Worse-Case Retirement
Posted by Gail | Filed under Retirement Planning
Ask some people how they’re doing in the retirement savings department and you’ll hear, “Oh, I’m just going to work forever,” followed by a sigh. I am of the camp that believes the way to keep your brain healthy is to do something useful with it. But most of these people are simply referring to the fact that they don’t have a cent saved and they can’t ever imagine being able to hang up their spurs.
You might think that having to keep working would be really tough to take, but it isn’t a patch on having to work when you’re sick, disabled or plumb worn out. Relying on social assistance is one way of finishing off your life, but it isn’t the most comfortable way, not by a long shot.
I think it’s interesting that there are people who can’t seem to see beyond next Thursday. The lure of today’s needs forever overwhelm any though of tomorrow, never mind 20, 30, or 40 years from now.
An Imagineering exercise could help. Most financial advisors ask their clients to think about what they’d like their retirements to look like. But I want you to take a different tack today.
In a minute of so, I want you to close your eyes and imagine what your life will be like if you retire with only $20,000 a year to live on. You know what you make now. You know what you spend. Think. What will you be able to do if your income is only about $1,667 a month or $385 a week? Where will you be able to live? What will you eat? How will you get around?
You’re going to cast forward to those later years when you’re forced to live on social assistance and the pittance it will buy.
Okay, now, close your eyes and imagine.
The next time you’re contemplating dropping a bundle of cash on some non-essential item, ask yourself how many weeks of improved living you could have if you saved even a portion of what you plan to spend instead of spending every red cent you make on STUFF.
That might help you see past Thursday.
October 4, 2012 at 6:59 am
Even that amount seems high to be on social assistance – must be counting old age pension and supplement income for pensioners??
October 4, 2012 at 7:21 am
Hi Gail, great article…. I’m one of the “fortunate” divorced women who got completely hosed in the financial department during divorce 10 years ago…. left with over $100G in debt (really) but thankfully a good job and a pension already at that point from the government. I have changed jobs and have far less in debt (thankfully) to the point it will be paid off in another 18 months….. I will be 55 soon, but forecasting HAVING to work until my mortgage is paid off at 60. Then it’s a question of working when I want to. I will have my government pension doubling then and a small pension from the company I left, no debt or mortgage, and any money I may choose to work for. I didn’t plan for the debt, but worked hard and planned for the saving part, and it’s been a tough go at times…. I have my copy of DFF and use the jar system, save regularly and pay my debt off with a vengeance. I don’t own a car (funny, my ex has 3 and got none of the debt) but will probably pay for one cash when I’m done working. Public transit is just fine, thanks….
Planning and scrimping has gotten me through….. social security would just be a bonus….. but I wouldn’t get much because of my pensions, so I don’t even factor that in. Retirement looks comfortable… not rich, just comfortable…. and I’m happy with that.
October 4, 2012 at 7:51 am
We ARE retired and believe it or not we are still trying to save a bit. We have this fear that our little bit of savings will be worth less and less as the years go by. We try hard not to touch what we have tucked away and I still save out of our budget for big purchases like home improvements. It makes it a little easier knowing that we entered retirement with no consumer debt, mortgage or car payments. Being old and on a restricted income is stressful enough all on its own.
October 4, 2012 at 8:41 am
Happiness is an inside job. It doesn’t come from stuff. The thing is most people think it does.
Happiness is fleeting, contentment is far more satisfying and that comes not from stuff but from feeling good from the inside out.
Great post today Gail!
October 4, 2012 at 8:45 am
We are currently experiencing wage cut backs here ( now living on $2000/month LESS than we had in June.- This was NOT in any way expected- the rug was pulled out from under- so to speak. The absolutely last thing we will touch is the RRSPS. We will continue to top those up and do without what we have to….My biggest fear is not having enough to retire with and we have no pensions- so it is entirely up to us….
October 4, 2012 at 8:54 am
Ugh… I wouldn’t be able to afford my little one bedroom apartment, nevermind the nice comfortable retirement home I’m hoping for. What a scary and motivating thought.
October 4, 2012 at 9:21 am
I would love to be living on $1600 a month. I’m disabled living on $847 a month and literally watching every penny, but I’m lucky because I’m debt free. I have always been a saver and even now I still have to save something at the end of the month or I feel out of whack, even if it’s just $10.
