Hello friends! Welcome to the next installment of the Financial Planning Vicennial – planning at age 58.

So, again a couple of business updates to report.

I guess that September 28, 2021 was officially our 10-year in business anniversary. The fact that I didn’t realize it until several days after is a bit disappointing to me. I really wanted to have a little party to celebrate. But then we got sent back home to our basements, and I totally forgot. So cheers everyone! To the party that could have been.

Second fun update is that I’ve been asked to serve on the board of the Institute of Advanced Financial Planners, which hosts the R.F.P. designation. An R.F.P. designation holder must be a practicing financial planner by trade, and the R.F.P. is not just the oldest, but also considered the most challenging financial planning designation in Canada to obtain. So being on the board is a pretty cool thing for me.

This column we’re going to talk about financial planning for someone age 58. 58 is a very special year. It’s the birthday in which you’ve officially been an adult for 40 years. If you’re at this milestone, then congratulations!

I’m not even teasing. 40 years an adult is a milestone worthy of celebration! When I’m 58, my kids will likely be in university, pursuing their doctorates. Which hopefully also means they will have moved out! Right now, James wants to study bio-engineering so he can make pokeman real. Anika wants to be an ER surgeon. She is very interested in fixing people who are hurt, but she’s not especially delicate about it.

As well as being a milestone in life’s progression, being an adult for 40 years is also a key planning parameter. Both CPP and OAS pensions are calculated based on a 40 year contribution set.

We’ll start with Old Age Security, because it’s the simpler of the two.

Old Age Security is a government pension funded by general revenues. Qualifying for OAS is based on residency. Generally, if you have lived in Canada for at least 40 years after turning 18 you will qualify for the maximum amount of OAS (even though it’s not payable until age 65).

So if you’re 58 years old and have been resident in Canada since you were 18, you can now leave (not that you would want to, right?), and still qualify for full OAS.

If you’ve lived in Canada for a portion of that time, but not the whole 40, that’s still okay. You start qualifying for OAS after 10 years as a resident, and you don’t lose OAS for non-residency after 20 years. But your OAS would be reduced as a percentage of the 40 years.

Next, let’s talk about CPP.

The Canada Pension Plan is also based on a 40 year schedule, however the benefits are based on an individual’s contributions over time, so the calculations are a bit more tricky. Sometimes getting visual helps.

Imagine you’re making an old fashion custard pie. You have the pie crust in, but you’ve also modified one of those weird brownie pans that are supposed to make each piece an edge piece. You’ve modified it in such a way that you now have forty little pie slices that you can fill separately before baking your pie.

Each pie slice will get filled based on the pie ingredients (income) that you have available to contribute to a slice.

Following me so far?

The basic gist is that ingredient availability (income) often fluctuates over the course of your career, and some pie sections end up with more custard filling than others. Some might even be empty. Right before you bake the pie, you find your 17% emptiest pie slices (works out to about 7 or 8 for most people), scoop out any filling you’ve poured into those sections, and pop in a pie-slice-shaped silicone wedge (they’re the blue ones in the picture below). You can do the same for years where you were the primary caregiver for kids under 7 at home, but the custard filling your poured has to be lower than the average of the five years pre-kid.

Okay, so now careful to leave your silicone wedges in place, you remove your modified brownie-edger, and you gently tap the edges of the pie until the custard settles into one big pie blob, and you put the pie in the oven. If you consider the top of the crust of the pie to be the maximum CPP amount you could potentially receive, the level at which your pie goop has settled represents the percentage of maximum CPP you receive.

There are two new additional components to CPP, called the “first additional” CPP (like adding more eggs to any custard after 2019 so the pie rises a little better), and the “second additional” CPP (like adding whip cream to make the pie look taller than you originally thought it would be, but that doesn’t start until 2024), that could also affect your income amount.

Okay, so I know that was a lot. And now you’re probably hungry. But bear with me for another moment.

If you’re 58 years old. You have now had the opportunity to fill in 40 pie slices since your 18^th birthday.

We have to be careful about this, because pre-65 the calculations for CPP contributions don’t stop until you begin to take income. And you can’t begin to take income from your CPP until age 60, so you could risk adding some zero-years that average down your income, but basically there’s this:

If you have maximized your contributions up until now, or if you will be contributing in the future at a lower level than your lowest contribution to date (like if you’re working part-time for a bit), then continuing to contribute to CPP after age 58 does not increase the income you could receive. Even if you choose not to take your CPP income until age 65, the years between age 58 and 65 would still just get filled with your 17% silicone-pie wedges.

The people this is most critical for are the self-employed, because they are paying for both the employee portion, and the employer portion of CPP (adds up to 9.9% for the pie base, another 2% for the extra eggs after 2019, and potentially up to 8% of earnings in the whip cream layer starting in 2024).

Now don’t get me wrong, both CPP and OAS are very well-run programs. In fact, the Economist, a magazine I’ve been a subscriber to for over a decade, regularly uses CPP as an example to other nations on how to properly manage a national pension.

What I am saying is that if you’re 58 years old, the planning item you’re going to want to address this year is to get a grip on your pension contribution history. We’ll talk about the income side for age 60, but age 58 is more about gaining a solid understanding of your contribution history, and projecting out your ideal contribution period, as it could have a significant impact on the timeline for the rest of your plan.

For more information on planning with your government pension or if you have questions on how to optimize your contribution period, speak to a Registered Financial Planner today.

Meagan S. Balaneski, CFP, R.F.P, CLU, CIM

Portfolio Manager

Aligned Capital Partners

The opinions expressed are those of Meagan S. Balaneski, and may not necessarily reflect the views of Aligned Capital Partners

Meagan S. Balaneski can be reached at mbalaneski@alignedcp.com