Category Archives: Retirement

Meeting Retirement Goals

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Canadians Uncertain About Meeting Retirement GoalsA recent study by the Bank of Montreal revealed some interesting statistics about Canadian retirement plans and meeting retirement goals. We refer to this retirement study throughout this post. We also suspect that Americans reading this post will have similar statistics. Or possibly even worse since Canadians are known for higher savings rates than Americans. Also, for our American readers, an RRSP is similar to your 401k. We certainly do not want to be like this guy in the picture with no savings at all for retirement. Meeting Retirement Goals is a key objective for many consumers.

Canadians Uncertain About Meeting Retirement Goals

Eighty percent of Canadians are not confident that their RRSP investments will provide enough to meet their retirement goals. Â In fact, most people do not have retirement goals. They have no idea how much money they will need in retirement. Or how much income they will have during retirement. This is a really scary situation for many people. Since it is a well-known fact that government programs will not even come close to providing a reasonable income. This will place most people below the poverty line if they do not have other income from other sources.

Canadians have uncertainties about meeting their retirement goals. They are not sure they are taking the right steps in planning for retirement, according to a survey released today by BMO Financial Group.

The survey, conducted by Leger Marketing and commissioned by BMO, found that:

  • One-third of Canadians have no Registered Retirement Savings Plan  (RRSP) investments
  • Of those who do, an overwhelming majority (80 percent) are not confident that their RRSP investments will provide enough for their retirement
  • Nearly half do not feel they contribute enough to their RRSPs to meet their retirement goals

The survey focused on RRSP’s and did not assess other investments that Canadians may have. In Canada, RRSPs are the tax-free savings vehicle of choice for most people. Income within the RRSP is not taxed until it is withdrawn from the RRSP, and the contributions to an RRSP can decrease the total amount of tax paid in a given year. Some Canadians, probably a relatively small number, will have savings outside the RRSP. However, all income from these investments will be taxed in the year the income is generated.

How Much Do You Need for Retirement – Meeting Retirement Goals?

Research also showed that Canadians are not certain how much they need to set aside for a comfortable retirement:

  • One in four respondents (25 percent) said they simply do not know how much is required
  • More than half (54 percent) estimate that they will need to accumulate at least $550,000 to achieve their goal

There is no magic, one-size-fits-all number. The amount you will need will largely depend on your circumstances and the kind of retirement lifestyle you want. The key is to determine what you want your retirement years to look like and then start budgeting for them.

Start by developing a budget based on your current lifestyle based on your current income, and your current expenses. Take into account all expenses, including those that are discretionary and non-discretionary. Once you have this baseline, develop a post-retirement budget based on your expected income from all sources and your expenses during retirement. Both income and expenses will change when you retire. Income will change since you are no longer collecting a paycheck. You may be collecting a pension if your company provides a pension, and you may also collect CPP and Old Age Security payments.

Your expenses will change a lot. There will no longer be work-related expenses; however, you will have much more time. Many volunteer their time; however, they also travel and find additional things to do, which usually cost money. Be realistic in your budget planning for post-retirement activities.

Improve Your RRSP Relationship

According to the survey, most Canadians appreciate the importance of regularly contributing to an RRSP:    -  Most (56 percent) said they believe successful investors contribute   to their plans either annually (22 percent) or monthly (34 percent)

In reality, however, only 37 percent say they make regular contributions to their RRSP

One-third (33 percent) of Canadians do not contribute to an RRSP at all

The fact that so many Canadians have no money in RRSPs is troubling. Fewer employers are providing pension programs, and people cannot count on the Canada Pension Plan to meet all their financial needs in retirement. Canadians must start contributing to a plan regularly at the earliest possible age.

At the very least, you will be decreasing your tax obligation in the year you contribute to an RRSP. If you are concerned about losing money in the markets, go to a conservative approach to investing within your RRSP. Many Canadians and Americans lost a great deal of money during the last crisis in the markets in 2009. If you invested conservatively, chances are you have regained all of that loss and then some. Risky investments have not fared so well.  Stick with quality mutual funds even if the return is not so high.

About the Survey:

The survey sought responses from a national random sample of 1,516 Canadian adults, 18 years of age or older, and was conducted between January 4 and January 7, 2010. This survey is estimated to have a margin of error of +/- 2.5 percentage points 19 times out of 20.

We have posted other articles on this blog about the diversification of investments as well as with investment advisers. The bottom line.  Do not invest all your savings into one investment.  Start by investing a small amount from each paycheck. Before you know it, you will have a nice amount saved up, and once you get used to not having the funds to spend, the saving will be easier. Start now by seeking a financial adviser to assess your situation and the tax savings you can obtain.

Doing nothing is really not an option if you want a comfortable retirement that meets your needs and plans. Meeting Retirement Goals is your highest priority.

