My Own Advisor

I always used to study post in news papers but now as I am a user of internet thus from now I am using net for content, thanks to web.

For a calculator that takes into account pensions, CPP, and OAS try www,retirementadvisor,ca. It is free and more accurate.

What these calculators are showing is that we all need to save significantly more, and spend significantly less, if we want to get out of the rat race. Making more money doesn’t hurt, either!

Debt-backed expansion has its limits, and does not result in real growth. If the crap of the last few years continue, that’s going to completely obliterate all of those expectations of 8% real returns for decades out. Maybe if you’re young enough you’ll be fine, but I’m not convinced and rather work on improving my odds now instead of waiting for the long-term trend to return.

Mark, I apologize for being late with my comment- it’s been a crazy busy week, so I’ve got to do some catching up on reading my emails.

This topic is very important and controversial at the same time. Just like many of the previous posts read we’ll all have different needs in our “golden years”, so what’s plenty for one may not be evan close to enough for another. On the other hand, to predict what the future rate of inflation is going to be, the growth of the economy (both global and domestic) as well as a thousand other factors is simply impossible. So, what do one do? Well, in my opinion, hope for the best and prepare for the worst. I don’t know if you and your wife have kids, but since mine were born, it’s a totally different ball game for us. My wife and I are still in the beginning of our careers. She has pension plan from her employment but I am not so lucky. I have been working two jobs for the last three years and we don’t take vacations each year. From our pesrpective, achieving a 1.5 mil retirement portfolio is not going to happen. Instead, I have set some simple goals for our household: paying down the mortgage as fast as possible, building a strong drip portfolio of bluechip dividend paying stocks in our TFSA accounts, contributing any extra cash to our RRSPs, taking good care of our material possessions to make them last and being very frugal. How much will we have, I don’t know and I don’t care so much. In my old age, I know I will want to spend time with grandkids (God willing), practicing and teaching aikido, gardening, wood working- all very inexpensive activities that will keep my body fit and my mind occupied from old age distractions : )

Planning for old age is important, but should people stress so much over questions like:”How much will I have?”, “Am I going to outlive my money?”, “What if I end up on the street?”, etc. Hey, we are all born with nothing, and we’ll all die with nothing. This isn’t to say forget about all financial planning, but to…well, may be, focus more on the jorney, than on the final destination.

Lastly, let’s not forget the story of the turtle and the rabbit. Have patience, pesristence and faith and Karma will take care of the rest!

Have a wonderful weekend!

I think $900 a month is a very reasonable savings goal… right now I am saving over $3,000 per month (on a mid-5 figure income). Once you get all your debt paid off you will have no trouble reaching your savings goals. Just be patient.

Based on these results Mark, how many Canadian will be able to retire?
I think there’s a marketing twist behind them, focus on your plan and stay the course, you’ll be fine when the time comes.

Sorry for Fortis I should have said that 8.26% was for Capital gain and 5.18% for dividends.

Although the 6% stock market return is realistic, it does not account for dividends. I have statistics on the TSX back to December 1956. The XIRR from then to the end of July 2011 is 5.9%. The XIRR to the end of 2010 is 6.04%.

Now on to dividends. I have only tracked my stocks in Quicken since the end of 1987, so I will use this data. The XIRR for the TSX since end of 1987 to today is 5.91%.

Tracking BMO from the end of 1987 to today, I have an XIRR of 16.08%. Of this, 9.80% is capital gain and 6.28% is dividends. Another stock is Fortis (FTS). I added this to Quicken 13 November 1987. My XIRR to date is 13.44%. Of this 8.26% is capital gains and 8.28% is dividends.

If you do not know what IRR is, it is internal rate of return. That is compound annual rate of return. So that means for Fortis, I have a compouded rate of return of 13.44% per year since 1987.

Great comments on this post. I agree with Susan–you’ll earn CPP as well.

