Retirement Rant
Posted by Gail | Filed under Retirement Planning
Have you been following the recent series in the Globe and Mail on retirement? Wow. According to Jacquie McNish’s article published on Saturday (October 16, 2009), 60% of working Canadians have no pension at all and 8 million Canadians have neither a pension nor an RRSP. Even the people who thought they had pensions have found themselves holding a sack of… well… nothing, as pension benefits are being slashed or evaporating completely.
Here’s the thing that really caught my attention. While more has been written about retirement and why we have to save for it in the past two decades than ever before a lot of people have not been paying attention. Do we really need to be told (every RRSP season for 20 years) that we need to set something aside for the future? Rhetorical question, right? So if we know we have to save, that what the hell are we doing whining about the fact that we didn’t save a cent and now we have to sell our homes or work longer because we have no money in the bank.
I know, I know, there are all those people who lost millions when the markets corrected. Yah, that’s what markets do from time to time. So if you thought you were buying a sure thing when you plunged your money into that global equities fund, you were clearly not informed of – or you chose not to hear – the downsides.
Having some money for the future is not rocket science. It means accepting that you can’t spend every red cent you make in the present because at some point in the future, you won’t be able to work. It means taking responsibility for planning… and that means taking the time to look forward. And it means taking control so you aren’t surprised by:
- how your investment performs (because you know the potential up and down-sides),
- how little you get from government pensions (the max is under $20K a year, and lots of people don’t get the max), or
- how expensive retirement will be (hello inflation!)
So what’s the problem? Why aren’t people saving? Are we all ostriches with our heads firmly stuck our backsides?
Yes.
But I also think the problem stems from the stupid information and rotten tools that “helpful” sites/people are providing. Take the retirement savings tool the Globe offers as part of this series. Having put in my age, my current savings and how much I’ll continue to save, and then guessed at stuff like my rate of return and inflation (yeah, how could we possibly know this), I’m given a graph I can’t relate to and a report that begins with, “You may need to save more.” Apparently, despite the fact that I only want to have my savings last until 85 (they ask me this and I tell ‘em) my projection tells me “Your plan provides $846,392 when you retire. This retirement savings may run out at age 91. “
I can’t win.
So what do I want to do next?
Give up.
And this is exactly the problem with how retirement planning is handled in the media and by a multitude of companies and their advisors: You Can’t Frickin’ Win. No matter what you do, by some arbitrary standard you’re going to be behind the 8-ball. You might just as well start saving up your sleeping pills now for all the good your planning will do you.
People, stop listening to the crap and just do what you know you should: save some money. If you only have $5 a week right now (you can come up with $5 a week!) start there. Over time, as you make more money, or find ways of trimming expenses, set some goals for saving a little more. Aim to set aside 10% of your net income every year until you retire.
Doing the projections and hearing how far off the mark you’ll be isn’t going to get you to where you want to be next. Doing the detail – making a budget and finding a way to save some money for later – will.
The fact that 45% of working Canadians haven’t got a penny saved for their futures should be a huge wake-up call to all of us. You can’t have money later if you spend it all now. And if you’re also racking up debt (statistically, we’re retiring with higher levels of debt than ever before in history) then you’re really dumb!
Having a stash of cash for when you’re no longer working isn’t going to happen magically. Just as debt repayment takes focus and hard work, so too does saving for the future. Never mind all the bells and whistles you think you should be playing with. Having something for tomorrow is simple. As the guy with the accent says, “Save Your Money.”
October 22, 2009 at 7:59 am
This is so true. As I work in the financial industry I see it everyday and I am sadden for all those individuals who hope to win the lottery or get an inheritance. It isn’t easy to save however it is the proper thing to do if you want to actually retire someday. Life isn’t free nor should we think retirement will be any easier.
October 22, 2009 at 8:12 am
I’m years away from retirement, and I’ve got student loan debt to pay off, but I’m still putting away something every month for my retirement. My savings are minimum these days as I concentrate on my debt, but I know that I don’t want to end up moching off my three kids when I retire and I certainly won’t want to work any longer, so it’s worth it. And once the debt is gone, those payments will go into my retirement – waiting for the day when I get to enjoy long days of relaxing.
