Reader response – You should be asking yourself why you need help if you’re single with no kids.

Reader response -And second, it’s not to say that single people with no kids can’t or shouldn’t receive support, it’s just that why would you need support for being single or having no kids? If you’re also elderly, or disabled, sick or unemployed sure, but being single and having no kids isn’t making it harder for us to live reasonably.

Single response – Hey, maybe all the poor single people – the disabled, etc., will simply die off and make room for all the government-supported kids.

Single response – as a childless middle aged man I am sick of paying for everybody’s kids, especially the Harper garbage boutique tax credits for hockey and ballet school.

Reader response – More likely you don’t get along with women very well or can’t find someone that will have your kid. Ever occur to you that poor kids may not necessarily have been born that way and that layoffs and economical hits create poor kids? That divorce also creates poor kids. Death of a spouse creates poor kids. You can be a millionaire and bring kids into the world and then have your investments tank the next day and you’re poor.

Reader response – If you are single your costs are much, much lower than if you have kids. Your contribution to the economy is also lower. When I go out to dinner my contribution is 5 times what a single person will bring to a restaurant but I still only need one table. This creates jobs as well. My kids go to swimming lessons (jobs and economic boost), they take the bus (jobs and economic boost), eat food and wear clothes and you name it. Grow up.

Reader Response – Single people do not pay more in taxes, that is a lie.

Single response – they certainly don’t get all the freebies (singles)

Reader response – I don’t think it’s that single people with no kids expect support, it’s simply that they perhaps don’t understand why people with kids should get rewarded with their tax money for having babies.

Reader response– Everyone at some point has paid taxes, not just single people. To say that only “single” taxpayers are funding tax benefit programs is hogwash.

Single responseSingle and no kids myself, in my early 50s, barely able to keep a roof over my head even with a full-time job and living frugally. Where’s *my* handout/monthly allowance from the gov’t?

ANALYSIS OF COMMENTS REGARDING SINGLES

It is clear that families with children (and even some singles) are financially illiterate and have no understanding of what it costs a single person to live.  Living Wage for Guelph and Wellington (2013 living wage of $15.95 per hour), a bare bones program to get low income and working poor families and singles off the street, allows a calculated living wage income for single person of $25,099 with no vehicle, food $279, transit and taxi $221 (includes one meal eating out per month).  (In 2015, the living wage for Guelph and Wellington has been set at $16.50 per hour). Note, this is not Vancouver, Toronto or Calgary where living costs are much higher.

Singles get no benefits except in abject poverty.  In both Liberal and Conservative programs, families with children (including single parents) get the benefits while ever singles and divorced persons without children get nothing.

Singles pay more.  Yes, ‘singles pay more taxes’ is a false statement.  Truth is that singles, person to person, pay same taxes, but get less benefits.  From the time they are married until one spouse is deceased, married or coupled families with children will likely have received shower, wedding, baby gifts, possibly maternity/paternity leave benefits, child benefits times number of children, TFSA benefits times two, reduced taxes, pension-splitting,  possible survivor pension benefits, and then want to retire before age 65.  In certain cases some of these families will not have paid a full year of taxes.  Single parents will receive child benefits and possible other benefits as well.  When all the benefits that families with children receive are taken into consideration, ever singles and early divorced persons with no children do pay more.

-There is a the perception by families that a reason to have children is that they will take care of future generations.  Financial responsibility implies that everyone including families should be financially paying for and taking care of themselves.  Future generations do not deserve to have heavy tax burdens placed on them to finance this generation and future generations of parents and children.  Likewise, financial responsibility implies that children do not deserve huge inheritances, while singles have a much more difficult time achieving same standard of living and saving for retirement as families with children.

Reader Comments regarding NET WORTH AND ASSETS

Comment-Liberals are so dumb that they don’t even know that the measure of true wealth is NOT income but net worth.  Are they so stupid to think that a lot of your neighbors, who declare zero income (and I know a lot of them) but can afford Jaguars and Bentleys and multi-million dollar homes really are poor? My wife and I are middle class folks, who live in a modest townhouse in Vancouver who won’t qualify for this now because we “make” too much. Sorry, Justin Trudeau, but 150k a year in Vancouver won’t get you very far.

Comment-if you only make $30,000.00 a year, maybe stop after the second child. Kids are expensive.  “According to MoneySense.ca, the average cost of raising a child to age 18 is a whopping $243,660. Break down that number, and that’s $12,825 per child, per year — or $1,070 per month. And that’s before you send them off to university.”