And so many others have alluded to your pension, which has a really high value when you think about your future payout, multiplied by 25. For instance, if a pension pays $2000 a month, or $24,000 a year, its true value is $600,000 (based on the 4% rule) so you could probably add that to your pot.

I also think you’ll do better than a 3% real return. Of course, you never know. But if this flatlining market lasts for another 10 years, wow—you’re going to make a killing when it rebounds. Hopefully, Mark, the markets don’t budge for many years.

Sorry Susan….we’re on different sides of the coin on that one. As a retiree, you want the markets rising. As a collector of market assets I (and Mark) want it flatlining or falling, for many years if possible.

I agree w/ CFM – save as much as you can. Those online calculators make few assumptions on how your lifestyle will change after retirement. You may downsize to a fully-paid-for smaller house, have steady streams of passive income, etc.

If the numbers don’t lie as Glen Cooke suggests, and I think he is right, then it sounds to me that having a regular 9-5 day job (and diligently investing in your RRSP) may not be enough to retire comfortably. You may have to consider other sources of income, and asking for a raise isn’t going to cut it either.

I watched a lecture awhile ago from a self made millionaire and he suggested that the road to financial freedom must include the following over your lifetime:

1. You need to own your own business
2. You need to invest in stocks
3. You need to invest in real estate

Dividend income, rental income, and business income provide you with the proper diversification. Relying on a single source of income is risky, and as the numbers show insufficient.

@Glenn Cooke

I have an issue with the numbers because of the following reasons:

1/ It’s an RRSP-specific calculator and it assumes the average investor is going to be investing exclusively in RRSP accounts for the rest of their lives and isn’t creating wealth by other means (such as taxable accounts, other investments, etc.).

2/ The ‘number’ one needs in order to be able to retire can vary considerably from one person to another, despite inflationary pressure. Requiring $1.4 million for retirement may be necessary for some, especially if an investor has all of their eggs within RRSP accounts and needs to draw on their savings. These savings will continuously diminish.

On the other hand, Susan’s number of $1.1 million could be quite realistic for another, especially if an investor has no debts, and has created an income stream derived from taxable accounts, while and at the same time being able to preserve a sizable chunk of the book value invested. Not having to dip into your principle = preservation of wealth.

In my view, spending during retirement is one of the most overlooked and important items to plan for. Leaving the workforce is not like winning the Lotto 649 (for many people at least). Upon retirement, monitoring and tracking your spending doesn’t go into shutdown mode for most people.

I recently did a review on Canadian Dream’s book, “Free At 45″ and the estimates and numbers he has crunched may surprise you.

I’m just saying that the number doesn’t always have to be that high in order to retire, especially if you have optimally managed your debt, and are engaged in other investment activities. I know, because I did it.

I understand where you are coming from with respect to inflation, but to suggest that yesterday’s millionaires are today’s “billionaires”? That’s quite the quantum leap IMO. One billion is a thousand million!

With that being said, I am in total agreement with you in that investors need to pay special attention to MERs. Mutual funds and ETFs with higher management fees can eat away at not only your returns, but can slow down your path to retirement.

Great post!

Those numbers are pretty scary all right, but do you know anyone who is upset that they have too much money in retirement? Or do you know anyone who could use more? Something to think about. I like what Glenn Cooke says.

I can only say what my experince was. Before I stopped working in 1999, my investment return (10 year XIRR) was running at 10 to 11%. From 1999 to now it is running at 4% (as I am taking out 3-4%. I do know know what the inflation rate was. (I am mainly into dividend paying stock, but had bonds, GICs when interest rates were really high.)

I think that you should include CPP in your calculations as you probably will have that. Take the annual CPP benefit you will receive and multiple by 20 to get a value for it. Current maximum is $524.23 * 12 * 20 is $125,815.20.

CPP is multiplied by 20 because it is indexed to inflation. If you have pensions not indexed to inflation, you can get a rough idea of what they are worth by multipling the annual income by 5 to 10.

