Blessed by the Potato

There is no special significance to seeing the digits roll over and all those zeroes line up on a milestone post like this one, number 1000 here at BbtP. It’s particularly meaningless because the URL doesn’t even have 1000 in it: it’s up there as 1125 — an artifact of having 125 posts/pages that didn’t become part of the post timeline. And the starting point isn’t the starting point of the website, just the point in 2005 when I switched over to WordPress.

But we’re (mostly) humans: we’re not strictly rational, and we do like to take time to reflect.

So woo-hoo, post #1000!

When I first got the idea for this site, I was a sleep-deprived high school student. When a less-awesome and significantly less-popular version than I had in my mind’s eye first launched, I was a sleep-deprived undergrad. When I switched over to WordPress and a more codified blog format (and “blog” became a word), I was a sleep-deprived master’s student. Now look at me: a sleep-deprived dad!

I’ve blogged about whatever happened to be on my mind, with primary focuses shifting over the years from video games to the environment, internet throttling to hybrid cars, and my now most-popular category: personal finance.

I’ve never pretended to have a schedule, so the frequency of blog posts has waxed and waned, anywhere from several long ones in a row as I pounded on the keyboard, to periods of relative quiet (like now — one of the few times I’ve posted less than once a week). I’ve had some good feedback to be sure, which is to be expected with such high-quality readership, but less back-and-forth in the comments than I expected: most posts have zero comments, and over-all I have more posts than comments from people who are not me. I can only assume that it implies that my posts and logic are perfect, since the primary function of comment sections is to point out errors and disagreements.

There’s no telling what the next thousand posts will bring. Likely more stories of my daughter, since that’s new. Maybe I’ll continue to average just one post a week vs. the three per week I was running at for much of the last 6 years. Or maybe having a hellishly long commute will lead to a lot of time to write — though likely with pen & paper or on my blackberry rather than on a computer.

I have no idea what will be coming down life’s road, but odds are good I’ll be writing and ranting about it here, and I hope you follow along with me.

Good news: I got a job offer this week!

The offer was laid out a little differently than I was expecting in that it comes with a defined benefit pension! These days a DB pension is a rare, nearly mythological thing, and it definitely adds value to the offer, possibly even more than a higher up-front salary. Being well, me, I decided to try to use a bit of spreadsheeting to come up with an approximation of how valuable that DB pension is to me. There are doubtless actual actuaries out there who would laugh at my attempts to do this from first principles, but if they do decide to correct my methods, I will welcome the learning opportunity :)

So without getting too far up into my business, let’s use some nice round fabricated numbers and suppose for the sake of argument here that I had a competing job offer with no pension but a $5k higher salary, and wanted to try to value the pension to compare (as much as is possible) the two offers. The DB pension involves taking some percentage of my salary from me to invest in the plan, and that is matched by contributions from my employer. Let’s say that my employer’s contributions would amount to $3.5k/year. That might be one quick way to value the DB: the amount of the bonus contributions from my employer. However, a pension is a little more complicated than that: I can’t actually use that money the way I would want to (whether for investing or spending), yet it’s also less risky than investing on my own in stocks/ETFs/e-series index funds would be.

If I go to the pension calculator provided on the website of the pension fund, I can see that with certain assumptions (namely that I’d continue to work for the same employer until age 60) that the pension would provide a stream of income in retirement, let’s say $26k/year here. A pension is a bit different than having a pool of investable assets in that it provides protection against longevity: no matter how old I manage to live to, the pension will continue to pay without running out. On the other hand, there’s less flexibility and no inheritance to leave behind if I do die early. Let’s be somewhat fair to the pension and assume I’ll live to a nice ripe old age of 89 (a few years longer than the actuarial tables might otherwise suggest).

What pool of capital would I need to provide that $26k yearly income? Assuming a conservative 2% real return, that would be roughly $594k saved at age 60. To get to that point, I’d have to save a fair bit every year between now and then. Using a slightly higher rate of return during the saving years (3% real) and assuming that the contributions increase at 1% per year (in-line with the raises I used in the pension calculator), that would be a hefty savings of almost $13k per year.

In other words, the DB pension could be worth a lot more than just the employer match being put up every year.

There are a few wrinkles though: the rate of return might be too conservative. I’m not too concerned on that point, since even if I use a more aggressive rate of return (3% in retirement, 5% in the savings years) the value of the DB plan still seems to be greater than the up-front salary of the hypothetical competing offer: I’d have to save $8.6k/yr on my own under those assumptions, which is still $5.1k more than the amount being taken off for the pension. Even if they gave me an additional $5k up front that I saved on my own, I might prefer the pension due to lower market and longevity risks (plus I’d lose out to taxes if I ran out of RRSP contribution room).