Comment – Take my numbers for example:   Property tax in Oakville Ontario is very high. I live in a 3000 sq/ft house on a tiny 90×90 lot and property tax is $12,000 a year.  Food cost for a family of 3 is about $15,000 a year, Utilities is $9000, Gas/Car/Insurance (2 cars) is $13000, Clothing/Phone/Living Expenses $8000.  I am only listing off the big expenses. Not including a lot of the little things. That comes to $57,000 a year. Hardly enough to live.

Reader Response to above-That sounds more like someone living beyond their means. And taxpayers are expected to step in and assist families like yours who have a more luxurious lifestyle than most could even dream of.   If you mean 3 kids, maybe, but 3 people, well, then you want too much. A family of 3 in a 3,000 sq. ft house? $300 in groceries a week for for 3 people? Did you know your taxes would be that high before you bought the house? If so, then you brought that on yourself.

ANALYSIS OF COMMENT REGARDING NET WORTH AND ASSETS

-Sense of entitlement.  It is absurd how the wealthy and rich families believe they are entitled to everything (3,000 square foot house)..

-Net worth and Assets.   None of these benefit plans include elimination with high net worth and assets, so again, the wealthy and rich families are receiving benefits they do not deserve.  One of our last posts (see link at top of page) showed how families with considerable assets ($500,000), one spouse working and four children under age of six would receive considerable benefits while never paying a full year of tax if they retired at the age of 60 when their youngest child turned 18.

-Middle-class families with higher income levels for child benefit program complain they don’t receive same level of benefits.  Yet they refuse to acknowledge that they are the ones who would also receive the reduced tax rate from 22.5 per cent to 20 per cent for middle-class Canadians earning between $44,700 and $89,401 a year.

CONCLUSION

It is completely obscene how governments and politicians can implement programs that do not look at net worth and assets.  Families units (including singles) with high net worth and assets and low (of any kind) income do not deserve to get child benefits and other wealth-creating benefits and programs.

It is also financially discriminatory when governments and politicians only include certain family units in their financial formulas.   In Canada, family units with children benefit most while ever singles and early divorced persons without children get nothing.  In the USA, Bernie Sanders has managed to accomplish some wonderful things for financial fairness.  However, even some of his accomplishments agreed to by Hillary Clinton again target only certain family units, that is those with children (free college/university for families with incomes $125,000 or less and paid parental family and medical leave).  Most politicians, whether right or left leaning, only talk about families, with most benefits given only to families.  Singles are never mentioned let alone included in financial discussions and formulas.  What if singles want to go to college/university to get a better wage?  Why are they are not included?

Many of the reader comments correctly identify divorce and death of a spouse as having a big financial  impact on family units.  However, it is also irresponsible for family units to not have life insurance to cover these life circumstances.  Life insurance for spousal death should be mandatory, just like car and house insurance,  and should be ample enough to cover big ticket items like mortgages.  Maybe divorce insurance should also be implemented and made compulsory so that ever singles are not forced to support divorced family units.

For many years there have been great universal government programs in place like public school education, and health care.  For financial fairness, absurd programs like the child benefit programs need to be replaced with universal day care, government paid for college and university education (at least first couple of years of university) and affordable housing (should be available to all types of family units).Then, if wealthy families want to send their privileged children to elite private schools, day care and university, they can spend their own money to do so.

Benefit programs like income splitting and pension splitting under Conservatives are bad policy as they discriminate against singles, and the  widowed and divorced (and spouses earning equal incomes).   Benefit programs should focus on the poor with inclusion of net worth and asset assessments  in the financial formulas.

Governments, politicians, and families need to become financially educated on what it costs ever singles and early divorced persons without children to live.  All Canadian citizens deserve equal financial dignity and respect regardless of the type of family unit they are in.

Once children become ever single and early divorced without children adults, they should not become invisible and made to feel like they are no longer financially important to society.  All lives matter including ever singles and early divorced without children adults.

Additional Reader Comments:  click on link below:

CANADACHILDBENEFITSCOMMENTS2 (1)

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).