October 22, 2009 at 8:20 am
We are a product of our environment. For as long as I can remember when I was old enough to understand the concept of money, my dad would sit with me and explain how if you took 100 dollars a month, invested it at a rate of return of 7-8%, it would double every 7 years. Although at 12 years the concept did not sink in right away but when I got my first full time job at 22, I started putting money aside right away. I am now 35 years old and I have managed to accumulate over 70K for retirement.
Morale of the story, do your children a favor. Lead by example and start talking to them at an early age and hopefully, the next generation will be better off.
October 22, 2009 at 8:35 am
It isn’t just workers fault either.
Lots of workers have no jobs I happen to know at leat 30 people laid off.
And I sncerely doubt 5 bucks a week put away now will keep you living for 20 years after retirement.
Your mileage may vary
The canada pension plan hasn’t kept up with the times either.
Thats a well known fact.
If you have a blue chip job a with benefit plan dental and drug then hey yeah those chosen few can put lots away and most I know do.
So don’t blame the average joe because he can’t help that.
October 22, 2009 at 8:38 am
Time is going by so fast that even though retirement may seem years away, suddenly I only have 12 more years to save. Fortunately my husband and I have been putting money into RRSP’s for the last 20 years. I work for a company that has a savings plan, if I put in 6% they will match 6%. We also have a pension plan. Even though all these things sound great we still have a large debt load that we are tackling. It is hard work paying debt and saving for reitrement but at least we are going in the right direction.
October 22, 2009 at 8:48 am
In my opinion, one of the most frustrating things about those sites and financial advisors is the huge amount they say you must save for retirement. The huge number ususally a million bucks overwhelms people into doing nothing. The reality is that if you plan properly so you no longer have $1500 month mortgage payments and no debt, count CPP and old age security, you won’t need that million. When I take all of that stuff into account, I really only need about 1000 – 1500 a month income in 2009 dollars to live the same lifestyle I’m living now, actually probably a better lifestyle.
October 22, 2009 at 9:06 am
One of the most helpful books I recently read about Canadian retirement is _Why Swim With The Sharks?_ by by Salomaa and Dembicki. While I didn’t agree with everything in the book, I found their analysis how much how much you’ll realistically need in retirement, and hence how much you need to save, refreshing–and MUCH less than many other sources claim. While this may seem to contradict Gail’s lament that folks aren’t saving enough (or at all), I don’t think it does–for many of us, plugging our numbers into standard retirement calculators leads us to say “Gah! I’ll NEVER be able to save THAT much. Forget it!” instead of setting out to reach a more modest and realistic goal. This really resonated with me, as I have never understood why I would need to save 70% of my pre-retirement income, when right now I am (a) saving for retirement, (b) paying down a mortgage, (c) raising children, and (d) saving for the children’s future education–to say nothing of costs associated with working. I expect to have none of these costs at retirement. I expect health care costs to go up when I retire, and I’d like to have some money to travel–but again, we’d be paying for 2 tickets (hubby and self) not 4 (with the two kids). There are helpful worksheets in the book, so run the numbers for your own situation–perhaps those living alone and without kids will genuinely need 70% of their current income–but for many raising families, I doubt it. I also learned how to find out my expected CPP, OAS, and possibly GIS amounts from the book–something I didn’t know before. Having real numbers to work from is always a good thing.
October 22, 2009 at 9:06 am
Both my sets of grandparents saved wisely and diligently for their retirement and so I can remember visiting them living carefree and able to spoil me rotten. This inspired me to do the same because I want that lifestyle when I retire. Unfortunately this saving mentality skipped a generation because, with the exception of one parent, none of our parents (divorce and remarriage so there are a bunch of them) have saved a thing. As they approach retirement age in the next 10 years their children are left wondering what will happen to them. I don’t get along well enough with any of them to have them live with me. My husband and I don’t want to put our kids through that so we’re saving.
A note to women because they are more likely to stay home with the children, thus decreasing their earnings over their lifetime: Get thee a spousal RSP now. He puts the money in (automatically every month) and gets the tax deduction but only you can take the money out. It doesn’t matter how much you love him or trust him, you need your own money. What if he dies? What if, like the neighbor down the street, he announces to you after 19 years of marriage that he’s moving in with his girlfriend that you knew nothing about. That after 13 years of her staying home to raise his children he was cutting them all loose?
