Are you saving enough for retirement?

[GGG]

Originally Posted by Enoch Root

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.

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'.

Saving by definition absolutely means sacrificing now. You may not notice it but every dollar you sacrifice today is a dollar not spent on something you enjoy. There is no free lunch. I absolutely agree that an evaluation of your life plan and how savings, working years and spending all factor into how much you should save. It’s why I objected to the generic advice of save more.

And if there is generic advice it’s find a way to spend less while still enjoying life.

I think you misinterpreted my comment on CPP. I meant that it’s an okay worst case outcome. I think most planning is way to conservative and fails to discuss the trade off of assuming high inflation, higher than expected spending, higher than expected medical, lower than expected returns and longer than expected life. You can choose to cover all of these potential outcomes or you can say I will cover 95% of them and if the 5% occurs I will adjust lifestyle or in the worst case still have a reasonable life.

Why I think this risk discussion is important is that the cost to mitigate the risk is time. It comes down to risking a few years of cat food vs an extra year of retirement. I think the upside benefit is under valued versus the downside risk.

I do agree with you that most people benefit from some kind of planning advice. Inflation, ROIs compound interest, etc are not intuitive concepts. I think the biggest value is the forcing of asking the lifestyle questions and hopefully it drives people into assessing whether rampant consumerism truly makes them happy.

[bizaro86]

Originally Posted by Enoch Root

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

While I'm probably tapped out on how much I want to share in public on this topic, knowing the facts of the situation I think this is very unlikely.

[bootsnixon]

I have a couple of friends who are divorced and/or have poor relationships with their kids that definitely regret prioritizing earning over nurturing relations. Heck, pick any Christmas Movie and there's a solid chance it will feature an adult who regrets time spent working and making money over building relationships. Yes, Ebenezer Scrooge is a characiture, but it's based on a common regret.

[DoubleF]

Originally Posted by Slava

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

Exactly.

But my main point was that the average blog or word of mouth for this retirement career advice, rule of thumbs and casual conversation are mostly ideals for requirements and not the realities of the average person. Is this concept in your opinion a bit far fetched?


A good retirement plan should consist of hundreds of data points and advice from multiple professionals in several different fields. (Ie: lawyer, accountant, financial planner, doctor etc.). But the vast majority of people treat it like a 5 step plan to weight loss, to their detriment. Furthermore, these blogs and rule of thumbs likely are supposed to help to open up the discussion of retirement and then individuals meeting the multiple professionals to fine tune the details on the path to take. But this part I don't always see happen.


On top of this the amount of idiotic post retirement schemes are on the rise by self proclaimed professionals. I'm listening to stories of individuals paying hundreds of thousands in extra tax because they took moronic moves to prevent probate issues that will never arise. I'm listening to loan forgiveness schemes to children that while kinda legit, create a #### ton of unnecessary admin work and fees to the bastards proposing them. Seriously, just gift the cash tax free to your kid and draft up a letter explaining as such. Don't listen to those morons who have a conflict of interest and are creating a scenario where the estate tries to write off a loan to reduce taxes, but then creates a taxable event in the hands of the kids. Or someone moronic enough to draft up legal documentation that causes assets to get stuck in legal limbo, because they put a minor as a beneficiary.


But... I'm rambling about numbers because that's what everyone wants to distill retirement into for casual conversation.


I may be the minority for this opinion, but numbers should be one of the last things you look at in a retirement plan.


But people soften up or try to pass off things as obvious when I explain retiring with money is pointless without health, happiness, relationships, a clear goal/timeline, mind frame etc. Most people try and figure out the money first and these other things later and barely end up accomplishing any of it. Their legacy is also not as positive as they think it is if going down this path.


If prioritizing money over other things is a recipe for failure prior to retirement, why do so many retirement plans start with it? Why don't more people call out this weirdly backwards approach?


It's too similar to a car salesman tactic to me and it annoys me. "Let's figure out your monthly payments and go from there." I don't have the solution, but the logic of creating fake spending numbers to calculate an amount you need just feels suspect to me. This on top of seeing so many retirees with too much money because they didn't realize they could just pull out enough to top up their CPP/OAS vs fully self find their retirement.


If I were to look at an improved solution though, I'd suggest people keep track of their cash flow. Humans are creatures of habit, so past behavior is probably a good predictor of future behavior.