RETIREMENT INCOME SECURITY FINANCIALLY DISCRIMINATORY FOR EVER SINGLES AND EARLY DIVORCED/SEPARATED PERSONS

RETIREMENT INCOME SECURITY FINANCIALLY DISCRIMINATORY FOR EVER SINGLES AND EARLY DIVORCED/SEPARATED PERSONS

(These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice).

This blog post was updated on December 1, 2017 replacing 70% information with 1.4 equivalence scale for couples to that of singles, not 2.0.

So here we go again, several organizations, primarily Chambers of Commerce and financial planning and insurance associations, have taken out a full page in newspapers across the country for an article called “It’s time for national cooperation on retirement income security” and is addressed to Federal, Provincial and Territorial Finance Ministers (clhia).  In this article, widowed elderly are highlighted over single elderly seniors in regards to living below the poverty level.

The article talks about being proud of Canada’s retirement system.  It then goes on to say: ‘That said, there are pockets of our population who are not as well-prepared for retirement as they could be.  These shortfalls are specific to certain segments of our populations. Hence, any ‘one-size-fits all’ approach could prove harmful to the economy as a whole and be unnecessary for many.We believe that the time has come to take a targeted approach to addressing any shortfalls.  Such an approach should be national in scope..  It should be fair, so that it doesn’t introduce inter-generational transfers or require over-saving where it is not needed.  It should be cost efficient and easy to implement.  It should minimize administrative burdens for employers.  And it should be good for the economy.

There are three specific segments not on track to maintain their standard of living in retirement:

  1. A small percentage of lower-income Canadians live below the poverty level, particularly the widowed elderly.  The commitment in the federal budget to increase Guaranteed Income Supplement (GIS) payments will provide some assistance in easing this situation  But more could and should be done, such as eliminating the claw-back for a surviving spouse under the Canada/Quebec Pension Plan.
  2. Up to 25% of modest-income Canadians (say above $27,500) are not on track, largely because they do not save outside of the public system and/or do not have workplace plans.  This group could benefit most from a modest increase in C/QPP contributions that would help meet their needs.
  3. Up to a third of higher-income Canadians are not on track to maintain their standard of living in retirement because they do not have a workplace plan or don’t maximize their participation in one, or they do not have sufficient private savings.  This group as well as all Canadians should have access to a retirement plan at the workplace, where it is easiest to save.

The undersigned urge all government to pursue a national, multi-faceted approach to improve retirement income security for all Canadians’.

The article is then signed by fifteen different organizations.

Statistics show that in 2014 there approximately 6 million seniors age 65 and over.  From BMO “Retirement for One-By Chance or By Design” (bmo) in 2008, approximately 57 percent of seniors were married; of the remaining 43 per cent of single status, 30 per cent were widowed and 13 per cent were divorced/separated or never married (ever singles).

BMO goes on to say that one of the realities for ever singles is that they lack survivor benefits.  The following table shows that ever singles and widowed persons, both with employer pensions will still probably have the same income.  For widowers with a spouse who also had an employer pension, the widower will have a higher income level from spousal employer pension survivor benefit.

income advantage senior widow over ever single2

Persons who become widowed are now ‘single’ so why should they receive special privileges like no income claw back for surviving spouses?  What do ever singles and early divorced/separated persons get that is comparable?   Studies repeatedly show that according to equivalence scales (equivalence-scales) it costs a married/coupled person family unit without kids 1.4 times that of a single person household, not double..

This blog has published several posts where it has been shown that financial advisors have no clue about the financial affairs of ever singles and early in life divorced/separated persons.  One wonders what  financial experience Chambers of Commerce have that they can comment on the financial affairs of singles.

Once again, the widowed elderly have been highlighted as an area of concern while ever singles and early divorced/separated persons are left out of the financial discussion.

There is complete financial illiteracy by most people on what it truly costs to live as a single person.  The post ‘Real Financial Lives of Singles’ (singles) gives five case studies, four of which contribute to employer pension plans, and one widowed person who has considerable wealth and is concerned that he can no longer pension split and may have his OAS clawed back.  Even with an employer pension plan it is not easy for singles to have a decent financial life.  Another post ‘Continued Financial Illiteracy of Financial Gurus Equals Financial Discrimination of Senior Singles’ (senior-singles) shows the financial silos that have been created by governments where married/coupled persons as one family unit and some widowed persons as one family unit receive more financial  benefits than ever singles and early divorced/separated persons family units.

