The Pension Blueprint podcast    

Episode 6: CPP and your retirement security

Celine Chiovitti: Hi again. I'm Celine Chiovitti. This is season two of The Pension Blueprint podcast, and I'm delighted you're here with me today. We've got an incredible guest with us. I'm excited to introduce Dr. Bonnie-Jeanne MacDonald. She is the Director of Financial Security Research at the National Institute on Ageing (NIA), an initiative of the Ted Rogers School of Management at Toronto Metropolitan University. Bonnie-Jeanne has done extensive research into how Canadians feel, both positive and negative, about their retirement future. She highlights that when you start to collect your CPP is one of the most important retirement decisions the average Canadian will make. This is a fascinating and broad ranging discussion about Bonnie-Jeanne's research on aging and some of the trends she's seeing emerge in Canada. So without further ado, let's get into it. Hello, Bonnie-Jeanne, we're so happy to have you today on The Pension Blueprint. Can you start by talking a little bit about the National Institute on Ageing, your role there, the mission, and also why pensions in retirement is such an important topic for you?  

Dr. Bonnie-Jeanne MacDonald: Thank you so much, Celine, for having me. I'm delighted to be here. So yeah, I'm the Director of Financial Security at the National Institute on Ageing at Toronto Metropolitan University. And we have a somewhat unique mandate. We're trying to look at how to help Canada's aging population, not just from the financial lens, but to also bring together the health and the wealth sides of aging. Because offering valuable solutions that are going to help older Canadians to achieve better financial security, it's not simply about how much money they're going to take, they're going to have, it really does need to take a holistic approach and incorporate all the factors that affect our wellbeing. So really, the NIA, what we're trying to do is we're trying to improve the lives of older adults and the systems that support them through doing, of course, research, but also by convening stakeholders, and as well as moving forward policies that will help us to achieve our mandate. So that's really what I'm passionate about, and it's not just about doing the research, it's about also looking at what we learn from the academic research world, bringing it together with insights from government and industry in Canada and around the world, put them all together so we do come up with more effective solutions that are going to help Canada's aging population.  

Celine Chiovitti: I know we've had a lot of conversations about the research that you've done, and putting it into industry and starting sort of that movement, so I'm very excited about it. I was wondering if you would talk a little bit about the Canadian survey that you conducted in 2023, and so specifically, what questions did you ask? What did you hear back? What are the things that the Canadians are most concerned about?  

Dr. Bonnie-Jeanne MacDonald: Yeah, so there's a few things that really stood out to me. So what we basically did at the NIA is we're trying to do like a, an annual survey to answer some of the information gaps that are not being explored, say, by Stats Canada or by industry or whoever, and basically trying to get a more comprehensive view on how Canadians are aging and how we can actually help. So I would say, I mean, we had tons of findings in our last survey, but what really stood out to me was we asked Canadians aged 50 and older what are your biggest financial fears? And I was surprised to find that the majority of them are fearful of inflation, that's number one, running out of money, number two, and then also financing long-term care. Things like being afraid of not leaving a bequest and things that sometimes we believe, I think, in industry, is a priority to Canadians, really just didn't make it barely in the top 10. And the other thing that I found very interesting was that their number one priority really was financial security throughout retirement. So oftentimes, the behavior we see people do doesn't look like they're trying to get necessarily long-term financial security. But in fact, when you ask them, that is what they want. So this is what really motivates the research I'm doing now is why is it people are making choices that are not, are actually not matching what they say they want and I believe they're also going to need. 

I do research, not only on the wealth side, but on the health side of aging. And what I saw was that if you actually look at Canadians more holistically, we realized that the baby boomer generation, which are just now going into retirement, they're going to face a very different retirement than their parents have, and actually, I would say any past generation in history. And that's because we all know that people are living longer, and of course, retirement will cost more. And we also know that, unfortunately, fewer people have access to these kind of high-quality defined benefit pension plans, so they're going to have less income. But what we don't talk a lot about is the fact is not only are people going to live longer, they're also the first generation in history to have fewer children, and that's just because in the 1960s, the fertility rates did go down. And throughout history, what we kind of haven't appreciated is that it's actually the family that has stepped in and taken care of older aging adults, and they've actually taken care of their care needs. It's not been the government, it's not been insurance, it's actually been the family. And without those adult children there to take care of their parents, we're really going to see a situation where we're going to have one of the largest cohorts in Canadian history moving into retirement, a quarter of our population are baby boomers, they're going to have less income, but at the same time, they're actually going to have higher retirement expenses. So basically, they're going to have less money to finance a longer period of time with higher expenses without the family support that they're going to have to pay out-of-pocket.  