October 4, 2012 at 9:26 am
My in-laws are doing this right now. They’re old, and sick, and poor, but they’re still spending like it was water. How? 1. Credit, and 2. Selling off treasured possessions for far less than they’re worth to keep up with the interest payments. They have a big asset (their house) that they can’t unload because they need too much money out of it to pay off debt and get them into a good living situation. Frustrating beyond belief. They look to us for help (I’ve spent over $10,000 this last year trying to help them spruce up the house for sale) but with a hubby on disability, a new family business that I am trying to make successful so we ourselves can be a bit more comfortable now and in the future, I am tapped out (I refuse to touch our savings or go into personal debt for them – I’ve got enough debt with my mortgage and business loans, thanks!) So now that the Sandy-bank is closed, they are struggling with how to live on their own in a house they can’t afford to maintain and carry such an enormous debt burden at the same time. I swear I will eat month-old crackers and have the whole family sleep in one room for warmth before I put myself or my family in such a position.
October 4, 2012 at 9:33 am
I would like to edit my above comment, but can’t, so I wanted to say: the $10,000 didn’t come out of cash-flow (boy I would love to have that much extra kicking around!) – it came out of planned spending for a car, which I now have to start saving up for again. We have two older vehicles, one of which is showing signs of getting to the last mile. I just keep hoping and hoping we can eke it out until I have enough saved to replace it – and then I have to do the same with the other one. I can honestly say I miss the money more than I feel good about fixing up their house for them. Not very charitable, but it ticks me off to see my $10,000 sitting on their floors and walls while they go out for lunch and shopping almost every day.
October 4, 2012 at 9:41 am
Living on less than $20,000/year is no picnic. My mother makes about $16,500 and manages, but we live in a small town. My brother and I have helped her out as she became frailer and frailer, and she lived in my back apartment for nominal rent. Now at 92, she is in a subsidized bed in a nursing home. I can’t imagine how she would have fared in the city.
I also can’t imagine how my husband and I would fare in the city, and we make substantially more than $16,500 between us. I am still saving like crazy even in retirement. Our pensions won’t cover the full cost of nursing home beds and just when we might need them, our RIFs will start to deplete. The plan is to use the TFSAs to subsidize nursing home (or other living costs) down the road.
It never ends, and the sooner one starts to plan and fund the future, the better quality of life one will have.
October 4, 2012 at 10:03 am
Thanks Gail! We are saving diligently and living below our means already, but it is oddly reassuring to examine the worst case scenario. Living on government benefits alone is unimaginable to me. So we save!
When you take a long hard look at just how bad things can be, it helps scrape off that fear that can paralyze you and keep you from doing anything.
October 4, 2012 at 10:15 am
This actually what happened to me. About 7 years ago, I had an epiphany. I was able to visualize what our life would look like if we didn’t make saving a priority. I didn’t like what I saw and shared my vision with my husband. That’s when my husband and I decided to change our life path. We now strive to live a balanced life where we enjoy today but make plans to have a solid future. So, now when I visualize our future, I smile because I know we will be more than OK.
October 4, 2012 at 10:44 am
And the minute you get sick you won’t have enough to cover what medicare doesn’t. Your teeth for example.
October 4, 2012 at 12:50 pm
Amen Sandy,
Some people can’t help themselves until you stop helping them. You sound caring and charitable to give the $10,000 and help where you can. I did similar thing gave about $7000 that was also my car payment. Money was gone and they are still spending and planing the next trip.
I will take Gails great advise and visualize my older years and keep using my old items instead of renewing.
October 4, 2012 at 12:54 pm
Sandy, I can’t imagine what it’s been like for you. You’ve been a very good child to your parents and now I guess you have to stand by and see them fail. You cannot mortgage your future for their choices or the hole will get bigger and bigger, and I think you realize that now. We had a similar situation in our family….. “you can lead a horse to water, but you can’t make him drink”. So better to accept them as they are, with gentle reminders…and be there to help in non-financial ways as best you can. Through their mistakes you can learn very important lessons to lead you to better choices in your own life. Good luck with your situation, it really touched me…..
October 4, 2012 at 12:54 pm
Hmmm. I see it a different way.
Right now, between mortgage and debt payments, I “live” on far less than 20k /yr. By the time I retire, I expect to be mortgage and debt free, and if I continue my frugal lifestyle, having even $1,500 a month to spend on transportation, utilities, food and any other incidental will seem luxurious.
October 4, 2012 at 1:16 pm
Amelia, we have free health care in Canada. There may be long wait times, but we don’t have to budget for health care. Thankfully.
October 4, 2012 at 1:18 pm
I am in a similar situation to Sheryl – I am effectively living on less than $20,000 right now while I am saving madly for retirement. At this rate, my retirement will be far more luxurious than my working life. In fact when I happened to glance at my paystub yesterday, I was shocked to see how much money I make – I honestly didn’t know because I hardly see any of it, the majority of it goes to savings and taxes.