To ensure financial equality between singles, widowers and married/coupled persons, the following measures need to be taken:

    • change financial formulas so that senior couples receive 1.4 equivalence scale only of whatever is given to a single senior person household as it costs more for single senior person household to live than it does married/coupled family units because of economies of scale
    • financial formulas should be revised to include all senior persons regardless of marital status in one financial formula.  To eliminate financial silos that benefit married/coupled persons most, delete benefits already given to married/coupled persons such as pension splitting (benefits the rich most) so that there is a level financial playing field for all regardless of marital status. (It is understood that it is expensive to raise children and  benefits given for children should last for first twenty years of the life of the child. However, beyond the twenty years of the children, any other benefits given to married/coupled persons should be deleted or revised to a rate of 1.4 to that of a single person)
    • create a side-by-side list of all possible benefits under categories of married/coupled, widowed and single and analyze what each category gets in benefits.  Financial formulas should be created equally for all categories, not just the married/coupled and widowed.
    • delete allowance benefit that has been ruled to be discriminatory by the courts
    • education, education and more education on financial literacy for singles.  Think tanks, financial gurus and married/coupled people need to educate themselves on what it really costs singles to live.
    • financial benefits should be income-tested for all family unit types.  Income testing should include housing and savings.  It is likely to cost ever singles more to live as they are more likely to rent while widowers are more likely to own their own homes.
    • all financial formulas for singles should include ever singles, early divorced/separated persons and widowers on an equal basis.

This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.

HOW MARITAL STATUS IMPACTS DEDUCTIONS, CREDITS FOR MARRIED/COUPLED PERSONS

HOW MARITAL STATUS IMPACTS DEDUCTIONS, CREDITS FOR MARRIED/COUPLED PERSONS

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.

(While researching online for information on last two posts, this article came up:   “Love and taxes: Canadians confused on how marital status impacts deductions, credits” by Darah Hansen and published in Yahoo Finances on February 12, 2016 just before Valentine’s day.  This article and the comments following the article provide some interesting insight into thoughts of Canadian citizens on reporting of marital status on income tax forms.  This article and comments is also a good follow-up to the information entered in the last two posts.

Comments of the author of this post are shown in italics.)

Quotes From Article

Quote from article states:

  • ‘Recent survey by Leger, on behalf of H&R Block Canada, found that more than half of us mistakenly think that married and common-law spouses can file a joint return to save money on their taxes. Another 40 per cent believe it’s up to us to decide whether to claim our marital status on our tax returns, while a handful of respondents doubt the CRA (Canada Revenue Agency) has guidelines to determine that status.
  • Couples are required by law to check the correct status box in tax forms.
  • Family incomes in Canada are not combined for the purpose of calculating tax; however, they can be for the purpose of calculating income-tested benefits, such as the GST/HST credit or the National Child Benefit supplement.
  • Couples also stand to benefit from combining their charitable donations, transit passes and medical expenses.
  • And, new this year, parents of children under 18 years stand to gain from a newly announced federal tax credit. Often referred to as the “family tax cut”, the new measure allows a higher earning spouse to transfer in kind up to $50,000 in income to his or her spouse in order to collect a tax credit of up to $2,000.Canadian taxpayers are required by law to answer the marital status question correctly.  “If you lie, it’s tax fraud,” says Golombek…..
  • To be considered common-law, two people must live together in a conjugal relationship for 12 months or immediately if you have a child together. If you receive benefits you are not entitled to because of an incorrect marital status, you can bank on being asked to repay them.
  • One final misconception: About 44 per cent of Canadians believe that once you are divorced, you can claim as single the following year. But once you have filed as married, you can never claim single. You are instead classified as separated, divorced or widowed’, (end of quote).

Comments from Readers

The comments following the article, of which there were many, resulted in very different viewpoints.  Indeed, some comments turned out to be very derogatory and inflammatory as often occurs in forums of this kind.  Families with children call singles ‘selfish’ and single call families with children ‘breeders’, etc.  Analysis of the comments revealed some commonalities.

A large majority of Canadian citizens, it seems, don’t have a clue about declaration of their marital status on income tax forms, especially those that are married, divorced, separated, or living common-law.  Canada Revenue Agency (CRA) has very clear definitions of marital status, so why the confusion?

Some of the reasons why incorrect reporting of marital status on income tax forms are as follows, (these are comments that were submitted by the readers):

Unhealthy or unequal relationships with their significant other.  