I agree with Lyn, you need a number for your lifestyle. I’ll want to travel first class so my number will be higher. And there’s nothing wrong with working longer if you enjoy your job.
October 22, 2009 at 9:09 am
5.00 bucks a week is still better than 0.00 bucks a week…I have the retirement “talk” with all my clients regardless of their age…it’s never too early or too late to do something…it’s part of your overall financial picture…some debt is good (mortgage, education costs, vehicle loan) and some savings is a MUST…I have clients who find themselves jobless suddenly so they may reduce their monthly savings contributions but don’t neccasarily stop them…they just shift the balance…talk to your banker…we can help…there’s no cost…and it can be very helpful (and we can use realistic numbers)
October 22, 2009 at 9:13 am
Malcolm Hamilton. He’s the lovely voice of reason for Canadians regarding retirement. He’s very supportive of TFSA’s as the retirement vehicle of choice, the best choice for retirement savings for low income Canadians, believes that most people only need to replace about 50% of their income to retire comfortably, and asserts that the key to retirement is to make sure you retire with no debt. He’s easy to google, but here’s a start: http://www.readersdigest.ca/mag/2002/09/retirement.html
October 22, 2009 at 9:14 am
I don’t think it’s a matter of people not paying attention. People are known to not do what they know they should do. It’s like eating right… exercising… good dental care… etc. Saving for the future is no different. We all know we should do it, but we don’t.
So many occupations do not have pensions available. Mine is one of them.
So many companies don’t hire full time employees so that they don’t have to consider employee pensions.
Even folks that retired years ago with good company pensions are seeing those funds be sold off by the parent company, going from one hand to the next in an effort to cut costs to the parent company. Those people are left hanging in the balance… wondering if that income will even survive. Wondering if they’ll be offered a paltry payout by the current pension administrators to rid themselves of the costs too.
I know many people who are in their 70’s that are still working. Some because of debts they had when they ‘retired’. Some because of loss of company pensions. Some because of lack of discipline in saving for their retirement. Some just because they have nothing better to do with their time.
Personally, I am not relying on CPP or OAS to take care of me when I retire. My Mom and Dad taught me that the only one that will truly take care of me, is me.
My husband and I have some money set aside in company pension plans from previous occupations. Fortunately those funds are out of the company hands and invested in a financial institution now. These days we are saving money where we can, but certainly not the amount that the ‘experts’ claim we should. We have a good EF, and we have equity in our house.
So, just like Gail says… money isn’t rocket science, it is discipline.
And you need to think about your future and plan for it. Save something ! Start somewhere !
October 22, 2009 at 9:14 am
Here’s a quote from the Globe and Mail story that really bugged me: “A supposedly affluent individual is suddenly left scrambling – forced to spend their capital to make ends meet.”
You don’t have to die with your principal still intact! As you age, your expenses go down considerably. The fancy vacations you dreamed of aren’t needed when you can’t go for a short drive without pain in your hips/back/knees. For many Canadians, their primary retirement vehicle is their house – so you can’t expect to live in it until you die.
My grandfather recently moved into a care facility. He was horrified at the cost (over $4000/month), because when he bought his house, he paid $12,000 (in 1951). The number seemed astronomical to him. But once we explained that everything – food, housekeeping, property taxes, hydro, heat, rent, etc. – were all included – he realized it wasn’t that bad. Even if he didn’t earn one cent in interest, and CPP were to dry up entirely, he could live 9.5 years in the facility based on the sale of his house ($450,000). Given the fact he is over 90, let’s be honest, that isn’t too likely. Should some great miracle occur and he make it past 100 (and he fails to earn a single cent in interest) – he has 4 kids and 4 grandkids (plus spouses) all working. We would never allow him to be thrown out on the street.
If you want to retire at 55, live on a tropical island, buy fancy clothes and generally live a better life than you already do, then hell yes it takes a lot of money. But if you’re an average person, with average wants and needs and manage to stay healthy until the end, you need nothing more than a roof over your head, money for groceries and other essentials.