Life After Age 65

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Life After Age 65This is an entire repost from Sun Life Financial. We thought our readers would find this interesting. We are doing many posts about retirement and looking for different viewpoints. This is about Life After Age 65. Men and women have different views of life after 65; Sun Life Financial study finds

Does the “Men are from Mars, Women are from Venus” idea fit when it comes to retirement?

Life After Age 65 – the Article

TORONTO, Jan. 21 /CNW/ – The gender gap seems to have extended into Canadians’ views of retirement, with twice as many men (32 percent) than women surveyed saying they want to work past age 65, according to the second edition of the Sun Life Canadian Unretirement(TM) Index.

“We also found that men and women had diverse opinions around what factors should be considered in a retirement plan, with women more likely to cite long-term care, low-interest rates, and death of a spouse,” said Kevin Dougherty, President, Sun Life Financial Canada. “Interestingly, Canadians, on the whole, were significantly more confident about their retirement if they had worked with a financial advisor for a year or more than those who did not have an advisor.”

Other Findings

Other survey findings show that men and women think differently about financial planning and confidence in retirement:

– Seven in 10 women (71 percent) who said they will be working past
age 65 said they will be doing so to earn enough money to pay for
basic living expenses compared to 65 percent of men. More women
(61 percent) also believed their company pension would not be enough
to live on compared to men (56 percent).
– Forty-nine percent of Canadian women surveyed were very confident
they would have enough money for basic retirement living expenses
compared to 57 percent of men.
– Twenty-nine percent of women were very confident they would have
enough money to enjoy the lifestyle they want compared to 36 percent
of men.
– Women tended to be less confident about the overall economy and their
personal finances compared to men.

“Women have substantial reasons for worrying that they won’t have enough money to enjoy the lifestyle they want in retirement,” said Alison Konrad, Professor of Organizational Behavior at the Richard Ivey School of Business, University of Western Ontario. “The average Canadian woman earns about 66 percent of what the average Canadian male earns. So even though women tend to put a larger percentage of their income into their retirement nest eggs, men save almost $1,900 more each year.”

Measuring Canadians’ overall retirement confidence

The Sun Life Canadian Unretirement(TM) Index measures Canadian workers’ confidence towards issues that influence retirement. The lower the index number, the more negative or pessimistic the outlook is on issues that influence retirement.

This second of multiple studies yielded an overall index score of 51 on a scale of 0 to 100, compared to a score of 50 in December 2008. This compares to the American Unretirement(SM) Index score of 44.

Confidence levels were significantly higher for Canadians who worked with a financial advisor. The overall index score was 51 for all working Canadians surveyed. Those who did not have an advisor scored 48, while those Canadians surveyed who have worked with an advisor for a year or more were much more confident, scoring 54.

The Index is a blend of confidence scores in five sub-indices: Macroeconomics (score = 40), Government Benefits (score = 47), Personal Finance (score = 49), Employer Benefits (score = 47), and Health (score = 70).

Which of these describes what you think you will be doing at age 66, shortly after the normal retirement?

    -------------------------------------------------------------------------
                      Women    Men  Women    Men  Women    Men  Women    Men
                     --------------------------------------------------------
                      30 to  30 to  40 to  40 to  50 to  50 to  60 to  60 to
                         39     39     49     49     59     59     65     65
    -------------------------------------------------------------------------
    Working full time    7%    13%    13%    17%    13%    21%    15%    32%
    -------------------------------------------------------------------------
    Working part time   24%    29%    19%    31%    26%    35%    31%    36%
    -------------------------------------------------------------------------
    Fully retired/
     not working for
     money              68%    57%    68%    51%    59%    43%    53%    31%
    -------------------------------------------------------------------------
    No longer living     1%     1%     1%     1%     2%     1%     1%     1%
    -------------------------------------------------------------------------

What should a retirement plan address?

    -----------------------------------------------------------
                                                  Women    Men
    -----------------------------------------------------------
    Won't have money to leave to heirs              42%    37%
    -----------------------------------------------------------
    Changes in marital status                       48%    37%
    -----------------------------------------------------------
    Family members have unforeseen financial
     needs                                          54%    50%
    -----------------------------------------------------------
    Financial market risk                           60%    58%
    -----------------------------------------------------------
    Death of a spouse                               67%    56%
    -----------------------------------------------------------
    My rate of return won't be high enough          66%    59%
    -----------------------------------------------------------
    Employment risk - job market or personal
     health problems                                65%    59%
    -----------------------------------------------------------
    Employer health benefits stop when I stop
     working                                        62%    63%
    -----------------------------------------------------------
    Money will be locked in when I need it          66%    64%
    -----------------------------------------------------------
    Low interest rates                              71%    60%
    -----------------------------------------------------------
    Money won't last my full lifetime               67%    64%
    -----------------------------------------------------------
    Long-term care needed                           72%    60%
    -----------------------------------------------------------
    Poor health results in extra costs or
     care needed                                    71%    68%
    -----------------------------------------------------------
    Inflation                                       79%    71%
    -----------------------------------------------------------

