Fund Library Q&A with Gordon Pape

02-05-2024
Fund Library Q&A with Gordon Pape

Post-retirement CPP contributions, outlook for T-bill ETF

 

Let’s go back to the inbox this week to see what questions are on readers’ minds.

Paying CPP after retirement

Q – I retired in June of 2021 from SAIT Polytechnic and started collecting CPP in August of 2022 after turning 62 in July. I’ve since returned to work with SAIT on a 10-month contract. As a result, I’m contributing to CPP again, approximately $510 per month. Does this eventually top up my CPP a bit? Or should I not be contributing to CPP? – Tom B.

A – It used to be that when you retired, that was it for CPP contributions. That changed in 2012 when the post-retirement benefit (PRB) was launched.

The plan requires that people aged 60 to 65 who work while receiving a CPP retirement pension continue to make contributions, which employers must match. Those aged 65 to 70 can choose whether or not they want to contribute.

The calculation of the benefit is complicated. It’s based on the amount of your earnings and contributions the previous year and your age as of Jan. 1 of the year the post-retirement benefit starts. Service Canada says the maximum PRB amount is equal to 2.5% (1/40th) of the maximum CPP retirement pension. This is because the post-retirement benefit is generated by a single year’s contributions, rather than all the contributions made from age 18 until a person started collecting the pension.

As an illustration, the Service Canada website shows a maximum PRB for a 65-year-old to be $40.25in 2023.

You can get an estimate of your Post-Retirement Benefit amount by using the Canadian Retirement Income Calculator.

What’s in store for this T-Bill fund?

Q – Several months ago, based on the suggestion you gave, I decided to invest in UBIL.U-T. I decided to do that with the hope that I could preserve the capital if and when the market went down. So far, I’ve lost very little. But I am concerned about the future given the turbulence in the bond market. What are your thoughts about UBIL.U in the near – and long-term – future given current market conditions? Thanks. – Robert P.

A – UBIL.U is the trading symbol for Horizons 0-3 Month US T-Bill ETF. It invests in short-term U.S. Treasury Bills, one of the safest forms of investments in the world. However, that doesn’t mean it’s completely risk-free. Nothing is.

The units trade on the TSX within a tight range that so far in the past 52 weeks has varied from a high of $50.31 to a low of $47.99. Based on those numbers, there is a potential for a fractional capital loss, depending on the time of purchase. But many investors don’t seem to care about that. They look at the current yield (7.7%), based on the November distribution of $0.31987 per unit), and that’s all they need to know.

But there are some reasons to be wary. For starters, the monthly payments have varied considerably since the fund started trading last spring, ranging from a high of over $0.40 to a low of $0.27. This makes it problematic to project yields based on a single month’s distributions, especially when we don’t even have a full year with which to work.

Also, the fund has a short history. It’s well-suited for the current interest rate climate, but what will happen when rates start to fall, and the fund’s yield declines? Will investors rush to dump their units? If so, what will be the effect on the market price?

We have no answers to those questions. We do know that there is little appetite for more rate hikes and that an easing by the central banks is likely in 2024. The Federal Reserve Board recently signaled the possibility of three cuts in the coming year. When that happens, this and other comparable funds will be put to the test.

If you have a money question, send it to gordonpape@hotmail.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

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