So what I, based on kind of having seen this research and the gaps in the financial, financing of care and support in Canada, really made me believe that what we need most of all is more affordable options for people to have lifetime retirement income security. And fortunately, there is an option out there, and that led me to the fact that people do have the option to delay their Quebec or Canada Pension Plan (CPP). And what the majority of Canadians don't actually know is that by delaying this pension plan, they can actually more than double this DB inflation index, you know, guaranteed for life type pension income. I really did find in the research that I had done that it's an optimal decumulation solution if you kind of do the academic math. But what I also found when I looked at the real data was that the vast majority of people are actually choosing to have a reduced pension by taking it early. And in fact, 9 out of 10 Canadians are taking it by the age of 65. So I started a research project just originally looking at the math, and that paper turned into two papers, and then I realized that there's a lot of behavioral, psychological, and practical barriers to informed decision-making on this topic, and I really wanted to explore that more fully. So that one paper turned into two, and now it's turned into another nine. And so I have a eight-part series coming out. So in total there's a 12, 12 papers on this topic. And what we're really trying to do is to come up with answers to how we can inform more, improve, better-informed decision-making by helping those people like pension plan sponsors, financial advisors, and policymakers, how to help those in a position of influence to actually help better guide more informed decision-making when it comes to taking up your CPP.  

Celine Chiovitti: You know, you talked a little bit about the, where we are getting older as a nation. We're living longer. We don't necessarily all have access to a pension, so we really are relying on CPP and QPP as that sort of main source. What does that mean for Canada? What does that mean for communities? Have you researched that? Have you thought about that at all? 

Dr. Bonnie-Jeanne MacDonald: I think for the average Canadian, when they're going to make their CPP and QPP decision, like their claiming decision, it's probably the most important decision that they're ever going to make. And as I already said, it could more than double this, you know, secure source of income. And what's interesting, it will also solve what people say are their biggest financial fears, which is running out of money and inflation, and yet the majority of people are choosing to take less income. And what we also found in the survey that I should add is that when we ask people how much time did you spend thinking about this? Did you consult any resources? The majority of people actually consulted nothing and nobody, and only one in seven actually said they put time into this decision. So they're making a decision that's going to affect them possibly for the next 40 years and be their primary source of income and help them meet their, you know, financial goals and also protect them from all those financial fears. And it's pretty alarming that people just unfortunately do put so little time into that decision.  

Now, the other thing is that not only when you have secure pension income does it kind of give you the money that you need when you need it the most. And as I said, I believe that baby boomers today are actually going to be, need lifetime income much more than previous generations because they just don't have the family to step in when they actually have these costs of care that normally would've been done for free by the family. So not only does the income mean more money for you to spend on those costs later in life, it also has a lot of other benefits. And OMERS has done some terrific work as well as we work together with the NIA, we came up with some really interesting findings. But in the CPP series, I do spend quite a bit of one entire paper actually on this topic explaining the risks of retirement that can really derail somebody's financial security and why people really need to think about these risks in the long term and how advisors and plan sponsors can help to explain those to retirees.  

But I also try to go through like what are the benefits of having a secure lifetime income. And I'll just kind of go through them because I think they're really valuable. Again, there's that reliable income stream that kind of gives you the money that you need the most when you need it, when you're, you know, really potentially vulnerable physically, cognitively. The other thing that the research has found, and I really love this, it gives people the freedom to spend their money. So basically, if you know that you have the secure income stream coming, you actually are more likely to enjoy the money that you have, and you can spend the money from your RRSPs to go on trips and things like that. And this is not just an idea that came out of my head, this has been very well-researched that, in fact, when people lack financial security or they lack a secure pension income, what they often will do is actually the majority of people will hold onto their money, and they will die with most of their money intact. And it was, they didn't do that on purpose. It wasn't to leave a bequest, it was really just out of fear. And this, again, has been very much evidence-based and researched, and it's actually not, most of the research has come out of the US and it's also out of Australia, so this has been, to me, really interesting. So when people have more secure income, not only do they have more money, but they also have that kind of freedom to spend that money that they do have now to enjoy their retirement.  

Along with that, people also have more, of course, peace of mind. And what we find, not only when it comes to retirement income, but even while people are working, younger, if you have steady income, it actually makes you healthier. Because two things happens when you don't, when you have income insecurity. Number one, of course, if you have income insecurity, the money, you lose money, and then you could have, you know, people will, you know, not pay for the medicines they need, things like that. So that's one negative aspect of having income insecurity. But what we also know is not only what happens to us today, the worry of having income insecurity, so the worry that you don't have enough pension income 10 years from now actually adds stress, and that can lead to heart disease and depression and all these things. And again, this is an area of research that's been well-studied, especially for people while they're working, but also while people are in retirement.  