October 22, 2009 at 9:28 am
I am always inspired by the numbers you give at the end of each episode of TDDUP-as in, if you save $200 a month, you’ll have X amount when you retire. I am a little late to the game, since I was in school until I was 30, but now I save 10% of my (net) income and hope to work until age 70 or so (I really love what I do) so I figure I should be in pretty good shape. Although my advisor says I should save 10% of my gross income-I listen to Gail
. I agree with many commenters that my house will be paid, I won’t have as many car expenses, etc., The pattern I’ve seen many people in my life take is that they have a “honeymoon” period when retirement starts, where they travel and spend lots for a short period, and then settle into a routine where their expenses go down significantly.
October 22, 2009 at 9:41 am
I’m shocked that that many people aren’t saving. I currently have quite a big nest egg set aside and I’m hoping it continues to grow for me.
October 22, 2009 at 9:42 am
I’m formerly a financial planner (10 yrs) and throughout the years realized that it’s not that people did not want to save for their future, it was that they didn’t understand all the jargon that came along with retirement, so they were afraid to do anything.
Employers, schools and books can only do so much, it’s time people take matters into their own hands and do what is necessary to learn about money.
Educate, educate, educate.
You will be very surprised that many of the things financial planners do you can do on your own, but I do understand that time is essential and to pay a professional is easier. The important point is to spend time educating yourself, become informed about money and how it can work for you today and tomorrow. Whether you do it on your own or use the services of a professional, the key is that you’re educated about money and have the ability to make informed financial decisions so that you can do things on your own or co-ordinate your thoughts and ideas with a professional.
October 22, 2009 at 12:17 pm
My husband and I come from a slighlty different end of this blog. We didn’t start saving for our retirement until we were done with our education and at that point we only put in $50 a month. A few months ago we saw our financial advisor to see the path we are on. We thought we would need to increase our RRSP considerably to have the same income we currently have when we retire at 65. We were actually told that if the trends/history of our investments stay on the predicted course we did not have to change a thing. Because we know trends/history don’t always follow the predicted course we decided to up our RRSP’s a little bit more. So, needless to say, we are very excited about our future – both tomorrow’s and at age 65.
Starting with a little savings – put us on the right path to the retirement we desire. Good luck to everyone out there – finding the right path (you can only head down it if you take the first step).
October 22, 2009 at 12:22 pm
@ Lyn: When I retire, the buying power of $1 million will probably be halved. Thus, I’m aiming for $2 million in my retirement accounts (please note I’m not including the value of my home in that number).
Sure, some adults will see that number and say, “Oh, no! That’s huge! It’s impossible!”
Kids, however, don’t have a defeatist attitude and take a simpler approach. (At least the ones I deal with, anyway.)
Let’s illustrate with a classic question: How do you eat an elephant?
Most adults make faces, shake their heads, then give convoluted answers about how to skin it, cut it up, cook it, etc.
Kids say, “One bite at a time.”
I was in a seminar with 100 or so co-workers and I was the only one who answered with the latter. I guess there are perks to having the maturity level of a thirteen-year-old.
BTW, the answers to “How do you put an giraffe into a refrigerator?” and the subsequent “How do you put an elephant into a refrigerator?” were even funnier. And, yes, I was the only one who got those answers correct, too.
October 22, 2009 at 12:53 pm
Yes if its a chocolate elephant…..one bite at a time.
October 22, 2009 at 12:56 pm
Here is my mantra for retirement- I will not end up like my parents!
..who by the way are 74, dad still works pretty much full-time and mom is living the lifestyle she feels she deserves. i.e. three cruises and 1 vegas trip this year. All of this- by the way- goes on the credit line and the credit cards to which they are completely happy making just the minimum payments because these are insured and when they die- it won’t matter anyway. – (not my philosophy- my parents) Hubby and I are turning 40 this year. I work part-time, he is full-time. We have no pension plans other than what we put away for ourselves. We’ll be OK- we ARE putting away 10% of our gross income away each month, and are trying to max out our TFSA this year. and you know what—we could be doing even better but I have a “I’ll just pick this up” syndrome when shopping that I need to cure.
October 22, 2009 at 12:58 pm
Both my husband and I were raised by busy bees – hard workers who saved and yet we spent most of our financial life living very, very foolishly – spending, debting and never even considering savings and emergencies. It is late for us as we only have 11 years left until we hit 65 but at least we have started. As Gail wrote and what we have learned through some of our latest life circumstances is that you can never be prepared enough but you better be doing something.