If you lived life spending $40K a year type life style, even if your activities completely change, I cannot imagine you'd start living life as a $100K lifestyle. The only caveat is unless you had no clue how to spend excess money. How much you want to spend doesn't vary intensely. It's ingrained in you. You might have that fist few years of mad money blip, but then it usually normalizes back to approximately how you were before. Once you get older, how you lived the last 5 years likely is a great prediction on how you want to live the next 5 years. You'll spend our be frugal to that range of spending as much as possible.

[Slava]

I don't entirely disagree with several of your points here. There are scenarios where people make things complicated and arguably there's not as much of a benefit as you'd expect for all the hassle. I do think people put a lot into having enough money and in the meantime, consumerism and material things don't make you happy. If you were content and say 7/10 before the purchase, you might feel like you're 9/10 for a day or two, but soon enough you're down to a 7 again.

At the same time, having money in the bank gives you a lot of options. If you're retirement consists of playing golf all year, watching hockey games and travel, that's not going to be $40k a year, or at least it's rather unlikely. It might be when you're 85, but not likely at 65. Plans change and what we thought we'd never want to do, we sometimes do want to do. You're ideas on retirement at 25 might be incredibly different when you're 65. I know for me personally, that my own retirement ideas aren't the same as what they were 15-20 years ago.

And no, this is not the car salesman tactic of "let's make this affordable". The truth is, people have ideas and thoughts of how they want to retire and there are costs for that. If you aren't going to have enough money and I can tell you that with pretty solid assurances, there are options. Work longer, save more, reduce your expectations or get a better rate of return. The last one, you can't control (for the most part), so you have a few choices there. And yes, there are cases where people have saved more than they need. Nothing is going to be perfect though, and being in that position is obviously preferable.

And lastly, no one who makes $40k a year thinks they should retire on $100k a year. There are cases where people are spending more than they made working during the early stages on their retirement, but that's not going to continue for say 30 years of retirement. They're focused on those once in a lifetime trips and experiences they wanted to take, and it's not just their new lifestyle.

[CliffFletcher]

Originally Posted by GGG

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.

A lot of Canadians are definitely under-prepared. Over a third don’t have any savings to speak of at retirement. But as you say, a great many Canadians over-save as well.

In the most general terms:

A third of Canadians don’t save anything for retirement, and may well have a tough time. They’re ignored by financial planning advice.

A third of Canadians put away a moderate amount ($150-400k) and manage just fine. They’re also pretty much ignored by the financial planning industry.

A third (mostly made up of the high-earning professional class) have the capacity to put away large sums for retirement. That’s the market for financial planning services. And those services have an incentive to encourage these high earners to over-save (partly by pretending the second group doesn’t exist).

[Slava]

Originally Posted by CliffFletcher

A lot of Canadians are definitely under-prepared. Over a third don’t have any savings to speak of at retirement. But as you say, a great many Canadians over-save as well.

In the most general terms:

A third of Canadians don’t save anything for retirement, and may well have a tough time. They’re ignored by financial planning advice.

A third of Canadians put away a moderate amount ($200-400k) and manage just fine. They’re also pretty much ignored by the financial planning industry.

A third (mostly made up of the high-earning professional class) have the capacity to put away large sums for retirement. That’s the market for financial planning services. And those services have an incentive to encourage these high earners to over-save.

This is something of an unfair characterization though. People who save funds and save very little have options for this, and to me that's where the banks come in. They can definitely sit down with someone there and get some advice and information.

As far as the mass affluent (which is basically $200/$250-$1m), they're definitely not ignored by advisor's. There are many advisor's who work in that space and would love to take on more clients. If people don't seek out advice, don't want any, don't need any, or what ever their scenario is, I don't think it's fair to characterize that as being ignored. I also think that while there are some advisor's who have minimum asset barriers before they'll work with a client, that's not the case for all of us.

You seem to have an axe to grind with the profession though? Like advisor's are pressuring people to save more and more money in order to line their pockets? It's weird because we know that a large segment of the population is ill-prepared for retirement. The idea that people are not properly prepared for retirement and are going to be told that they should save more or adjust expectations seems like it's an obvious outcome?

[CliffFletcher]

Originally Posted by Slava

You seem to have an axe to grind with the profession though? Like advisor's are pressuring people to save more and more money in order to line their pockets? It's weird because we know that a large segment of the population is ill-prepared for retirement. The idea that people are not properly prepared for retirement and are going to be told that they should save more or adjust expectations seems like it's an obvious outcome?

