Are you saving enough for retirement?

[stone hands]

Originally Posted by MoneyGuy

They don't need to be the same. Don't forget about government income sources such as CPP and OAS - also any employer incomes (although maybe you're including that in #2). Also, many people (like me) do some part-time or consulting work. It's much more complicated that your simple rules of thumb.

Passive income can range from return on investments, pensions, oas, basically things you dont need to wake up to an alarm for and sit in an office to get(I think saying investments probably wasnt a broad enough descriptor for what I meant)

I view being retired as not being beholden to working to sustain your lifestyle. Some people enjoy what they do and choose to work in retirement, but I would still consider them retired if they fulfill the "passive income = yearly spending" benchmark. Do you work part time because your passive income doesnt cover your expenses or because you still enjoy the work or need something to do? I would personally consider you retired in one case and not the other, but my definition of retired doesnt really matter because I'm just some guy on the internet

[MoneyGuy]

I took passive income from investments to mean from your investments.

I’m not consulting because I need the money (quite the opposite) but because I love the work, the engagement, being challenged, and getting out of the house.

[Slava]

Originally Posted by Enoch Root

And that is valid - there is certainly some reason for skepticism, and there are certainly some advisors who put their own interests first (though I think a big part of the disconnect is that advisors work mostly with people who have significant savings, so that can skew their view of the landscape).

The flip side is that there are also a lot of people providing 'advice' who shouldn't be. The reason there is an entire industry serving this need is because there IS a need. And it is a lot more complex than simple rules of thumb. It is also very important to get good advice, to do it right. and to err on the upside. Because the alternative, not having enough, is a pretty awful way to spend your retirement years.

When you've gone through the exercise with hundreds of families, you see trends, you see mistakes, and you learn where many misconceptions lie. One of the first things you notice is that the vast majority of people under-estimate their requirements. That isn't self-serving, that's a fact.

So while I understand your skepticism, I find all the free, non-professional advice to be a much bigger problem.

This post is completely accurate. I also think that on the internet there are a million opinions from people who are completely not qualified, unregulated and talk a good game. The thing is, people who are actually regulated and registered to provide this advice for a living are basically unable to do so. Its completely backwards to what makes sense, but it's the way the world works.

[GGG]

Originally Posted by Enoch Root

And that is valid - there is certainly some reason for skepticism, and there are certainly some advisors who put their own interests first (though I think a big part of the disconnect is that advisors work mostly with people who have significant savings, so that can skew their view of the landscape).

The flip side is that there are also a lot of people providing 'advice' who shouldn't be. The reason there is an entire industry serving this need is because there IS a need. And it is a lot more complex than simple rules of thumb. It is also very important to get good advice, to do it right. and to err on the upside. Because the alternative, not having enough, is a pretty awful way to spend your retirement years.

When you've gone through the exercise with hundreds of families, you see trends, you see mistakes, and you learn where many misconceptions lie. One of the first things you notice is that the vast majority of people under-estimate their requirements. That isn't self-serving, that's a fact.

So while I understand your skepticism, I find all the free, non-professional advice to be a much bigger problem.

When you say the vast majority under estimate their requirements do you base that on the actual results of people retiring with to little or peoples projections of the lifestyle they want versus their current savings rates?

In terms of poverty rates the elderly have very low rates relative to the rest of Canadians. Now this is obviously because we have a UBI for old people and there is a difference between not living in poverty and living the retirement lifestyle you want. But at least from a low income perspective the elderly have fewer monetary issues than the younger demographics.

https://www150.statcan.gc.ca/t1/tbl1...pid=1110013501

Because the alternative, not having enough, is a pretty awful way to spend your retirement years.

I think this is interesting. The assumption here is that it’s better to work more today to offset a risk of having less in the future. I think to much emphasis is made on having a bullet proof retirement plan and results in people making more sacrifices today for perceived risk. The worst case outcome of being 80 with a paid off house and just CPP OAS and GIS isn’t as bad as outcome as often made out to be.

[DoubleF]

Originally Posted by Slava

No, you're totally right! The problem is two-fold though. First, you have people earning say $100k a year at age 60, and living their life. Those people aren't going to suddenly drop to a $40k/year lifestyle. they might in their 80's, but no way that is happening at 60. There are a lot of people who spending more in those initial years of retirement because they're doing whatever it is that they have waited to do. YOLO and all that.

