Retirement Savings aren't often enough...

[Slava]

This is an interesting piece about the retirement issue around the globe. I do quibble with a bit of this, because while people with DC plans might have a higher retirement income, I think they achieve that by increasing their longevity risk (generally speaking). Nonetheless, this is worth a couple minutes to read.

https://qz.com/1766478/how-to-surviv...rement-crisis/

[Fighting Banana Slug]

Thanks Slava, as someone in his 50's, I am keenly aware of my savings and trying to truly understand what I will need. For me, the tough part is the fact that life expectancy is so long (not that this is a bad thing!), that there is a fear of simply running out of cash. I have many colleagues that are retiring in their mid to late 50's which sounds great, but they may need to fund for 40 years of retirement.

It seems to me the article has it right that it might be necessary to work later in life, maybe to 70 or so. Those later years that you are earning rather than spending are huge. I also think will be good for me personally, as I enjoy my profession and I hope to keep it going so long as I am able.

I also have a few quibbles with the article, in particular that last paragraph:

Here’s the scariest thing: even in the best-designed systems, almost no one today will earn enough money in their lifetime to not work for 20 or 30 years at the end of their life. This is true no matter who pays for retirement—the individual, their employer, or the government.

Almost no one? That seems a bit much.

[Slava]

Well there's no doubt that longevity risk is a huge and somewhat untested issue. I wrote an article a few years back about the idea that retirement is such a new concept. Many of our grandparents didn't retire, depending on our ages, and certainly our great-grandparents didn't retire. If they did, they didn't live 30 years in retirement, so we simply don't have a lot of real-world data for these things.

I do find a lot of clients working longer, for a number of reasons. One is that psychologically it's difficult to go from earning an income and building your nest egg to no longer adding to that. It's a complete shift and peoe tend to have a hard time adjusting to that. It seems increasingly the case where people work part-time or consult some of the time into their retirement.

Of course there are a lot of factors in each scenario and personal situation. I'd recommend sitting down and running the numbers so you can prepare as best as possible. If that's something you can't do on your own, or you want another opinion on things, feel free to get in touch!

[RichieRich]

Geeeez I bet a lot of folks are having a hard time right now w.r.t. their potentially approaching (or receding) retirement. Those early retirees (say mid-50's) have taken a huge blow if they were expecting imminent retirement. Those just retired... wow hope they had their cash reserve topped up and didn't plan a marginally feasible plan. What kinds of concerns and actions are hearing Slava?

[Slava]

Originally Posted by RichieRich

Geeeez I bet a lot of folks are having a hard time right now w.r.t. their potentially approaching (or receding) retirement. Those early retirees (say mid-50's) have taken a huge blow if they were expecting imminent retirement. Those just retired... wow hope they had their cash reserve topped up and didn't plan a marginally feasible plan. What kinds of concerns and actions are hearing Slava?

Yeah it's never a good start to a retirement if you just begin and then have a bear market/market crash like this immediately after. The sequence of returns really causes problems, whereas if you're sayin in your mid 50-'s and looking to retire at 60, you can likely weather this and be OK. It's really a question of when you were planning on taking withdrawals, what those withdrawals look like (how tenuous things were prior to this market issue) and what timeline you have left.

I can't give specific advice here, but I think that people should be looking at their situation at this point and ensuring that their asset allocations are where they should be. This might be a fairly quick, albeit severe recession, and the order for people should be immediate/short-term cash needs (or liquidity) and then your longer term investments, plans for future income after that. I realise that sounds like common sense, but there's a lot of advice floating around right now that says "people should do nothing" or "don't look at your statements" or similar ideas. I think that's reckless and dangerous. You need to know where you are, and you need to have a legitimate plan for how to deal with this and reach your goal. It might feel better psychologically to not look and just wait for a recovery. I just feel like this will lead to people missing opportunities and not taking appropriate actions for their situation.

[MoneyGuy]

Slava, I didn’t want to start a new thread. Are there cuts coming to CPP benefits?

[Slava]

Originally Posted by MoneyGuy

Slava, I didn’t want to start a new thread. Are there cuts coming to CPP benefits?

Not that I've seen? If anything the benefits will increase as people are paying more beginning this year. It's to bring the benefit up from roughly 25% income replacement to about 33%, bearing in mind that this isn't of course your actual income, but the YMPE, which will be around $61k/year. (I know that you know that, but just thought I'd note it for anyone who wasn't aware!)

Also, I guess I should note that this 1/3rd replacement would be if you paid enough in through your working career. At present, purely ballparking on my part, I would guess that the average income replacement achieved is about 12.5% of the YMPE...but I haven't done that math and am just thinking off the top of my head.

[MoneyGuy]

Thanks, friend. As I thought.