  • One comment:  ‘good luck in filling as common-law in my case my partner refuses to file common-law, said his taxes are complicated, and we been together now for 5 years. I look at it he is hiding something and don’t want me to know his business.’

Some don’t seem to want to record their marital status as outlined in CRA rules. One of the biggest issues on recording marital status seems to revolve around those that are divorced/separated and what they will have to give to the other spouse in the way of child and spousal support.

  • ‘Once you are legally married you can never again claim “single”. If you divorce, you must say “divorced”, even if you were divorced 40 years ago. If you remarry, of course, you then check the “married” box once again. Until your partner dies, whereby you become “widowed” until you remarry or die yourself.  To be “common law” you will have been living together for 12 months prior to filing your taxes, – or right away if you have a child together and it happens to be less than that.  (Even if divorced for many year, marital status would still be divorced).’
  • ‘Making a “stupid decision” not to inform CRA about this issue will often come back to bite you.’
  • ‘There are more tax breaks for single moms then for being married. It is actually scary to tell them when you finally do get married. There goes everything.’
  • ‘Seems strange, usually you marry the mom not the kids. Not sure why she would stop getting benefits to support her kids. Note to self, stay clear of single moms and the tax man will pin you with the responsibility.’
  • ‘So why (does)  Revenue Canada have different category for divorced people? to have a reason to garnish…  They do this because people who are separated or divorced often have separation agreements/court orders for making support payments. Spousal support payments are taxable in the hands of the recipient and deductible for the payer. Since there are no slips that go with these payments they want to make sure that both parties are claiming it or including it correctly (i.e. not just being deducted by the payer and not included in income for the recipient).’

Many income tax filers have no clue what benefits they will get and how marital status will affect those benefits.  Married/coupled persons don’t seem to realize they will receive more benefits throughout their married/coupled lives than will singles, particularly ‘ever’ (never married, no kids) singles.

  • ‘Single working professionals get taxed the hardest with the fewest deductions.’
  • ‘There is no benefit in being married. Stay single especially single mothers.’ (Married/coupled persons seem to never be happy with the benefits they get).
  • ‘don’t forget to add to move in with your boyfriend either, if you want the benefits or to minimize your tax, of course based on that rationale they should struggle on one income just to get benefits is quite irrational thinking.’  (This presumably was a tongue-in-cheek remark to the above comment.)
  • ‘You may not see the benefits of being married when it comes to taxes, but financially there are a lot of benefits to not be single. Sharing costs like same  housing is huge and when finances are done with purpose in mind can lead to wealth creation.’ (This is known as being able to live more cheaply because of economies of scale-Six Reasons why Married/Coupled Persons able to Achieve More Wealth). six-reasons-why-married-coupled-persons-are-able-to-achieve-wealth/
  • ‘But there is no denying  that two people going in the direction accomplish way more than one person by him/herself….. those who stay together are better off statistically in a financial sense than those who go about it alone.’ (This is because of  ability to accumulate wealth times two persons and ‘rule of 72’ -Six Reasons why Married/Coupled Persons able to Achieve More Wealth)
  • ‘Couples can transfer unused credits to each other. Singles lose unused tax credits.’  (This is because of marital manna benefits – Six Reasons why \Married/Coupled Persons able to Achieve More Wealth)
  • ‘I was once told by my neighbour that he and his wife would be better off financially if they divorced. Obviously not ALL Canadians are confused about tax credits and deductions. (Next comment) Not so. Couples can transfer unused credits to each other. Singles lose unused tax credits.’  (This is known as manipulation of assets as stated in ‘Six Reasons why Married/Coupled Persons able to Achieve More Wealth).
  • ‘I have never paid more than what I owe based on my income whether single, married or divorced. The only difference it makes is for benefits like GST rebates, etc….’
  • ‘Family incomes in Canada are not combined for the purpose of calculating tax.’  
  • ‘They are only combined for potential benefits such as GST tax credits… etc…..you can transfer unused tax credits to lower the spouse’s taxable income, thereby reducing their taxes. CRA combines them for the purpose of calculating GIS benefits and HST refunds.’

Some tax filers choose to falsely record their marital status, though they know they are committing fraud.

