Investing For Retirement
In the Family Finance section of Financial Post, there is an article entitled "Retirement Transition All About Expectations." This article is about a couple, Julius ,60, and Emma, 58, in Alberta, Canada who are both retirees, who's been worrying about how they can protect themselves financially if ever there would be a sudden change in the economy. According to Julius, "it might be difficult to make the transition from employment to retirement". Exposure to inflation is their main threat being a retiree. Don Forbes, head of Associates/Armstrong & Quaile gave them an advice on how they are going to utilize their financial plans to protect themselves against any threats. Forbes gave the couple a five year plan scenario on the pension plan they availed, stating what they should do, and explains its corresponding effects in the long run..
This article has been on the news because there are more other Julius and Emma who have been worrying the same thing once they are about to retire. Starting January 1, 2011, the Baby Boomers turned 65. These Baby Boomers are those generations in American history who were born between January 1, 1946 and December 31, 1964. This has been an issue for so many years and now it’s 2011, the Baby Boomers have reached their retirement age. People, especially in the U.S., were already in panic that for the next 19 years these Baby Boomers will push the national government into bankruptcy. This generation has been on a wrong timing since the economy until now is still on the verge of losing everything.
(“In 2011 the baby boomers,” 2010). I chose this article because Canada is not an exception in this crisis. It is significant for the Canadian families because just like Julius and Emma, most of the retirees now are having lots of questions about the reliability of the government and other company pension plans to fund their necessary needs and other expenses in the future. 2. SCOPE OF CANADA PENSION PLAN Canada Pension Plan (CCP) is one of the retirement income systems in Canada that has been mentioned in the article. The CPP is a national pension plan that was established by the government in 1966. This program is a monthly national defined benefit pension plan that is paid to contributors who are at least 65 years old or between 60 and 64 years old who met the earnings and contributions requirements (Monk & Sass, 2009). It is an independent financial institution wherein no political strings attached; its obligations are not government obligations as well as with its assets. The governance structure of this pension plan lies in the Canada Pension Plan Investment Board Act. It has a disclosure policy in which all quarterly and annual financial statements report and its public portfolio holdings must be disclosed to the public in the CPPIB website. Furthermore, the Canada Pension Plan Investment Board is an organization established to monitor and invest the funds held by the CPP. Independent from the government, the CPPIB was incorporated in 1997 as a federal Crown corporation by an Act of Parliament. In 1999, it made its first investment whose purpose is to maximize returns without undue risk of loss. Usually, the risks associated in applying a defined-benefit pension type of plan are funding risk and insolvency risk. In the first risk, members are concerned whether the employers can fulfill their promised benefits by assuring them adequate assets in the pension fund. On the report of Financial Services Commission of Ontario 2010, there had been an increase of underfunded plans by 79% in 2009 from 76% in 2008 out of 1,539 defined-benefit plans (cited in Davis, 2011, p. 6). The concern related on the latter risk goes on the employer's insolvency, in which the business assets of the employer would serve as the ultimate guarantee of the pension promises (Davis, 2011, p. 7). Sponsoring employers should avoid being insolvent as possibly as they