October 4, 2012 at 1:55 pm
I don’t want to sound mean but the last thing we really want in society is a bunch of doddering, old seniors shambling around the workplaces and who’re there only there for the paycheques. First off, you’re keeping some young, keener who’s just out of school from starting a proper career because you’re still in the way. Secondly, a lot of them are slow. Not necessarily mentally or physically, just in a lacksadaisical sort of way. That sounds harsh, and I certainly don’t mean everybody, but the seniors (in their 70s) who get jobs here in customer service? Geesh… Especially at the post office – “Oh, Hi Ethel, how are you?”, chats, asks about each others’ kids, takes her time putting the stamps on a parcel so she can chat longer with customer, long goodbyes, slowly takes parcel to the back of the of the store. God alive! Move over and give that job to some 20-year old who needs it!
Anyway, my point is – if you plan to work well into your late 60s/early 70s, there’s an extremely good chance your coworkers don’t want you to.
October 4, 2012 at 1:58 pm
There is a couple that retired at about age 30. They have one child and live on around $25K a year. They don’t feel at all like they are missing out on anything. The guy’ss name is “Mr. Money Mustache”. He says if he were single he would only be living on about $10K-15K a year. His blog is http://www.mrmoneymustache.com/ The post on the true cost of commuting is especially eye opening.
He has inspired me to push for extremely early retirement too. (I’m only 24 now)
Check it out!
October 4, 2012 at 2:05 pm
Sandy – if you helped them get their home ready for sale, why didn’t they sell it (and pay you back the money)?
Some people feel like their “family members” owe them and should take care of them. My mother is like that with my grandfather. I know she expects that I will take over catering to her when he passes, but she’s in for a rude awakening….I am still waiting for her to pay back the 10,000 she took when my student loans arrived. After all, what’s mine is hers and what’s hers is hers.
Sheesh. Crazy people.
October 4, 2012 at 2:40 pm
@ Bluenoser – Had to reply to about not budgetting for health care in Canada…
I’m in Ontario, and I paid $300 to the dentist last week and $100 for a prescription at the pharmacy today. I’m really happy to have benefits through work that will cover those expenses.
Even though I didn’t have to pay for my surgery when I broke my arm a couple years ago, health care is still something I need to budget for.
October 4, 2012 at 2:48 pm
Hello
Even though Canada has ‘free’ health care, you still have medical expenses.
Hospital visits include parking fees and extras,
Not all equipment needed is covered, even simple things such as ace bandages
Therapies required for different disabilities and injuries
Eye care is no longer covered between the ages of 18 and 60. Exams range anywhere from $60-$200. Then there is the cost of glasses, mine currently run around $500 (frames can be cheap but the lenses cost).
My mum has rhumatoid arthritis plus a few other issues and her prescriptions can cost her hundreds of dollars a month even covered under additional gov’t benefits.
I have always been under a dental plan but even then it is not usually fully covered, my portion of a mouth guard was $400.
My mom is retiring soon and with her retirement income of rrsp, old age, and social benefits, (no pension with her job), after all her bare bone expenses taken into account her variable spending is $75 a month for food, entertainment, and gas. If she is approved for subsidized rent, it only frees up about $150 a month.
It is not going to be easy for her but family will help where we can.
October 4, 2012 at 3:05 pm
Tiffany – I love MMM too! Hubby and I follow him religiously
October 4, 2012 at 4:25 pm
That’s about what my mom does live on, and she does it pretty well but without much frills. Most people who are still healthy would like to have money to do fun things, she has to be very frugal. Thanks for the reminder Gail, it is appreciated.
October 4, 2012 at 4:34 pm
to Bluenoser: while we have free health care it does hold a few surprises – a few years ago I was diagnosed with Breast Cancer (caught early – fine now) – OHIP paid for the chemo – however, it did NOT pay for the shots I needed to keep my immune system up so that I could be given the chemo – had it not been for my insurance coverage at work it would have cost me $ 26,000 to save my life – I would have had to either take money out of my RRSP or an additional mortgage on my house – fortunately, I had a house and job to go back to – I don’t know what would have happened if I was retired, renting an apartment and living on $1667/mon. (not everyone or treatment qualifies for the Trillim Drug Plan)
Best protection? – large emergency/retirement fund & being debt free with assets
October 4, 2012 at 5:36 pm
OMG!!! Gail, your post today is my family exactly!
I met my in-laws 33 years ago and I knew immediately they lived on the edge financially. Over the years, they put their immediate needs first and avoided any long term financial plans.