The other advantage of having that secure income, which I found really interesting, was just the burden on individuals. A lot of times people, again, retire, they have their, you know, they're fully capable of taking care of their own finances, but then as they move on to their eighties, and even in their nineties, some of those cognitive abilities decline. And unfortunately, what we also know from the research is as people have cognitive decline, their confidence doesn't decline. So oftentimes, mistakes are made before they're even caught and they can't be undone. So it just creates, if you have automated pension income, that responsibility is lifted by the individual, but also by the extended family who would care for the individual if they did have cognitive decline. And then finally, I would say when you have automated pension income, it does protect people from exploitation, and it also reduces the potential for, you know, conflicts within families. Because oftentimes, what happens is when somebody has a wealth, you know, a pot of money, there can be a lot of anxiety and decisions on how to manage that for the aging adult. When the aging adult has automated pension income, there's not really any choices. That money coming in is clearly seen as money for them and for their care and their well-being. There's no conflicts of interest in terms of bequests. So I would say it protects people from even just having, just really natural conflicts within their own families as they get older. And then, of course, it protects them from the swindlers and the scammers who really do come after the elderly, unfortunately, and it will become an even bigger problem going forward. So there's just so many reasons why this kind of automated income, it's really more than just about the money.  

Celine Chiovitti: So if I am in my fifties and I'm thinking about retirement and I don't necessarily have a pension, what are the things that you want me to think about with respect to CPP and QPP and some of the decisions I can make today for my future?  

Dr. Bonnie-Jeanne MacDonald: So when you're 50, I would say it's more about making sure that you're fully participating in any pension plan that your employer offers you, of course. But beyond that, you know, making sure that you're paying your debt down and then you'll be getting to save. I think accumulating for retirement has gotten a lot of attention, which is great. But at the same time, I would say the other side, that decumulation, which means how do you draw down your money in retirement, optimally, that's gotten much less attention. So again, I think the research that I do is just really more targeted as helping people to think through how can I use my savings that I have accumulated to most, to make research more secure, retirement more secure and more affordable and cheaper, basically. And again, delaying CPP is one of those options. I like to give an example.  

So when you delay your CPP, and oh, one option is that when people actually take their CPP at age 60 instead of age 70, for the average person with the typical CPP income, they're actually going to lose, on average, $100,000 over their lifespan in today's dollars, this is taking into account inflation, by choosing to take it 10 years earlier. So again, when it comes to retirement, if you only think of retirement in terms of the next 5 to 10 years, someone at age 60 would think, well, I'm losing money. But if you actually look at it for your whole lifespan, suddenly, the risk and return propositions change dramatically. And again, on average, people will be losing $100,000 and not only are they going to be expecting to lose money, they're also going to be exposing themselves to a lot more financial risks.  

Celine Chiovitti: It's an incredible number. And I do think, you know, the more we talk about it and the education, that's why I'm trying to sort of focus in on, if I am within, you know, maybe 10 to 15 years away from retirement, that's what we find where members are really starting to think about that decumulation phase. And so what, like, and I'm asking those questions and starting to think about, not necessarily automatically, because I think a lot of people just think, you know, at 65, here's where I get access to benefits and so I will automatically start taking them. But turning that a little bit to say, well, what do you actually need to live off of? Where do you, what are you going to be doing at that time? And what other sources of income might you have? But the information and education about what the impact of delaying, I think, is really, really important. Now, you've been sharing a lot about this research and these papers on social media. What do you think is our role in industry, and so pension plans and financial advisors and employers, how can we step in and help educate in this space?  

Dr. Bonnie-Jeanne MacDonald: So everyone, I would say, plays a different role in the retirement income system. I would say that out of all the different players I do have, I really like working with the pension plan sponsors, and the employer simply because they really have a sincere intention to help their members make better, more informed decisions. There's no profit for them. And on top of that, they have that kind of more fiduciary, paternalistic view on people, which can really be absent in other areas of the retirement income system. They also deal directly with people. So sometimes, you know, academics, we may also really want to help people, but if we're not dealing directly with people or making an effort to make that kind of engagement, it can be difficult to see how things are moving on the ground. And same thing with policy makers. So again, I think for employers and plan sponsors, I think they're really in a key position to helping to move some of this research into reality because of that direct engagement with the individuals themselves and the workforce. And so this is why I'm really happy to be here talking about this research because I see this as kind of one step towards that. And yeah, I'm very grateful for it.  

Celine Chiovitti: Yeah, so how could we continue to have the conversation and help people make the right informed decisions as they're thinking about their retirement and then connecting it back to the impact on community and economies as a whole, given the fact that we are in an aging society. How have you seen, have you seen a change in the way the NIA conducts research in their focus area since you've been there in the, over the past seven years?  