Then in their 70's things start to wane. They spend less on travel and things like that than they were in their 60's, but not zero. In their late 70's early 80's the spending ratchets down further as there is less they can do and less they want to do.

They also might end up paying for care, paying rent in a facility that provides extra care or a combination of these things.

But, I think... that's the the issue I have is that most guides and calculations. They do not address lifestyle differences or wants and basically assumes that almost everyone will approach retirement the same way. Many also build in some wild ballpark figures as a contingency, when in reality these individuals do not necessarily have these or the amounts required are wildly out of whack.

So perhaps the reason why this is an issue is that the calculation should be modular?

ie something along the lines of: Your post retirement needs might be a combination of some form of A + B + C vs D + E + F. One side being cash requirements post tax and one side being cash supply?

A + B + C is some form of combination of assets/activities you plan to enjoy, regular maintenance/reoccurring costs for those assets/activities, unforeseen circumstances that have a cost etc. Some might be TVM'd more aggressively than others.

D + E + F is some form of combination of available cash flow including things like yearly income less taxes, savings, grind downs etc. Some are TVM'd, others are not.

Like, obviously it's a complex concept and too many people think there's a one size fit all. In fact, these people should always be told, "There is no one size fits all or a good ball park calculation. It's a case by case basis. But, depending on your situation, maybe you may identify with one of these dozen ish pre-calculations."

Yes, it's a case by case basis, but I think the major disconnect is that most people think there's a handful of good guides, when in reality, people need to start realizing there are perhaps as many options due to almost as many varied lifestyles. To avoid crazy numbers going forward, perhaps a good guide going forward may want to address at least half a dozen to a dozen lifestyle combinations rather than assume almost everyone can kinda fit into 1-3 different lifestyle combinations.

Originally Posted by puckedoff

I like this strategy and it will be what I try to instill in my kids when they are older. (Basically start saving early, to take advantage of compounding). The best part is really that you create good habits and financial discipline, which is better to learn early and carries through later in life.

https://ofdollarsanddata.com/go-big-then-stop/

It's a good idea.

One thing to be aware about something like this is that you can teach it, but it might not actually internalize the way you expect to the person you teach it to. You may have to consider that you tried your best to teach it, but what the ends up manifesting is out of your control.

Anecdotally, I've run into many people who either continued what they were taught. Others rebelled against it completely after they grew up. I've also heard of situations where the same financial discipline manifests totally differently between two individuals who were taught the same financial disciplines identically (ie: Siblings).

I've also run into weird stories about how the financial discipline begins to manifest negative connotations because of the person who taught it. (ie: I refuse to do this because my parents were cheap and I hated that and I don't want my kids to live that way). Thus, they need/want to learn a method different than what they were taught to achieve basically the same way (usually slight difference in lifestyle).

[Enoch Root]

Originally Posted by GGG

When you say the vast majority under estimate their requirements do you base that on the actual results of people retiring with to little or peoples projections of the lifestyle they want versus their current savings rates?

They under-estimate how much they will need in order to sustain the lifestyle they want. And they usually also under-estimate how much they need to save in order to hit their target.

In terms of poverty rates the elderly have very low rates relative to the rest of Canadians. Now this is obviously because we have a UBI for old people and there is a difference between not living in poverty and living the retirement lifestyle you want. But at least from a low income perspective the elderly have fewer monetary issues than the younger demographics.

https://www150.statcan.gc.ca/t1/tbl1...pid=1110013501

This is essentially our disconnect. You seem to be making the argument that being above the poverty line is sufficient. That is not what planning is about. Planning is about setting, and achieving goals that will support the lifestyle you want (and can reasonably achieve).

I think this is interesting. The assumption here is that it’s better to work more today to offset a risk of having less in the future. I think to much emphasis is made on having a bullet proof retirement plan and results in people making more sacrifices today for perceived risk.

Sorry, but I don't agree with this, and it is a good example of what I was referring to about bad advice. Saving enough does not mean sacrificing the now, for a better retirement. When saving for reasonable goals, most people don't even notice the money they are putting away. It isn't about being draconian, it's about proper evaluation of where you are now and where you want to be - and striking a reasonable balance. If the savings levels that are required to achieve your goals ARE draconian - if they will result in sacrificing too much today, then they are unreasonable goals, and should be adjusted. This is all part of the process that an advisor will walk you through.