When they were in their 50’s I convinced my husband to talk to his brother and try to convince their parents to start thinking about their financial plans for old age/retirement. His brother’s answer, echoed by the parents, was that Dad was going to work forever.
Fast forward to their early 60’s and Dad gets dementia. With no savings in the bank, no home to sell to create an income, no pensions and no hope, they found themselves in a horrible situation.
Now Dad is in a home for seniors with dementia and pays 80% of his income for his care. Unfortunately, the 20% of his income left to him does not pay for his personal needs (toothpaste, clothes, incontinent supplies, haircuts, etc.) and Mom has to supplement his needs with her income. She barely has enough to live on herself. They also had to go through a legal separation to untie her money from his so that 80% of their “family” income wasn’t taken for his care home fees.
Not a pretty ending to life people…take Gail’s advice and plan for your old age and retirement. SAVE SOME MONEY!!!!
October 4, 2012 at 7:08 pm
Healthcare in Canada is NOT free … it’s generally affordable (usually the case, except in cases like those quoted above) but not without any cost (unless you’re on some sort of income assistance).
My employer pays a portion of my medical insurance plan. When I was out of a job, however, I was paying around $ 50 a month to have basic insurance. Way cheaper than the US … but not FREE…
There are ways of living on less money at any age, but it involves conscientious frugality, sharing big costs (rent, transportation), and staying in good health (as in, eat your greens, with rice and beans!)
October 4, 2012 at 8:56 pm
Healthcare is not close to free. I am sick of reading comments about that. We pay the highest taxes!!!! Avg from 25 to 35 percent in Canada. In the US they pay much much less and the still complain. I would rather have the option to pay a third in taxes like the us and get my own medical plan. I like many others are sick of paying so much in taxes just for some people to take advantage of the system ( we all know who they are ) and he rest the government wastes day to day as we hear more about these days. In the end that Is not possible. For our friends to the south, work out what 30 percent in taxes would look like aswell as almost double the taxes on your daily shopping items would look like. Not such a pretty picture is it? Btw good post today everyone. Thanks for the link to MMM
October 4, 2012 at 10:27 pm
@Andrew
I think your forgetting in the USA that you can get denied Health Care Insurance even for having a minor health issue.
Or the fact that some plans have deductibles, some can go from $5000 to $10,000.
Or the fact that most plans also have lifetime limits – $1,000,000 to $2,000,000 can be typical. Getting cancer treatments can easily leave with no health care insurance because your lifetime limit has been reached.
Or the fact that many Americans file for bankrupcty because thier healthcare bills become overwhelming.
Or the fact that most Americans who file for bankruptcy because of their healthcare bills HAD healthcare insuarance.
Or the fact that coverage may be totally different in USA. Typically its 80% coverage for prescriptions, it may not be that in the USA, plus even if the coverage was trhe same the cost of prescriptions in the USA is way more expensive, tons of seniors by thier drugs from Canada or Mexico.
My father had emergency heart surgery 5 months agao, and a stroke a week later. If we lived in the US, i’m guessing my father may have skipped
goin to emergency room because of the cost, the suregery in the USA may have bankrupted him, the cost of rehab for the stroke would HAVE definately bankrupted him. Or he would get no rehab, and forgo recovery. Then the cost of meds for his high blood pressure. My dad is 67 he was gonna retire this year, if he was in the USA. It would have wiped out his entire savings and he would spending his senior years in proverty.
I so AMAZINGLY GRATEFUL that my parentsw immigrated to Canada instead of the USA.
October 4, 2012 at 10:56 pm
Wow. Shout-outs to both Michele and Sandy…
I can’t imagine having over 100k in debt left over from a divorce, and not having it split with the ex. And he has 3 cars? So unfair. Good for you for making paying it off a priority and having that, and your mortgage, almost paid off. You’re in the home stretch now!
Sandy’s story also made me sad! Well it makes me shake my head too. But like I said, kudos to you for knowing your limit. People who really, really want to get out of debt will do almost anything to achieve that goal. It sounds like they would rather drown in debt for a long time to come, rather than bust their butts to get rid of it (and pay you back). But hopefully I’m wrong.
October 5, 2012 at 5:00 am
[...] We all imagine our best retirements but this week Gail Vaz-Oxlade discussed Worse-Case Retirement. [...]
October 5, 2012 at 9:43 am
Andrew – While there are costs associated with Medicare, and it is not perfect, it is far better then many options. Our 10 year old nephew was diagnosed with leukemia. While my sister was online researching in the first few days after his diagnosis – she saw many American websites that focused on how to afford treatment for a child with leukemia. Most quoted a cost of over $100,000. While there were some costs associated with his treatment – the family did not have to sell their house, depleted their savings or beg, argue and plead to have necessary treatments covered by their health insurance.