Not really. I just think it’s a particularly egregious example of the way Canadian society ignores class and pretends the kinds of households profiled in the Globe and Mail investors columns are middle-class. That couples where he’s a consultant making $180k and she’s a civil servant making $150k are just average Canadians with normal expectations and lifestyles. It distorts our understanding of what normal and average are, of how typical Canadians really live.

Typical Canadian households retire comfortably and happily on $60k a year, almost half of which comes from CPP/OAS. Anyone who finds that number surprising is out of touch with what’s average in this country. And it seems to me that the financial services industry contributes to that gap between what the affluent professional class thinks is normal and what is actually normal.

[Johnny199r]

Originally Posted by CliffFletcher

Not really. I just think it’s a particularly egregious example of the way Canadian society ignores class and pretends the kinds of households profiled in the Globe and Mail investors columns are middle-class. That couples where he’s a consultant making $180k and she’s a civil servant making $150k are just average Canadians with normal expectations and lifestyles. It distorts our understanding of what normal and average are, of how typical Canadians really live.

Typical Canadian households retire comfortably and happily on $60k a year, almost half of which comes from CPP/OAS. Anyone who finds that number surprising is out of touch with what’s average in this country. And it seems to me that the financial services industry contributes to that gap between what the affluent professional class thinks is normal and what is actually normal.

What would a G&M financial facelift look like for a couple making a combined 70k a year?

"Rob and Nancy should contribute to their TFSA or RRSP if they actually had any left over money at the end of the month, but they don't. They should look for a place that has cheaper rent, but that doesn't exist. They should look for higher paying work, but they have and can't find any. Having another kid is a bad idea. I hope they buy enough cat food for retirement"

There's a reason financial facelift is catered towards people with assets. It would be a pretty brief column for subjects with no assets and low income.

[GGG]

Originally Posted by Johnny199r

What would a G&M financial facelift look like for a couple making a combined 70k a year?

"Rob and Nancy should contribute to their TFSA or RRSP if they actually had any left over money at the end of the month, but they don't. They should look for a place that has cheaper rent, but that doesn't exist. They should look for higher paying work, but they have and can't find any. Having another kid is a bad idea. I hope they buy enough cat food for retirement"

There's a reason financial facelift is catered towards people with assets. It would be a pretty brief column for subjects with no assets and low income.

The column is incredibly boring anyway, but I think there is lots of interesting stuff to look at

You could look at peoples spending. Rob and Nancy have 3k in credit card debt. And $100 per month phone plans and 4 streaming services and still have cable so Kevin can watch sports. If they cut cable and 2 two of the streaming services and go to a BOD phone plan with their terms are up they can save $200 per month. They can switch to the low interest version of the credit card and give up the points they currently collect and save $120 per year in interest. Buy doing this in 2 years they will have the credit card paid off and have a reasonable emergency fund and can begin saving

They should use the TFSA rather than an RRSP as their current and future tax rates are likely equal. If their annual incomes approach cut offs for plans then using an RRSP contribution to reduce net income and stay eligible would be prudent in those years.

[Slava]

Originally Posted by CliffFletcher

Not really. I just think it’s a particularly egregious example of the way Canadian society ignores class and pretends the kinds of households profiled in the Globe and Mail investors columns are middle-class. That couples where he’s a consultant making $180k and she’s a civil servant making $150k are just average Canadians with normal expectations and lifestyles. It distorts our understanding of what normal and average are, of how typical Canadians really live.

Typical Canadian households retire comfortably and happily on $60k a year, almost half of which comes from CPP/OAS. Anyone who finds that number surprising is out of touch with what’s average in this country. And it seems to me that the financial services industry contributes to that gap between what the affluent professional class thinks is normal and what is actually normal.

Yeah, those G&M columns are hilarious. It's a lot like House Hunter's on HGTV where people have insane budgets and hope to find a place.

[WhiteTiger]

Originally Posted by Slava

Yeah, those G&M columns are hilarious. It's a lot like House Hunter's on HGTV where people have insane budgets and hope to find a place.

"He's a dandylion removal specialist, and she weaves baskets. They are looking for a place, and their budget is eleventy million dollars..."