Because we are late “bloomers” with only a skimpy private pension, CPP and Old Age Pension to look forward to we have decided to stop worrying about the exact dollar value of our retirement and just move forward on a simple retirement strategy. In fact we are copying our parents and not paying much attention to the experts (except Gail of course!) who just confuse us.
Our plan is very simple – we simply intend to go into retirement without any debts – no mortgage, no LOC, no credit card debt, no car loan, no student loans, no other loans etc. Sooo – we are busy living strictly according to our budget, paying off the mortgage and car loan (other stuff is now paid off) and building a big emergency fund. We are also taking advantage of the TFSA and the RRSPs to the best of our current financial ability. Once the remaining debts are paid and the emergency fund is built up we will be dumping all that money into the TFSA and the RRSPs.
Neither of us is big on risk so we probably won’t make a killing with our investments but a loonie and a half in the hand is better than nothing. We cannot foresee our future but we sure can see the past. If only we could start over again is a refrain we kept saying to each other but that soon got old so now we are just trying to do the best we can with the time, money and health we have left and with what the world circumstances beyond our control will allow. Ours won’t be an extravagant retirement but we hope to be relatively comfortable and secure (whatever that means now a days) and especially stress free. Debt is the biggest stresser of all.
October 22, 2009 at 1:18 pm
Gail, the other problem is that when you contribute to a pension, you offset the amount (and thus decrease) the amount you can put into an RRSP.
Of course, saving outside the RRSP must be done, but that is not as good as saving inside an RRSP for taxation reasons.
We believe in saving, but there are better forms of savings than others.
October 22, 2009 at 1:19 pm
… not necessarily better, but more tax efficient.
October 22, 2009 at 1:19 pm
We’re saving and paying down as fast as we can so that we can get off the treadmill of having to work to make life happen. We just want to be in a position where life happens, and work is for fun – not for survival.
October 22, 2009 at 1:39 pm
Very interesting discussion on retirement. I would like to get people’s thoughts on RRSP’s vs other savings i.e. TFSA.
My husband (51) and I (47) are very, very fortunate in that we both should have excellent pensions. I am in OMERS (municipal employee) and my husband is an auto worker. If all goes well and there are no catastrophes we should both have pensions that combined with CPP and OAP will provide close to what we were earning (net) when employed.
I attended two seminars at work lately – one on OMERS that was an eye opener where I found out just what an excellent pension plan it was and one on fiscal fitness put on by someone locally that suggested that RRSP’s were not the best way to save if you were going to have a good pension income. She was basing that on the fact that OAP would be clawed back and RRSP could be taxed at nearly as high a rate as when we were working.
I know there is a huge tax benefit to RRSP’s but am concerned that what we think we’ll have available to us will be taxed to pieces when we need/want it.
My thoughts are to continue to put into the RRSP as we’ve been doing. My husband contributes to a spousal for me but really only about $50 per week and perhaps max out the TFSA so we have options.
Thoughts?
Leslie
October 22, 2009 at 2:09 pm
Saving for a mysterious, uncertain outcome is always hard. Like writing a will, or buying insurance… it is hard to throw money you are working hard for towards something so UNCERTAIN. (How long will I live? How long will my health hold out? What will the market be doing? How much will I REALLY need?)
Most of the people I know that do not have any savings have fine excuses:
“I’ll never live that long anyways” (and what if you do?!)
“I can always sell my house” (and move where?)
“My parents are leaving me everything” (Are they as clever with their money as you?)
“I’ll just never retire” (And if your health fails?)
“I could get hit by a bus tommorrow, so what’s the point” (Really?)
“My kids will take care of me” (What if they can’t?)
“I have lots of time” (Ever heard of compound interest?)
They make these excuses NOW with no regard for the “what-if’s” that they believe just can’t happen to them. I can’t live that way! I don’t put enough away according to the calculators…. BUT at least I am putting SOMETHING away, (and a will is in place, and my insurance benefaciaries are up to date). I sleep better knowing the the worst case scenarios limited damage plans in place — so even though I am sacrificing a bit of money now, I am gaining peace of mind.
I do wish I could keep the money now though!!!!