Removing the stress of not having to worry about finances while your child has to fight for his life – worth every penny of the taxes we pay.
October 5, 2012 at 10:50 am
My mom just starting getting old age pension, but she had her pension she earned while working a low paying job at a hospital clawed back, but it was clawed back far more than her old age pension amount. This does not seem right, she has worked really hard all her life and raised three kids on her own. Does anyone know who the best person for her to talk to about this, is there a way on appeal the amount clawed back? thanks in advance.
October 5, 2012 at 9:58 pm
Well put, Gail! This is one of the messages I have been giving to people who take my Retirement Readiness courses and come to presentations that I do. Some people do not believe that their lives will change as they age including their health, the economy, or their job prospects. Take your heads out of the sand folks!
Working forever is not the answer for most.
October 6, 2012 at 1:31 am
@Lisa are u asking about OAS CLAWBACK?
October 6, 2012 at 8:13 am
Great post, Gail! Angela and Tiffany, thanks for the tip on the MMM blog.
October 6, 2012 at 8:35 pm
@ Bluenoser – I agree with KF. If it weren’t for company benefits (and they don’t even cover everything) we wouldn’t be able to go to the dentist or get prescriptions filled so not everything in Health care is free. I am also in Ontario.
I would like to hear from more current retirees or those close to retirement: any advice you have?
I never worried since I currently contribute 12% of every paycheck into our pension plan but now the government has talked about wanting to no longer contribute to that plan. This has me SERIOUSLY worried – will it be there by the time I retire? I haven’t been saving much in RRSPs because of the fact that we had a good established pension.
October 7, 2012 at 9:50 am
$20,000 is all I make/year right now & it’s not easy. Especially with 3 young kids.
There’s really nothing left of my cheque once the bills are paid, so saving isn’t possible most months, but lack of savings for healthcare is always a huge concern of mine. Can’t remember who said healthcare is not something we have to budget for, but if that’s what they think, they either don’t/never had children or they had group benefits at work (which my company offers none of…aside from $5000 if I drop dead at work).
One of my kids needed an ambulance years ago & the bill was just over $600. Since the birth of my youngest, my teeth have become like chalk and just crack/break if I eat anything even remotely crunchy or sticky. I have 2 that are both 1/2 broken off now & even tho it hurts, I can’t afford to go to the dentist. One of my children has a disability – I get no assistance for him other than a slight tax break. Healthcare in Canada is NOT free.
October 7, 2012 at 1:33 pm
Also in BC where I now live, every resident has to pay into a montly MSP (Medical Services Plan). That is certainly not free and must be budgeted for. Depending on family size its anywhere from $64 – $128 a month.
The employer does not always cover this amount.
October 8, 2012 at 9:57 am
Alexandra, Excellent point that I don’t think many realize. I was on the same drug and even with the 75 percent covered by my insurance, it was 1000 bucks a week for me just to have the shots to take chemo. The shots are 4000 dollars a round! NOTE to all, your drug plan doesn’t necessarily have the same coverage tier for all drugs. In my case, a bottle of Tylenol 3’s would be covered at 90% but 4000 dollar a round Neupegen was only covered at 75%.
As well, think about if you had to pay up front even if you got reimbursed. A lady in treatment with me had a drug that was 10,000 dollars a month which she had to pay and then get reimbursed.
Drugs are only “free” if administered at the hospital i.e. IV chemo but if you need a drug to get your body fit enough to receive chemo, that is not free.
October 8, 2012 at 5:09 pm
I don’t know how what I pay for health care insurance compares to Canada, I am in the US. I don’t have an employer contribution but am part of a group. The rate is the same at any age or health, the benefit of being in a group. I pay $600 a month after tax money for just me, and yes there are co pays and deductibles. It’s a good plan so much better than I could do outside of a group, where a similar plan would be hard to find and/or much more expensive.
October 10, 2012 at 5:40 pm
Edward… Grow up Put on your big boy
underwear. BELLA, I GET THAT YOU’RE RILED, BUT I HAVE A POLICY ON APPROPRIATE RESPONSES AND YOURS STEPPED OVER THE LINE, SO I’VE DELETED IT. PLEASE DON’T LET ME HAVE TO CENSOR YOU AGAIN. I DO NOT ENJOY THIS.
October 12, 2012 at 8:15 pm
What an ugly, but important, spin on it. It’s so true. Too often people think of what they want their retirement to be like, instead of facing the reality of what it’s going to be like if they can’t do something about their financial future. Thanks for the article, great piece.