The other big wrinkle is that this is all assuming that I stay in the job (and that the pension plan doesn’t get significantly modified) until I turn 60. What seems to be weird about the pension calculation (which may be an artifact of the web calculator but I believe is actually in the payout calculation) is that there’s no time value to contributions: all that seems to matter is years of service. If I work from 33-36, that’s 3 years of service and seems to be worth the same as if I worked from 57-60. Yet clearly money saved while in my thirties should be able to compound and provide more monthly income in retirement than money contributed in my fifties. If I end up moving to a different job in the next few years, then my pension contributions won’t be compounding in the same way as if I had saved some money and invested it in an RRSP. That gets complicated though, since there is the option to cash out the commuted value to a LIRA, and I can’t find any way of estimating that. If I choose to leave the pension alone, then it looks like it’s still about as good as the amount I’m contributing and the employer match growing at 5% (then 2% during the payout years).

Though it’s tough to decide how valuable a DB pension is, it looks like it’s worth at least as much as the employer match, and possibly triple that. The older one is (and the longer one stays on the job), the more valuable the DB pension benefit becomes.

A reader asks whether or not he should start taking CPP early. There are hundreds of articles out there asking this very question, but that’s not going to stop me from giving you my take on it, too! [Edit: can’t believe I forgot to link to Michael James’ post on the matter, which has a graph!]

For those who are unaware, CPP stands for Canada Pension Plan: you pay into the plan in your working years, and in return in your sunset years the plan pays you a small pension. The normal age for that to happen is 65, but you can start taking payments as early as 60 if you like, or put off withdrawing until age 70. Taking it early incurs a penalty (you get 36% less if you start at 60), while you get a bonus to your payments if you defer taking it. My impression from reading all the articles along the way was that the system was set up to be pretty close to break-even, so you should just start taking payments early if you needed them, and defer if you didn’t (e.g., if you were still working at age 60).

But the question has been posed, so let’s answer it!

First up, the very simple case of not giving any value to having the payments early (i.e.: not investing). In that case there’s a break-even point around age 74 in terms of how much total money you can pull from the plan: if you die before age 74, you’ll have squeezed the most out of the plan by taking CPP right at 60. If you live longer, you’ll be glad for having put off withdrawing until age 65 to get that bigger benefit, and it’ll add up to getting more out of the plan in the end. This agrees with most of the articles I’ve found.

If you invest the money you start taking right away (or equivalently, keep more money in your investments because you’re spending the CPP money), then that gives more benefit to having money early on (it compounds). With a 3% real return, that pushes the break-even point back to age 76, and with a 6% return, it pushes the break-even back to age 80.

One non-financial reason for taking it early was given somewhere (and unfortunately I’ve closed the tab, or I’d give credit): even if you get less total payout, you should still take it early because you’ll enjoy a bit of money more at age 60 than you will more money at age 70. Your lifestyle expenses may be higher when you’re a young retiree in good health than when you’re older, so even a reduced pension will be put to better use. On the flip side, your medical bills may be higher in later life, and the higher payout of a deferred CPP payment may come in handy then.

Update: years after this, I’ve had more time to think about this, and the case for deferring is much stronger. That’s because I wasn’t properly considering the importance of longevity insurance — it’s not just about some break-even age. If you can defer, then defer — if you have no savings, then you may have no choice but to take it as soon as you stop working. As for the last point about enjoying it more when you’re younger, when you factor it all in that’s rubbish too — if you have the savings, then you can spend your savings while you’re younger to enjoy the spending at a younger age, which you can do with confidence because the higher CPP payments later in life will be guaranteed and inflation-adjusted. If you want to instead take CPP early to spend when you’ll enjoy it, you’ll end up having to hold back more of your own savings, as you have to be more conservative with your longevity and return assumptions. It feels different to spend the government cheque than your own savings, but you can safely spend more earlier in retirement (out of your own savings) by deferring!

So my final answer is a little wishy-washy: most people will expect to live beyond the break-even point, so waiting until the “normal” age of 65 to take CPP should make sense. However, it’s not by a huge margin, so if you need the money starting at age 60, then take it starting at that point.

The Ottawa Citizen had a great couple of articles on a joint NASA/NRC/CSA project to study snow storms and weather radar. While the first article about the project is not bad, what made it notable was the follow-up freedom of information release showing the ridiculous layers of bureaucracy and message massaging that had to happen before a non-answer was released. An op-ed the next day lamented the extreme information secrecy of the government.

I think scientific communication is important — indeed, it’s something I’m hoping to make a career out of here. So it’s kind of sad to see such an epic failure of communication in this case. What makes it especially sad is the number of people involved: I counted at least 4 different people in the FoI series of emails who were dedicating time and effort to not communicate, and there were more who appeared in just one or two short snippets. I bet you could not communicate with just one person in the department, or even an unhelpful sign on the door and a voicemail message. These guys, in theory, are supposed to help translate the science for the lay people and do the communications so the scientists can do science, though with the present government the entire goal may simply to act as a firewall between the scientists and everyone else. But wouldn’t everyone have been better off if one of the scientists just did the talking for himself?

So I see this kind of thing and can’t help but think “what are they getting paid for?” Couldn’t that money be better used for the main mission: science?