October 22, 2009 at 2:17 pm
Excellent post Gail! I think that you hit the nail on the head, with people being frustrated by not doing enough to meet the unrealistically high standards set by ‘calculator tools’ and financial planners that the temptation is to just give up. I work for the federal government and will have a full pension when I retire. My Husband has a small pension with his company and we save 800.00 per month in RRSPs. We currently have 70000 of RRSPs and are 32/33 years old. Yet, the message we get from our financial planner is that we are not doing enough and need to save more!!! Really?!?!?
The advice also seems to be that you need about 70% of your income in retirement. And while this may be true for the first portion (say 10-15 years), it is not likely true for the later portion of retirement when we won’t be traveling, own a big home, have several cars/toys to maintain. So to say that we need 70% of our current income from 55 to 85 seems a bit silly.
October 22, 2009 at 3:25 pm
Well if the house is paid for yes they can sell it and live quite comfortably in a good apartment.
This is already starting to happen
Some have sold …. one example I know of $345,000 invested and live in an apartment.
Actually way cheaper than their house.
The house was paid for already so thats not a bad fund for backup especially if no pension plan or short on rrsp’s
October 22, 2009 at 3:28 pm
Ah! I am a worst case planner!
I am assuming that (on average) my investments outpace inflation by 3%. I am assuming that I never make more money than now. I am assuming my costs DOUBLE once I hit 85 years old and need extra help. With this in mind, I can currently plan on having money until 96 (if my husband doesn’t leave me) and only 80 if he does. I ignore any payments from OAS or CCP.
This gloomy forecast has actually done a lot to reassure me and is a constant amusement to my husband. Punching in the numbers and making assumptions is risky and frustrating, but I feel like I have a handle on the worst situation.. now I work to make sure that this is not what happens to me (or him if he stays…).
October 22, 2009 at 3:49 pm
I too have run our numbers through various retirement calculators and then roll my eyes at the results. I agree they all seem to assume we’ll need something around 70%, but for me that seems completely unecessary – we’re living on less than that now. At the moment were saving/investing nearly 50% of our net so that we’ll have the option to retire in 9 years at ages 55/58. We’ll likely work 1-2 years longer and instead of saving we’ll spend virtually everything on one last round of the big ticket purchases before we retire (new roof, windows, furnace, major appliances, vehicle, etc) so we begin our retirement with no big looming expenses for many years if ever. We won’t be continuing to save and invest during retirement so right off the bat I know we can live on 50% of our old income, and that 50% currently includes mortgage, 2 vehicles, commuting costs, kid related expenses, and feeding a teenaged boy… If I take out all of the stuff which will be gone after retirement we’re likely down to 30%. I think those calculators are informative in showing you the long term impact of increasing or decreasing your contributions, but for showing you what you actually need? I think you need to take them with a huge grain of salt. As we all know from Gail, separating need from want is the key to most things.
I read something a few days ago that really made me stop and think. (I hope I’ve got the numbers right here). For every $1000/yr of after tax income you need in retirement you need about $40k saved (at 3%). Rather than thinking we all need to save massive amounts of money, perhaps we should all be thinking about cutting our expenses a little. Maybe the $100/mth satelite bill. Is that really worth saving up an extra $40k? Or a coffee each per day ($1.50×2x365=$1095)…. Just something to think about. I know it’s got me reevaluating the logic of staying in our “forever house” with the high property taxes and utilities. Paying off the mortgage is great but this place will always have major support costs and maintenance. On top of selling and getting access to the equity, we’d need waaaaaay less saved by renting or buying something tiny with lower utility,tax and maintenance bills. Maybe by rethinking our “needs” in retirement we can live on far less that we thought and can retire sooner.
October 22, 2009 at 4:12 pm
It’s amazing to me, the amount of people who are not saving. $5, $10, $20 a week is good. $50, $100, $200? Even better. But start SOMEWHERE.
My father is 50 years old and has zero savings. He’s currently living paycheck to paycheck and it scares me, because what happens to him 15-20 years from now when he’s too old to continue to work at his job? Will he have to come live with me or my other siblings? I don’t know. I’ve tried to get him to save. Tried to show him how. Nothing works and it makes me really angry and saddens me as well. Some people really just do not get it.
October 22, 2009 at 5:33 pm
Leslie P.