Methodology

The study was conducted by Fleishman Hillard from August 17, 2009, to September 9, 2009. Telephone interviews were conducted by Interviewing Service of America using a random-digit-dial (RDD) sampling method. Quotas and weights were applied to gather a sample of 1,202 people working either full- or part-time, representing the Canadian working population between the ages of 30 and 65. The sample was also representative in terms of gender and region census break. Analysis and construction of indexes involved the application of factor analysis. Final indexes are based on summated averages across the attributes which make up an index.

Age groups were divided by workers in their 30s, 40s, 50s, and 60+ and by three ranges of total assets, not including the net worth of the person’s place of residence (less than $100K, between $100K and $500K, and greater than $500K). This sample has a margin of error of plus or minus three percent at the 95 percent confidence interval.

 

How Much Do You Need to Retire

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How Much Do You Need to RetireSo How Much Do You Need to Retire? When it comes to financing their retirement, confusion reigns among Canadians and Americans. Some think the magic number is at least $550,000, while still others believe they need to save at least $1 million. This is to meet their lifestyle and to last for the length of time they will live during retirement. Many are realizing that they do not have enough saved. They will need to continue working after the normal retirement age of 65.

There are many other issues to the uncertainty are myriad of retirement savings theories, assumptions, and rules of thumb.  For example how much money you need to save, rate of returns, how long you will live, what old age homes costs. Whether you want to give money to your kids and when you should do that. We will stick to focusing on retirement and living comfortably and not about bequeathing something to the family in this post.

How Much Do You Need to Retire

Determining how much money you will need to save for retirement is unique for each individual. It is often more complex than using a simple theory. There is no one-size-fits-all solution. Common retirement savings theories should be carefully reviewed before being adopted. There are a number of areas we will discuss and we urge readers to draw their own conclusions. They should make their personalized decisions based on their situation and their needs.

Government Pension Plans – CPP, OAS, social Security

The belief that one’s retirement can be adequately funded through government pay-outs and public pension plans is a myth. Canada Pension Plan or US sponsored Government plans will not provide enough.  It is true these payments will certainly help with your retirement. They will not replace in a substantial way your current income unless you are already on the poverty line. For example in Canada,  if you were making $50,000 a year, then you can expect somewhere around $17,000 from the CPP and OAS per year. This is roughly  about 35% of your current income. This is a huge drop in income if you have no other income to rely on.

Company Sponsored Pension Plans

If you are lucky enough to have a company sponsored pension plan, then you are well ahead of the majority of consumers who do not have a company sponsored pension plan.  Employees are encouraged to request an estimate of what their pension plans will be when they retire if they maintain current contributions. There are many different types of plans so it is important to review the detail. Speak with the benefits group to understand what your payments will be.  The most common plans are “defined benefit plans” and “defined contribution plans”.

Do You Need All of Your Income in Retirement

The theory that one needs 70 per cent to 80 per cent of their pre-retirement income is just that a theory. It is a good starting number to aim for since many of your expenses will be lower during retirement. For example, you will no longer need to contribute to unemployment and pension plans. This can be a significant drop in requirements. Also you are no longer going to work so any expenses associated with travel to work are also not required.

However, you have to do something and many people like to travel and pursue some of the activities that you never had time to do while working. The best approach is to make a list and a budget of ongoing expenses and outline the things you want to do during retirement. Whether it is hiking or cruising, you will need some money to do these things. You will soon know whether you have enough money or not.

Is $1 Million Enough

The “magic” $1 million dollar assumption is really that just an assumption. It really depends on your lifestyle and when you plan to retire. Someone who retires at 65 and does not plan any major travel or expensive projects may find that $1 million is more than enough. While retiring at 55 and planning major trips every year may find that they will not have sufficient funds. Again prepare a budget and plan out your expenses vs. your income. For example you can withdraw $50,000 for 20 to 22 times depending on interest rates before the $1 million is gone.

Five Percent Withdrawal Plans

Using four per cent to five per cent of accumulated savings annually during retirement is a pretty common approach.  If your investments earn more than 5% then your investments will likely last during your retirement. If you investments earn less than 5%, then they will decrease each year and you may run out. Focus on good quality income earning investments to avoid running out of funds.

Delayed Retirement

Planning to delay retirement and continue contributing to your savings plans is always a good thing  in order to afford retirement. Even delaying retirement by two years can make a huge difference in your assets and help to make sure that your investments last longer.

