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FEATURE ARTICLE
The second graph shows the disbursement of
assets assuming that Claude decides to defer
government benefits as long as possible, to age 70
for both plans. In this scenario, we can see that the
RRSP/RRIF assets will be exhausted by age 75.
This means it will be possible to maintain a gross
income, indexed annually at 2%, of $33,000 for the
entire period projected.
Notice that the deferral allows Claude to maintain
additional indexed gross income of nearly $4,800,
an increase of 17%, which is significant.
Can deferring government benefits offer a remedy
for rising inflation?
Is deferring government pensions a remedy – or
partial remedy – for rising inflation? Let's look at
Claude's data again with two little differences: we'll
use an inflation rate that is 1% higher, 3% instead
of 2%. At the same time, we will put the annual
growth in MPE and the maximum QPP pension at
4% (1% higher than inflation). Using the same RRSP
balances and government pensions, here are the
two scenarios.
The third graph shows the disbursement of assets
assuming that Claude decides to claim government
benefits as soon as possible. The RRSP/RRIF assets
will allow Claude to maintain a gross income,
indexed annually at 3%, of $26,700 for the entire
period projected.
The last graph shows the disbursement of assets
assuming that Claude decides to defer government
benefits as long as possible. In this scenario, we can
see that the RRSP/RRIF assets will be exhausted by
age 75. This means it will be possible to maintain a
gross income, indexed annually at 3%, of $32,500
for the entire period projected.
We can see immediately that deferring the
benefits still allows Claude to maintain a higher
indexed income, but we can also see that in the
scenarios where the benefits are claimed as early as
possible, an increase in inflation erodes the indexed
gross income by over 5% ($26,700 compared
to $28,200). In the scenarios where the benefits are
deferred as long as possible, an increase in inflation
erodes the indexed gross income by less than 2%
($32,500 compared to $33,000).
Conclusion
For normal life expectancy and where there are
other sources of income (RRSPs, for example),
deferring government benefits clearly provides
a partial remedy against possible increases in
inflation.