I’d recommend going online to the Service Canada website, getting a personal access code (which they send you via snail mail), as you will then be able to see what your CPP contributions and expected income from CPP will be, and have updated OAS and other numbers. Googling “Service Canada” or “Service Canada Account” should get you to the right place.
Once you have real numbers in hand (how much CPP, OAS) and how much from your job pension, you should be able to calculate your expected income in retirement, and what that means for taxes and OAS clawbacks. (You know you must start withdrawing from your RRSP by a set amount each year after age 69/71 (they’ve changed the rules; can’t recall which on it is now), right?–you should be able to look those percentages up.) All income–RSP, job pension, any other investment income or odd jobs–counts against the OAS, whereas TFSA withdrawals do not. So if you’re going to end up with generous incomes such that pretty much all the OAS is clawed back, my read is (I am NOT a financial advisor; I’m a stay-at-home Mom with a love of math), you’d be better off using TFSAs. So I’d suggest maxing TFSAs, making sure you have no debt at retirement (not even a mortgage), having some fun in the present (cuz ya just never know!), and if there is anything left over, RSPs. Others have thoughts on this?
October 22, 2009 at 7:54 pm
@ Risa
@ Leslie P
While not a financial advisor either, I would tend to agree w/ Risa’s assessment that because you have a pension and also make pension-adjusted RRSP contributions, you definitely are going to get ‘clawed back’. As well, since you mention that your ‘retirement’ income will essentially be the same as pre-retirement, you are going to be taxed large because, in theory, RRSP investments are supposed to be used when you know your income will be reduced (usually in retirement when most individuals have no other source of income). So, it might be better for you (since you will have pension income for retirement) to max out your TFSA and then, if you want the added comfort and have the extra funds, contribute to your RRSP, as Risa has suggested.
October 22, 2009 at 10:22 pm
I knew a couple in their early 80’s, who lived on a total income of about $23,000 per year ($11,500 each). I did their tax returns for them. They owned their own small house and had zero debt, grew their own vegetables, shopped smart and at that point in their lives were done with any major traveling. Oh, and they still managed to put some money into savings for unexpected emergencies.
That was about 10 years ago so I don’t know what inflation would put those numbers at now. But maybe the fact that they lived through the Great Depression meant that they knew the difference between needs and wants better than we do.
October 22, 2009 at 11:53 pm
I was speaking with a friend of mine the other day. This gentleman and his wife are in the mid-fifties, left Newfoundland and started a new life in another province. While they never made huge money (they each make $12-15/hour now) they have always saved a little bit from each paycheque. He said that if you never start saving, you never will. As you see your savings account grow over time you will want to find ways to add a little more each payday to your savings account.
Another thing he has said over our discussions; stay out of malls/Walmart, etc. Sure, buy yourself something new once in a while when it is on sale but only buy what you need. Groceries may need to be bought weekly but you don’t need to buy new clothes each month!
For every new ‘thing’ that is brought into the house, it needs to be washed, cared for, dusted, maintained, etc. I am getting tired of all the upkeep of our family belongings that I am committed to getting rid of a lot of it and am even more committed to not bringing more home. Everything that you own, owns you!
October 23, 2009 at 1:23 am
I want to enjoy retirement so I view every penny in my 401k as investment in my quality of life. I put away 12%, my employer matches 4% and once a year they add profit sharing at around 5%. Many planners suggest the cost of living won’t actually go down as much as most people believe. Your home will still have maintenance, taxes and insurance and at the same time health care costs increase. Also one thing to consider is if you don’t work you will have more time in your day to keep busy. Depending on your hobbies it could very expensive.
October 23, 2009 at 6:09 am
[...] Vaz-Oxlade did a Retirement Rant that is both entertaining and informative. I dare you to tell her why you aren’t saving, I [...]
October 23, 2009 at 7:28 am
frugalistas.blogspot.com complains that contributions to company pension plans reduces the amount you can put into RRSPs, reducing your tax advantage. Frugalistas forgets that any contribution you make into your company pension plan reduces your taxable income – remember that line on your tax return you enter to put in the amount of your pension plan contribution.
Also Leslie P is quite correct. If you have a defined benefit plan at work plus your CPP, you are more likely to have less tax benefit from RRSPs when you retire – an RRSP makes sense if you don’t have a company pension plan, because you will be in a much lower tax bracket than those with defined benefit plans.