  • ‘Most Canadians play dumb as they are fully aware they are breaking the rules and pretend like they didn’t know. They cheat hoping they will not get caught.’
  • ‘If you are married the tax form asks for your spouse’s name, SIN and whatever.’
  • .It’s not your fault you didn’t get caught. It is your fault for claiming single while married. Let me simplify this for you. Two scenarios. Husband and wife. Both make $35k. If they claim single each pays tax on $35k. If they claim married EACH pays tax on $35k. The combining is only for tax credit purposes. Percents don’t change due to marriage or not. Govt fraud is irrelevant to this conversation. And if it is true… then so what … two wrongs make a right? Seriously you need to get professional advice. Just because you have not ‘been caught’ yet does not mean it won’t happen. You are cheating and if you are getting tax credits fraudulently, you will pay a penalty if caught.
  • For those who don’t think there are repercussions to false filing, you can view the convictions from each province at Google “CRA Criminal investigations actions, charges, and convictions”.

Many more comments were made and are too numerous to be included here.

CONCLUSIONS

  • If there is confusion about how to record marital status on tax forms, get professional help.
  • Incorrect filing of marital status on tax forms constitutes fraud.
  • Education, education, education – married/coupled persons need to educate themselves on all the benefits they receive from date of marriage to after their spouse is deceased.  They need to realize that singles have been left out of financial formulas and do not receive benefits such as transfer of spousal credits, pension splitting, tax relief if one spouse is in nursing home, etc. even though it costs singles more to live than married/coupled persons living as a single unit.
  • Singles deserve to be included in financial formulas at 70% of that given to married/coupled persons.  Many singles have worked throughout their entire lives  (35, 40, 45 years) and,with their taxes have supported  married/coupled persons and their families; therefore singles deserve equal financial representation in financial formulas.
  • Problems that divorced/separated persons have with spousal/child support, etc. should not be the problem of singles and should not be a reason to say that ‘singles’ are lying on tax forms (especially ‘ever’ singles who only have one option to record on tax forms, that is ‘single’).

This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.

MARITAL STATUS DOES NOT DEFINE FINANCIAL INTELLIGENCE

MARITAL STATUS DOES NOT DEFINE FINANCIAL INTELLIGENCE

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.

In the last four posts, financial discrimination of senior singles was discussed.  In addition, two reader letters and response to letters addressing assumptions of married people that singles can live with someone if they lack financial resources, and that financial problems of singles are because their lifestyles are too extravagant was discussed.

It is mind boggling as to why married/coupled people always seem to think that because they are married/coupled they have more financial intelligence and are able to manage their money better than single and divorced/separated persons.  They also almost can never put themselves into the financial shoes of single and divorced /separated persons.

Singles are one the fastest growing demographics in the country, yet they are left out of financial formulas and discussions.

leave it to beaver

WHEN OUR POLITICAL LEADERS MAKE IT SOUND LIKE THE FAMILY FROM ‘LEAVE IT TO BEAVER’ IS STILL THE CANADIAN NORM, THERE ARE CONSEQUENCES FOR THE REST OF THE COUNTRY, SAY SINGLE VOTERS (quote from example #3 article).

 

In this post, the issue of marital status not defining financial intelligence will be discussed by reviewing three examples.

Example #1 and #2 show married/coupled persons are not any better at managing money than single and divorced/separated persons.  Example #3 talks about financial misconceptions about singles.

(Financial profiles from the Financial Post are an interesting study in how persons perceive wealth.  Anyone can submit an email requesting a free family finance analysis.  It is interesting to note that most of the married/coupled requests for financial analysis are from relatively wealthy persons.  These same requests always are requesting financial help because of worry that they will not have enough money to live and retire.)

Example #1, a financial profile of a married couple is as follows:

Calgary Herald, December 12, 2015 Financial Post “Oil Crash Forces  Fix for Couple” – (this profile can be viewed in full online)

This summary is about Gary, 60 and Wendy, 67, an Alberta couple who grew prosperous with Gary’s work as a petrochemical  engineer often earning as much as $200,000 a year doing consulting.  However, his work is now history as a casualty of collapsed oil prices.  Wendy worked as an administrative assistant earning $24,000 a year before she retired in 1990.  Their income at the present time is $2,175 a month and is $3,240 less than their total monthly expenses of $5,415.  They say they need to know if they can survive.  The article does mention one child who is renting one of their rental properties.