Dr. Bonnie-Jeanne MacDonald: I would say the biggest learning for me is, how much there is a will to make the system more efficient and more effective. I think, especially during COVID, people have seen what it looks like to have, you know, vulnerable older adults and not get the care that they need. And I've seen a real desire among many people, experts, policy makers, academics, to kind of really put in their time and their expertise to try to come up with those better solutions. And I'm always honestly amazed how much people contribute their time to the research that we're doing, and their insights and their expertise. And what I've also learned that sometimes we, at least earlier in my career, I really saw the rules and the system as static, and we had to operate within those rules. But what I realized is those rules were created and we can make better systems, but we just have to be, you know, collective and do it in a smart way. So that's also been very encouraging to me to see that we can make the system a better, a smarter system that's actually going to better serve older adults and better serve their families. Because I think what we all realize is that if we have financially vulnerable older adults, it doesn't just affect them, it affects their children, it affects their grandchildren, it affects their society. So the more that we can help create, you know, healthier aging situations for older Canadians, the more it's actually going to have trickle down effects to the rest of society, especially with the baby boomer population, again, moving into retirement, moving into their eighties, into their nineties, is really going to change the way Canada operates.  

Celine Chiovitti: A hundred percent agree. We've been having a lot of conversations at The Pension Blueprint about how we're sort of all in this together, whether you're, you know, from Gen Z all the way to baby boomers, we all need to think about retirement in a different way and the impact on Canada and society. And I guess my question is, because you have access, you meet and talk to all of these people, and they're conducting such phenomenal research, has your own view on aging and preparing for your own retirement in the distance changed since you've been in this position?  

Dr. Bonnie-Jeanne MacDonald: I've definitely joined my pension plan! 

Celine Chiovitti: Very good! 

Dr. Bonnie-Jeanne MacDonald: So that's for sure. No, I practice what I preach, that's for sure. So I, you know, I'm still kind of in that turning point where I still have younger children, so personally, but it definitely, I, you know, I've seen my own parents get older and the struggles they've had. And it is interesting when you see it firsthand happening in your own life and by your uncles and your aunts and how people are being impacted. And then of course, I'm also doing the research and hoping that the work is going to, you know, help people avoid the suffering that I've seen in my own life. So I think there's, you know, what's nice about this research is that you can kind of see firsthand who it's going to help. And I think, oftentimes, when I present this research, I think what's more persuasive than the math is always the experiences of the people and the experts. And that's why actually, oftentimes, when I do the research, I don't just cite other academic journals. I'll actually cite the, you know, the experiences of experts who've seen this firsthand because I think, you know, we're all human creatures and having these more personalized stories is very powerful in order to help us to kind of be engaged and help to move solutions forward.  

Celine Chiovitti: Bonnie, you know, at OMERS, we have over 600,000 plan members. Our youngest member today is 14, and our oldest is 109 years old, and so multi-generational. And one of the things we really are trying to do in partnering with the NIA and other institutions, is just provide access to education and financial and retirement planning information. And so I'd ask you if you, you know, regardless of their age, what are, you know, one or two tips that you would tell them based on the research you've conducted about thinking and planning for their own retirement?  

Dr. Bonnie-Jeanne MacDonald: Yeah, I would say while you're working, you get kind of, you're automatically enrolled in some of these government programs like the CPP and QPP, and you go a little bit on automatic pilot. But just to understand that once you get into retirement, you do have to make some pretty important decisions. And I would say that just to, of course, you know, you can max your RRSPs and do all those things and, you know, be careful about your debt levels and just, you know, the same advice that grandma would tell you. But beyond that, I would also add that to just really be aware that there's a person, especially if you're moving into your sixties, there's a person 30 years from now who's depending entirely on the decisions that you're making today, and that person may be in a very different situation. They may not have a spouse, they may have a lot of physical frailties, and of course, that person is you. So again, I think this is something, you know, it's not a very comfortable conversation to have and, but I think it's one worth having is to just help people to realize that the decisions they're making when they're younger is really going to affect their older self, and that older self is really depending on you today. I think my mom actually always said the way we spend our first 50 years determines how we spend our next 50, and it's definitely that case when it comes to retirement financial planning.  

Celine Chiovitti: It's so true. Thank you so much. And I wanted just to thank you just for your ongoing partnership and the research that you conduct that really is helping build Canada for the future, and helping us to think differently. And so keep on at it and I'm excited for your next paper when you release that. And in the meantime, I think what we can all do is just make sure we are reading the paper, sharing the paper, educating ourselves, and just starting to ask more questions about what are, you know, what the decisions and what the actions we are taking today, and how that is impacting our future self. So thank you, Bonnie-Jeanne.  

Dr. Bonnie-Jeanne MacDonald: Thank you so much, Celine. 

Celine Chiovitti: Thank you. 

Dr. Bonnie-Jeanne MacDonald: Thank you, Celine. 

Celine Chiovitti: So great seeing you. 

Dr. Bonnie-Jeanne MacDonald: Thank you so much. Thanks for having me.