I’m putting my max into a TFSA for me, and one for my spouse – they will be a much better vehicle for retirement for me because I will have enough income from CPP and two pensions (my first place of work 15 years, and my second place of work if I stay, another 15 years) to replace 40% of my pre-retirement net income.
October 23, 2009 at 7:36 am
Risa – thanks for the info you provided in your first paragraph!!
October 23, 2009 at 10:21 am
Will I retire? I have no idea, I could be like my father and have a stroke 2 years after he retired, but luckily he had a good pension (at least for a while, until his former Employer started declaring bankruptcy) and some health benefits, but he also SAVED a lot of money.
I want the choice to retire if I want to, and work part time if I want to, that is my goal for my “Golden Years”, be able to choose, and the only way that happens is with RRSP savings, Pension benefits and hopefully some other savings (like a TFSA).
Remember, if you are like an Ostrich with your head in the sand you are leaving your “arse” up to be KICKED!
C8j
October 26, 2009 at 12:53 am
Lol at the ostrich very funny Big Cajun Man
Yes the retirement questions
How much?
How Long?
What do I need?
What have I got?
What can I sell?
What am I still going to be paying for?
These are the questions we all need to ask ourselves when we are thinking about retirement.
October 26, 2009 at 5:29 pm
The recommendations are all over the map, so I’m just saving as much as I possibly can as quickly as I can, since I don’t know what the future will bring. At 43, I’m currently saving 30% of my gross income and my mortgage is paid off. Will it ever be enough? Who knows, but I know I’ve done my best, that’s all I can do.
October 27, 2009 at 8:31 pm
Every year my husband would take out a $5000 loan from our bank in Feb and add to our RRSP, and every year, when we got our tax rebate, he would pay the loan off. This was the only way we could do it, with a family of 6 and an income (in the 70’s and 80’s) of roughly $40,000
At the time I hated it, I would complain because all I could see is our needs, our wants. 4 children, all growing, clothing, food, can’t we have ONE vacation?????
We never did have a trip anywhere (other then we once took them on a road trip to TO, the zoo there and stayed in a cheap motel for 2 days) with the children but, now, all grown and with families of their own, they don’t seem any worse for wear:)
My husband (and don’t tell him I said this) was right. Both self employed and with no other pension or benifits, at least, because of him, we will not be trying to live on CPP and old age in the not too distant years to come.
It hurt at the time, but now I can’t even remember what I wanted to spend that tax rebate on. A trip to Disney Land? A new living room set??
It doesn’t matter now and it shouldn’t of mattered then.
A family vacation in their past would never make up for having to take their parents in and support them, right?:)
November 2, 2009 at 8:06 pm
I have a great fear of becoming the crazy cat women who is eating poor kitty’s food or being a Wal-mart greeter till I am 90 just to make ends meet. I am 44 yrs old and have 3 failed marriages behind me. Each husband took what little I might have had and left me deeper in debt. A new relationship with a great guy who feels the same as me on money matters now
) My significant other & I were forced to claim bankrupcy in 2006 when he lost his job and there was no work around. He moved out west afterwards and I followed the next year. Hindsight is a wonderful thing because had we known his earning potential out here, we could have avoided the bankrupcy. But no crystal ball to tell us that..fast forward to 2009 and we are debt free, own a small home with a small mortgage and credit cards that we use only to reestablish credit and pay off each pay cheque. My concern is that I have very little retirement money. I have 18K in a LIRA which couldn’t be touched in the bankrupcy and started a personal plan last winter. I put 8% of my net in bi-weekly, I also got a new job where my employer matches up to 5% (gross) for RRSP and a share program for non-reg funds. I am taking advantage of that, but still fear I am not doing enough. I am a cash only girl, and watch every penny I spend. So my question is, should I feel ok with 15% I put into RRSP’s every pay and another 10% into a non-reg fund? There is only so much to go around but because of poor life decisions and just plain bad luck (and lots of stupidity) I am so far behind where I should be. Will I ever be able to retire? Not looking for a fancy retirement, just the basics with a few extras here and there. There are still too many sleepless nights worrying about what lies ahead and once bankrupt, you get very possessive of your money and hate to spend it, just in case something might go wrong yet again!