Ontario Hydro Rates Make Retirement Planning Pointless

Sometimes I think there’s no point in planning for retirement. I think it would be better just to save everything humanly possible and hope for the best. Today’s announcement in Ontario of the new (increased of course!) hydro rates are just one example of why planning for retirement seems pointless.

My Cost of Living Increases Always Exceed “Their” Cost of Living Increases

Every time I read one of those articles in the Star, the Globe or the Post that review someone’s finances and their retirement readiness, I see them use “2 %” for inflation. When I look at the government of Canada’s monthly inflation updates (courtesy of the Big Cajun Man) I see numbers around 0.7-2%.

So why when I flip open the newspaper do I read that Ontario’s hydro rates for all 3 times of use are going to increase by 0.5 cents per kilowatt hour starting November 1?

According to the Toronto Star that’s about a 3% increase in the cost of hydro for that never-seen-like-Bigfoot “average” customer.

That’s 1% over the planned inflation for the *year.* And this is not the only increase we’ve had this year. The rate for off-peak went up 0.2 cents in May, mid-peak went up 0.5 cents, and on-peak went up 0.6 cents. Yes, that’s right: off-peak rates are up 14% since Nov 1 last year!

No problem, you are probably thinking. I’ll just move even more of my electricity usage to the “off peak” time period. That almost looks like the worst thing you could do.

According to that same article, the price of off-peak power is increasing 7.5%, versus 4 and 4.8% for on-peak and mid-peak. (OK, you’re right. On a total $$ paid basis, it’s still much better to use power during the off-peak times. Beware of percentages: they may not be telling you what you think they are saying.)

Hydro Increases are Not the Only Ones that are “Above Average”

It’s not just hydro that does this to me.

  • Property taxes are up 4 % this year.
  • Water is up 6.9% even though we’ve used the exact same number of m3. (We pay for waste water and infrastructure based on how much water we use.)

Since Planning for an Actual Cost of Living in the Future Is Almost Impossible, I’ll Save More

Given that I can’t predict or control the increases in cost for the things I more-or-less have to buy to survive, I won’t even try. I’ll just ramp up our savings a little bit higher and hope for the best.

Join In
What’s your strategy to deal with this kind of mis-match between actual inflation and the government’s published rate of inflation? Please share your views with a comment.

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Why an Ontario Pension Might be a Good Thing

Recently, the Ontario government has been rumbling about creating a second mandatory pension plan. I flatly refuse to call it the OPP, however! Those letters have been in use for years and immediately bring to mind the image of a we-had-to-buy-it non-aerodynamic car with a strange paint job and multicoloured lights flashing on top. So the first thing the government would have to do is come up with a name that has an available acronym. I was trying to make something from “OPEN” but couldn’t. Maybe OPUS? Ontario Pension Universal Security? Ontario Pension United Savings? Hmmm. I’ll have to work on that. Any way, here’s why I think an Ontario Pension might be a good idea.

CPP of $12,000 Equals Poverty

OK, maybe it doesn’t if you have a fully-paid-off home and some other sources of income. But in general, the CPP is not going to provide enough income for many Canadians to live on with a decent standard of living.

And, even more unnerving, most Canadians are not going to be eligible for the maximum CPP. Right now, the average CPP payment is 60% of the maximum. In July 2013 that meant an **annual** CPP payment of $7234. And yes, that’s taxable income.

I very highly doubt that most average Ontarians know just how little they will get from CPP.

Voluntary Retirement Saving Doesn’t Work

I know the government wants us to be grown-ups and save money ourselves for retirement. That’s why they created RRSPs and perhaps part of why they created TFSAs. They also have talked about another voluntary plan called a Pooled Registered Pension Plan.

[Really. They expect Canadians to feel good investing their own money is something called PRPP. PRPP is a sound a baby makes. It does not inspire confidence. Ontario take note and choose something with a GOOD solid secure sounding acronym!]

Despite having access to RRSPs for decades and TFSAs for years, many Canadians don’t have them maxed out. Yet a maxed out RRSP only reflects a saving of about 18% of a person’s gross earned income per year. For an Ontarian in the 46% tax bracket that means they are only setting aside less than 10% of their net income (if they spend their tax refund.)

Although some of us do max our RRSPs and TFSAs we all know plenty of friends and family who don’t. Voluntary saving becomes optional saving when roofs leak, cars break down, children need braces and wedding bells ring.

We Need Forced Retirement Saving

I’m sure there are many people who will literally scream if they are forced to save for retirement by a mandatory deduction taken off the top of their pay cheques.

Tough.

Why should I (who have saved for retirement since the day I graduated) have to pay welfare to keep those who didn’t from starving? (Note that I said didn’t not couldn’t. People who are unable to work would not have to contribute to an Ontario pension if it is a payroll deduction.)

If someone wants to argue that the forced savings amount could be obtained by taking it from the taxes we already pay, presumably by reducing the number of tax dollars the Ontario government wastes, I would not argue with that. After all, a billion dollars to cancel a few electricity plants would have topped up quite a few retirement accounts!

Employers Should NOT Have to Contribute

I know the Ontario government hasn’t announced any details yet but I’d like to suggest they do not make employers contribute to this new pension scheme. Payroll taxes and the cost of complying with them are already onerous. Leave this one squarely on the individual. It will also avoid penalizing workers on contract who usually have to pay both the employee and the employer shares of programs like pensions.

What Do You Think?
I imagine the idea of an Ontario Pension program will have both strong supporters and sturdy opposition. Which side do you fall on? Please share your views with a comment.

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