Their net worth is $1,867,238.  Their assets include residence $550,000, rental property #1, $460,000, and rental property #2 $430,000.  Their investments include Registered Retirement Savings Plan $132,616, USA 401K in Canadian dollars $250,000, Tax Free Savings Account $39,334, non-registered savings/GICs $174,288 and two cars $17,000.  Their total  liabilities are two mortgages of $186,000 on rental properties.

The financial planner makes the statement:

“When Gary generated an income of $200,000 a year or more, they could afford to ignore investments, rent properties below market value and spend freely”.

The financial planner’s recommendation is get rid of money losing rental property, cut expenses and reallocate assets to cut investment costs.  If they follow the planner’s advice, they should have a before tax income of about $74,000 per year.  With splits of pension income and application of age and pension income splitting credits, they would pay 13 percent tax and have $5,345 a month or $64,140 annual income to spend.  Compare that to reader letter#2, December 12, 215 post that suggested singles with rent or mortgage expenses can live comfortably on a middle class income of $27,000 a year.

It is interesting to note  that their food budget for two people is $1,120 per month and expenses for entertainment are $220 per month.  The financial planner suggests they cut their food budget by $400 and their entertainment budget by $100 per month.

Simple logic without seeking financial planner advice would imply that in order to increase their income they could sell one rental property,  live on the proceeds, then sell the next rental property and live on those proceeds, and finally start taking income from their investments.  They would still have their residence as collateral.  With all their wealth this couple still feel they need to seek financial advice.

If one compares this example to the suggestion from the recent posts that singles can live on $27,000 per year and $200 a month for food, one wonders why this couple would have any financial worries with the wealth that they  have.  Also, reducing their food budget by $400 still allows them to  have a food budget of $350 per person.

Example #2 is taken from a published article “Beyond the Blue Line” by the Canadian Scholarship Trust (CST).

The report showed that approximately 66 per cent of Canadian parents have, or know someone who has, borrowed money or used retirement savings to put their children through extracurricular activities.

In contrast, 48 percent of parents have invested in a Canadian RESP (Registered Education Savings Plan).

CST reported that 43 per cent of parents said they’d borrowed money on a credit card, line of credit, personal or family loan for extracurriculars like hockey. The remaining 23 per cent deferred their retirement or used their retirement savings for extracurriculars.

More than half of Canadian parents (57 percent) said they feel every child should have the chance to play hockey if they want to, ‘because it’s part of growing up in Canada,’ CST said. The percentage represents a drop of more than 10 per cent from last year, when 69 percent said all children should be able to play hockey.

Despite the high rate of borrowing for extracurriculars, nearly half of parents said they knew someone pulling their kids out due to the cost. Thirty per cent said they, or someone they knew, regret the amount of money spent on activities like sports.”

Parents will play financial roulette with their money even though there is less than one per cent chance of their children becoming professional hockey players.

Example #3

This example is taken from the National Post June 12, 2015, : “ They are one of Canada’s fastest growing demographics, so why are politicians ignoring the single voter?” by Claire Brownell,  (article is available online).

This article first talks about:

“Marcel Watier, a single 39 year old, who lives on his own in a rented basement apartment.  He earns a good salary, thanks to a full time job and a part-time job on the side.  He says people think he must be spending his money on stereotypical urban luxuries – dinners out, craft cocktails, a condominium with a pool and a rock-climbing wall – since he doesn’t have a partner or children.  ‘They just see a single guy working two jobs and think I must be rolling in money.  If I was rolling in money, would I be working two jobs?’

In addition to supporting himself, he helps his two sisters, who have eight children between them and a ninth on the way. (The article does not state why he has to do this.)

If those were his children and Walter were married, he would be eligible for a long list of tax breaks, benefits and programs.  As a single person, he’s on his own.  He states: It drives me up the wall to hear the whole ‘selfish single’ term.”

The word single is hardly ever used by politicians.

“The phrase ‘Canadian families’ has been spoken 5,669 times in the House of Commons since 1994″, according to OpenParliament.ca, with Conservatives (Party) accounting for almost half of those mentions.

If Canada’s singles were to get up tomorrow and decide it’s high time they stood up for themselves, they would form a formidable voting bloc.  Maybe it’s time to try.”

Conclusion

The above examples show that marital status does not define financial intelligence; rather it is the belief systems, moral values, and financial values instilled throughout lifetime that define how money will be spent and saved.

It is time that singles be included in financial formulas, not just families.  Instead of politicians promising things to only certain groups of citizens, they should be thinking about how to improve society as a whole.

This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.