So, How Much is Enough?

There are many considerations when it comes to planning one’s retirement and consumers are urged to develop different scenarios and evaluate how much money they will have for retirement.  The variables you should consider include:

  • The age at which you wish to retire
  • Pension plan income you will receive at retirement
  • The type of lifestyle you want to lead
  • Your health
  • Whether you have outstanding debts going into retirement
  • Your expected retirement expenses, such as, housing, food, etc.
  • Your current savings in registered and non registered accounts

It is important to know your retirement goals and objectives, identify your sources of retirement income and start planning as early as possible. Review your plan at least once per year and more often if you have a major change in your life. These changes can include – loss of job, death in the family, moving,  and of course retirement.

You may find that your retirement goals and lifestyle choices change over time and, consequently, the amount of money you need will change.

Retirement Planning

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Retirement PlanningRetirement is a really big step for most people. There are many issues to think about when you retire which represents a lot of change for both you and your spouse. Most people do not even think about retirement planning until a few weeks before they walk out the door. Some companies will encourage people to think about retirement. They will even send them on courses, however, most do not simply because of the cost.

Everyone should take it on to do their own retirement planning well before they retire so that they can approach it without fear or nervousness. The most important issue most people think about is whether they will have enough money to live the life they wish without having to sacrifice their quality of life. This is an important element, however, there are many other items to consider as well.

We will focus on the financial issue in this post, however, we wanted to list some of the other areas everyone should think about as well before they retire. We will cover these issues in subsequent posts.

Issues to Consider as Part of Retirement Planning

This is a simple list. We would appreciate your comments if we missed any.

  • Downsizing Homes
  • Pre-retirement expenses such as car and house repairs
  • Travel planning
  • Volunteering
  • Cabin Fever
  • Spousal Conflict
  • Grand-kids
  • Second Homes
  • Health Issues

How Do I Know If I Have Enough Money

This is probably the single most important question for many people. I once met a friend of ours who was forced to retire at age 65. He had been well paid, had saved while working, and was going to receive a very good pension. On top of that, his wife had retired with a pension as well. He was very concerned as to whether he would have sufficient money to live the way he wished during retirement.

At first glance you might conclude, that of course he has enough money! He has two pensions and savings to live on, what more could you want? Well, it is not that simple. Both he and his wife had their kids later in life, so one was still at university and neither was married or holding down jobs of their own yet. He was still supporting them in a fairly high-quality lifestyle. However, these areas are really not the issue. Everyone has their bills to pay and some are higher than others.

The real issue is that he did not know what his income was and he did not know what his expenses were now or going to be post-retirement. He had never had a budget and did not have any idea of how to go about building one. This is really the first step towards retirement planning. Build a budget that is fairly reliable and takes into account unforeseen expenses that we all know happen along from time to time.

Retirement Planning Fundamentals

The fundamental thing you have to do is build a realistic retirement planning budget. This is the only way you will know for sure what your income will be and what your expenses will be. If revenue-less expenses are negative then you have a problem and need to make some cuts on the expense side somewhere.

Also, account for major expenses that you know are going to come along. You can either save for them, pay for them a lump sum from savings or pay for them through a loan over time. They are not going to disappear and you need to deal with them and include them as part of your retirement planning exercise.

A good example is that most people need to replace their car every 5 or 8 years. Some people will do so more often, while others will be longer, but sooner or later you’re going to need another car. In your plan, decide when you think this will happen and plan accordingly.

This same approach can be applied to all other areas as well. My friend was concerned about paying for two weddings. These will happen and he needs to include them in his planning for post-retirement. He was also concerned about expensive upgrades that he was thinking about for the house. These kinds of retirement planning expenses are optional unless you are talking about the furnace, water heater, air conditioning, or roof. Build your plan with everything in it and then decide what you can actually pay for.

Examine Your Options for Retirement Planning

There are optional expenses that can be either spent or can eliminate from your lifestyle. There are also options with respect to work now as well. Another friend of ours has a very good pension and can live on it quite comfortably. However, it is not enough to allow her to do some of the things she wants to do. She loves to travel 3 or 4 times every year and when she travels she likes the best.

For her, the option is to go back to work on contract for part of the year. She continues to collect her pension however the extra money she makes allows her to pay for her trips and other upgrades around the house. There is another big advantage for her in this scenario as well. She gets out every day and she is with people every day which is very good for her.

So if your budget income comes up short for your retirement planning task, then another option is to take on a contract job that allows you to live the life you wish.

Summary

The first step to retirement planning is to do a budget and then take the steps you need to make the budget work for you to avoid a shortfall in funds, while at the same time allowing you to live the life you wish.

We will discuss some of the issues mentioned in this blog in future posts.