Bonus: "We want an open concept, but with a lot of rooms for our little hobbies-of-the-week. We don't want to be able to see our neighbors houses, but we want to be in a vibrant busy community with everything within a 2 minute walk. Preferably on the shoreline, facing the forest and a view of the mountains..."

[Johnny199r]

Originally Posted by GGG

The column is incredibly boring anyway, but I think there is lots of interesting stuff to look at

You could look at peoples spending. Rob and Nancy have 3k in credit card debt. And $100 per month phone plans and 4 streaming services and still have cable so Kevin can watch sports. If they cut cable and 2 two of the streaming services and go to a BOD phone plan with their terms are up they can save $200 per month. They can switch to the low interest version of the credit card and give up the points they currently collect and save $120 per year in interest. Buy doing this in 2 years they will have the credit card paid off and have a reasonable emergency fund and can begin saving

They should use the TFSA rather than an RRSP as their current and future tax rates are likely equal. If their annual incomes approach cut offs for plans then using an RRSP contribution to reduce net income and stay eligible would be prudent in those years.

“Cut all non discretionary spending”

[GGG]

Originally Posted by Johnny199r

“Cut all non discretionary spending”

If that’s the depth you want to take then every article is trivial.

[flamesfever]

My advise to lower income people, especially those just starting out, would be:

1. Only have one credit card e.g. Visa or Mastercard, and make sure you pay off the balance every month.

2. Establish a long term relationship with one bank, and work on maintaining as high a credit rating as possible.

3. Start a TFSA, and learn to invest.

4. Purchase a freezer and start buying meat and other items on sale.

5. Minimize spending by limiting to item needs and not wants, and don't get sucked in by ad campaigns. Never try to keep up with the Joneses.

6. Minimize time on social media...99% is a waste of valuable time.

7. Maintain good physical health with proper diet, exercise and adequate sleep.

8. Maintain good mental health by keeping socially active with family and friends. Get a dog. Stay positive. Be grateful for what you have.

9. DON'T WORRY...BE HAPPY

[Enoch Root]

Originally Posted by bizaro86

While I'm probably tapped out on how much I want to share in public on this topic, knowing the facts of the situation I think this is very unlikely.

Again, sorry to hear that. I hope things work out for you and them.

[Enoch Root]

Originally Posted by bootsnixon

I have a couple of friends who are divorced and/or have poor relationships with their kids that definitely regret prioritizing earning over nurturing relations. Heck, pick any Christmas Movie and there's a solid chance it will feature an adult who regrets time spent working and making money over building relationships. Yes, Ebenezer Scrooge is a characiture, but it's based on a common regret.

Saving for retirement (and other things) is not at all the same thing as prioritizing work over family. You don't need to work more to save more, and no one has suggested you should.

Work vs family is a huge issue that needs to be discussed. But don't conflate it with planning for your future.

[RichieRich]

Originally Posted by CliffFletcher

A lot of Canadians are definitely under-prepared. Over a third don’t have any savings to speak of at retirement. But as you say, a great many Canadians over-save as well.

In the most general terms:

A third of Canadians don’t save anything for retirement, and may well have a tough time. They’re ignored by financial planning advice.

A third of Canadians put away a moderate amount ($150-400k) and manage just fine. They’re also pretty much ignored by the financial planning industry.

A third (mostly made up of the high-earning professional class) have the capacity to put away large sums for retirement. That’s the market for financial planning services. And those services have an incentive to encourage these high earners to over-save (partly by pretending the second group doesn’t exist).

I'm just wondering how that first third, with very little to no savings, actually manages in life? Not being mean or sarcastic, just genuinely curious. The thing is we HEAR and READ about that 1/3 but they're not active or visible.

We do have 1 friend who is in that category and we've tried to help here and there but what's interesting is they continually make odd, inconsistent, and not helpful decisions in their lives. They'll sometimes ask for advice and then do "that" anyways. They want more and they want better, but they live a life with occasional drama and refuse to learn from their repeated lessons. I'm not saying all low income earners are like this but sometimes I wonder.

[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?

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



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.

That assumption is incorrect. No one has said work more so that you can save more. No one. I think that is where the disconnect has been here.

[GGG]

Originally Posted by Enoch Root

That assumption is incorrect. No one has said work more so that you can save more. No one. I think that is where the disconnect has been here.

The options are some combination of increase risk, spend less in retirement, spend less today, or work longer so whether or not anyone said work longer it’s a consequence of have a higher number.