The worst case outcome of being 80 with a paid off house and just CPP OAS and GIS isn’t as bad as outcome as often made out to be.

Wow. All I can say to that is that, if that is a reasonable outcome for you, then great - your savings requirements will be pretty modest.

But the reason most people seek advice, or at least ask the questions, is that they don't want their retirement to be 'living off CPP'.

[Enoch Root]

Originally Posted by DoubleF

But, I think... that's the the issue I have is that most guides and calculations. They do not address lifestyle differences or wants and basically assumes that almost everyone will approach retirement the same way. Many also build in some wild ballpark figures as a contingency, when in reality these individuals do not necessarily have these or the amounts required are wildly out of whack.

So perhaps the reason why this is an issue is that the calculation should be modular?

ie something along the lines of: Your post retirement needs might be a combination of some form of A + B + C vs D + E + F. One side being cash requirements post tax and one side being cash supply?

A + B + C is some form of combination of assets/activities you plan to enjoy, regular maintenance/reoccurring costs for those assets/activities, unforeseen circumstances that have a cost etc. Some might be TVM'd more aggressively than others.

D + E + F is some form of combination of available cash flow including things like yearly income less taxes, savings, grind downs etc. Some are TVM'd, others are not.

Like, obviously it's a complex concept and too many people think there's a one size fit all. In fact, these people should always be told, "There is no one size fits all or a good ball park calculation. It's a case by case basis. But, depending on your situation, maybe you may identify with one of these dozen ish pre-calculations."

Yes, it's a case by case basis, but I think the major disconnect is that most people think there's a handful of good guides, when in reality, people need to start realizing there are perhaps as many options due to almost as many varied lifestyles. To avoid crazy numbers going forward, perhaps a good guide going forward may want to address at least half a dozen to a dozen lifestyle combinations rather than assume almost everyone can kinda fit into 1-3 different lifestyle combinations.



It's a good idea.

One thing to be aware about something like this is that you can teach it, but it might not actually internalize the way you expect to the person you teach it to. You may have to consider that you tried your best to teach it, but what the ends up manifesting is out of your control.

Anecdotally, I've run into many people who either continued what they were taught. Others rebelled against it completely after they grew up. I've also heard of situations where the same financial discipline manifests totally differently between two individuals who were taught the same financial disciplines identically (ie: Siblings).

I've also run into weird stories about how the financial discipline begins to manifest negative connotations because of the person who taught it. (ie: I refuse to do this because my parents were cheap and I hated that and I don't want my kids to live that way). Thus, they need/want to learn a method different than what they were taught to achieve basically the same way (usually slight difference in lifestyle).

And that is why rules of thumb, and general guidelines, aren't sufficient. A plan (at least a good plan), has to be specific to the individual, their goals, their income and limitations, their health, and many other personal factors.

Saying 'you should save 11x your income' might be fine for one person, and completely inappropriate for another.

[Enoch Root]

One of the ways that people often under-estimate their requirements, is that, as people get older, and their extended families grow, their desire to leave a legacy, to provide gifts for children, grandchildren, etc. continues to rise.

If this is something that you never planned for, until you become a grandparent, for most people, it's now too late to do much about it.

[Enoch Root]

I have met many people who wishes they had saved more. I have never met anyone who wished they had saved less.

I mean sure, there are people that saved everything they could, and then lost their health and wished they had enjoyed more along the way, but that is a very rare exception to the rule.

[Slava]

Originally Posted by DoubleF;8210838[B

]But, I think... that's the the issue I have is that most guides and calculations. They do not address lifestyle differences or wants and basically assumes that almost everyone will approach retirement the same way. Many also build in some wild ballpark figures as a contingency, when in reality these individuals do not necessarily have these or the amounts required are wildly out of whack.[/B]

So perhaps the reason why this is an issue is that the calculation should be modular?

ie something along the lines of: Your post retirement needs might be a combination of some form of A + B + C vs D + E + F. One side being cash requirements post tax and one side being cash supply?

A + B + C is some form of combination of assets/activities you plan to enjoy, regular maintenance/reoccurring costs for those assets/activities, unforeseen circumstances that have a cost etc. Some might be TVM'd more aggressively than others.

D + E + F is some form of combination of available cash flow including things like yearly income less taxes, savings, grind downs etc. Some are TVM'd, others are not.