Wayfare (and, I suppose, myself) chose to go with a midwife as the care provider for her pregnancy. As it turns out, the delivery was handled by an OB (and 2 other doctors and like 7 nurses), but that’s the way things go sometimes. In fact, I think that our case shows that the system in place in Ontario is a good one: had things progressed as planned, it would have been the midwife attending the delivery. Yet when preeclampsia lead to an induction and a complicated birth, the hospital on-call medical team was there and ready to help. Just because you choose a midwife doesn’t mean you give up the resources of the hospital in the worst-case scenario.

There are a tonne of resources out there about midwifery and how to make your decision, including several books (I know, Wayfare read many of them). In short, a midwife is someone who is a specialist in helping women in pregnancy and through to early post-natal care (such as breastfeeding), with a focus on natural delivery. It is a regulated profession, and in Ontario their use is covered by OHIP. There are many points in the debate about using a traditional physician or OB for pregnancy or a midwife, but the main ones are the potentially unnecessary interventions in physician-assisted births, and that midwives try to put the patient’s wishes first. In particular, the high Caesarean rates. A C-section is an invasive surgery, and while it’s very much needed in the delivery tool-kit, there’s a charge that it’s vastly over-used because it makes the doctor’s life easier at the expense of the patient’s wishes. The advocates of midwifery say that the majority of pregnancies and deliveries are very natural processes, and don’t require interventions or the specialized training of a surgeon. Instead, they need the support and guidance of a patient midwife.

So a midwife will work towards a natural birth, helping with positions and what-not, and can also provide some measure of interventions if needed. They’re very attentive to their mothers-to-be, with a typical midwife visit being an un-rushed affair with lots of opportunity to ask questions and get coaching along the way. There’s also a very good chance that the midwife who provides your prenatal care will be the one to help you through the delivery, whereas with a physician you may just get whoever is on call at the hospital that night. Plus she comes by a few times after birth to check on the baby and answer our many, many questions, which helps a lot since it takes a while to get around to getting a family doctor or pediatrician.

After all the research Wayfare did, and our own experience with the process, I think a midwife was a really good way to go, and I’d recommend it to other pregnant couples. If we haven’t high-risked ourselves out of the option, we’ll go with our midwife again. I make that recommendation with just a few minor caveats though:

The first is the big one for me: though midwives do hospital deliveries, many people associate the idea of a midwife with a home delivery, and many of the books and articles on midwives are intertwined with those on home births. They push not only a midwife for your natural (or mostly-natural) delivery, but also a home birth as being the best option. I was uncomfortable with the home birth idea before-hand (our plan was a midwife-assisted hospital delivery), and after our experience I think you’d have to be half-crazy to try a home-birth. Yes, a midwife has first aid training and certain supplies, but if something goes seriously wrong there’s just no way she could handle it. If you tear something (or in engineering speak, blow out an O-ring) and decide that yes, you would very much like the epidural after all, you’re out of luck. So if you start reading up on midwives and come across this information on the magical wonder of a home birth, I’d say to skip over that option. Indeed, I wouldn’t even necessarily pick a regular hospital delivery: I had “NICU on-site” as one of my criteria for picking a hospital, and in hindsight was really glad it was.

The second is that midwives are something of an “alternative medicine” practice, and tend to associate with other such practitioners. So you can quickly run down the line from your midwife with her care and sets of evidence-based practices and standardized blood workups to a referral to a naturopath, herbal preparations, or further down the line to acupuncture or out-right quackery like homeopathy. Yet they do also provide the good care of checking the fetal heart rate, prenatal screening, regular monitoring of the mother’s blood pressure and urine glucose/protein, etc.

The third is a bit of give-and-take: a pro for using a midwife is the patient-centred care, helping you to shape the way your own pregnancy and delivery will go. Whether you want it to be at home or in the hospital, with drugs or without, they will help work with you and develop that plan. But they make a lot of things that are standard-of-care sound optional: for example, a quick vitamin K injection is standard after birth as newborns can sometimes be a little deficient, and it will help them clot. I found that with some of the midwives instead of “we normally do this, but if you really object we can avoid it for you” it was “well, if you want, we can give vitamin K. Totally up to you.” Just the way it was put made me a little afraid they were just a touch too flexible sometimes, and wouldn’t default to the standard-of-care if the new moms were even a little bit apprehensive about interventions.

But those are all very manageable caveats. In the pro column you have a great pregnancy resource who is very unrushed and patient with your endless lists of questions (well, maybe we’re a bit abnormal in the number of questions we can come up with), patient-centred care, totally open to trying to meet your wishes for the birth experience, with a good chance of your primary or secondary midwife actually being the person who will attend the birth. You can page her any time if you have a concern, and usually hear back promptly.

IMHO a midwife-assisted hospital birth is a great way to go, giving you the best of both worlds: good patient-centred care for a calm, natural delivery your way in the majority of cases where that’s possible, while still being able to summon 3 doctors and 7 nurses in an instant for the minority of cases where it’s needed.