Like, obviously it's a complex concept and too many people think there's a one size fit all. In fact, these people should always be told, "There is no one size fits all or a good ball park calculation. It's a case by case basis. But, depending on your situation, maybe you may identify with one of these dozen ish pre-calculations."

Yes, it's a case by case basis, but I think the major disconnect is that most people think there's a handful of good guides, when in reality, people need to start realizing there are perhaps as many options due to almost as many varied lifestyles. To avoid crazy numbers going forward, perhaps a good guide going forward may want to address at least half a dozen to a dozen lifestyle combinations rather than assume almost everyone can kinda fit into 1-3 different lifestyle combinations.



It's a good idea.

One thing to be aware about something like this is that you can teach it, but it might not actually internalize the way you expect to the person you teach it to. You may have to consider that you tried your best to teach it, but what the ends up manifesting is out of your control.

Anecdotally, I've run into many people who either continued what they were taught. Others rebelled against it completely after they grew up. I've also heard of situations where the same financial discipline manifests totally differently between two individuals who were taught the same financial disciplines identically (ie: Siblings).

I've also run into weird stories about how the financial discipline begins to manifest negative connotations because of the person who taught it. (ie: I refuse to do this because my parents were cheap and I hated that and I don't want my kids to live that way). Thus, they need/want to learn a method different than what they were taught to achieve basically the same way (usually slight difference in lifestyle).

Well, that bolded part is why there are financial advisors/planners. Each situation is different, along with the wants/needs of those people.

[Strange Brew]

Originally Posted by Enoch Root

I have met many people who wishes they had saved more. I have never met anyone who wished they had saved less.

I mean sure, there are people that saved everything they could, and then lost their health and wished they had enjoyed more along the way, but that is a very rare exception to the rule.

Problem is those people aren’t alive to tell you that.

[Enoch Root]

Originally Posted by Strange Brew

Problem is those people aren’t alive to tell you that.

unless you're suggesting that it was the saving for retirement that killed them, this isn't really an argument.

And if you are suggesting that, it's a pretty terrible argument.

[Strange Brew]

Originally Posted by Enoch Root

unless you're suggesting that it was the saving for retirement that killed them, this isn't really an argument.

And if you are suggesting that, it's a pretty terrible argument.

Not making an argument. Just saying that your anecdotal statement about peoples regrets may be lacking in evidence unless you’ve spent alot of time talking to people on their deathbeds.

[chemgear]

Originally Posted by Enoch Root

Saying 'you should save 11x your income' might be fine for one person, and completely inappropriate for another.

When people say some number x income - do they normally imply before or after tax?

[PaperBagger'14]

How do you usually factor in a DB pension when looking at retirement? Especially when that amount will fluctuate/increase depending on base salary

[bizaro86]

Originally Posted by Enoch Root

I have met many people who wishes they had saved more. I have never met anyone who wished they had saved less.

My dad definitely wishes he had saved less and has only been retired for a couple of years. He has plenty of money but also regrets around what that cost in terms of both time spent at work and in terms of skimping on experiences at the time those experiences were possible.

[Enoch Root]

Originally Posted by chemgear

When people say some number x income - do they normally imply before or after tax?

Either, as long as you do both sides the same way.

[Enoch Root]

Originally Posted by bizaro86

My dad definitely wishes he had saved less and has only been retired for a couple of years. He has plenty of money but also regrets around what that cost in terms of both time spent at work and in terms of skimping on experiences at the time those experiences were possible.

Sorry to hear that. My guess is that it is more about the bold.

Also, don't be surprised if his view changes over time

[Enoch Root]

Originally Posted by PaperBagger'14

How do you usually factor in a DB pension when looking at retirement? Especially when that amount will fluctuate/increase depending on base salary

There are no exact numbers in retirement planning, you make the best guesses you can.

[Ashartus]

Originally Posted by bizaro86

My dad definitely wishes he had saved less and has only been retired for a couple of years. He has plenty of money but also regrets around what that cost in terms of both time spent at work and in terms of skimping on experiences at the time those experiences were possible.

I learned that lesson from my Grandma. She and my Grandpa planned to work hard until they could retire, then enjoy life. He died at 50 so they never got to do the things they planned. So yes save for retirement, but don't forget to get some enjoyment out of life now too.