I had half my money in a Trading Account and half in an RRSP. As someone mentioned, you do get hit with lots of taxes with RRSP withdrawals.

Also, from what I have read, you can take out 4% from a portfolio each year which would imply you would need $1,123,625. However, this is from the 8%, 4% rules, where you make 8% and take out 4%. However, you do show a very good return. I thought average returns on balance investments portfolio was around 8%.

For those that don’t believe the numbers, how about instead of arguing that the calculators are created by hungry invesment companies that you argue the numbers? The numbers aren’t lying.

The real problem isn’t the numbers – that calculator is bang on. It’s the non-intuitive grasp people have of the impact of inflation over time. We all know how impactful compounding is on our investment growth – it’s the same monstrous affect that inflation has on our buying power.

If you can’t see how this works going forward, look back. It wasn’t that long ago (say 30 years?) that being a millionaire was crazy rich. Now a millionaire is someone who’s got enough money for retirement. Now the term millionaire is replaced by billionaire. It’ll be the same thing 30 years from now.

What you better figure out from this is:
- you need a huge amount of money for retirement – way more than you think (there’s a reason people who don’t have defined pensions have to be careful after retirement). Start saving lots.
- wait longer, expect to have to save more. Try running the same numbers but waiting until you’re 40 to start saving.
- inflation and interest make a huge difference to our ability to fund retirement. You better be paying very careful attention to your rate of return. Little things like MER’s have a huge impact on what we’ll have left over for retirement.
- also perhaps non-intuitively, it’s not just inflation and interest – it’s the gap between these two that matters a lot. You’ve got to beat inflation by a lot. Getting 8% rates of return in a 5% inflation year isn’t anything to write home about.

I love the pic! I almost fell of my chair laughing.

I’m with Jim – the last thing I want is a super-sized RRSP next egg that will require me to draw on the entire balance until there’s nothing left.

IMO, it’s frustrating when you see specific estimates like the $1.4 million as if it can be applied to everybody’s financial situation.

If you’re mortgage free and have a cash flow stream derived from taxable accounts, you many not even need RRSPs. But I agree with PIE, these calculators are designed to encourage investing in these types of accounts and likely tailored to less seasoned or interested investors.

In answer to your questions:

1/ No. You are investing what you can and focusing on paying off the all-mighty beast – your principal residence. You’ll have lots of time to plow more of your hard-earned dollars into non-registered and registered accounts when that occurs.

2/ You are staying your course and it’s a realistic one.

3/ This post really highlights how many investors are lured into the world of “RRSPs or you will never retire” mindset. I’m not saying they are not important, I’m just saying that they are not the only types of accounts available to accumulate wealth and in formulating one’s investment strategy.

Nice post!

The calculator has a very strong incentive to convince you to invest all your money with the calculator provider. End of story.

If you want to retire early, putting money in an RRSP is not going to help at all I believe. If you withdraw the money, there is a penalty for doing this, plus you are taxed at the your marginal rate (i.e as earned income). I know there is a tax deferral of your money and your taxes paid can be reduced.

A non-registered account or TFSA will allow you to retire as you are generating passive/portfolio income. There a dividend tax credit for Canadian companies which means less taxes to pay. Derek Foster never used an RRSP, I believe.

Ok. I chuckled a little

Those calculators are definitely on the safe side of the numbers. They are setup to entice you to invest. Isn’t there a quick buy mutual fund button next to it? The cost of inflation itself just compounds it out of this stratosphere. Boomer & Echo did a post on their personal rate of inflation and I have been wanting to do that just to validate if I truly have the 3% average. Nonetheless, the numbers are in the ball park but they assume a very fix pattern. 30 years at 6% and 30 years at 3%. We all know that you’ll probably have a bell curve of growth as you accumulate wealth and then preserve it by adjusting your percentage over time.

1) On 200$ / month only, no TFSA and such. I would have to say yes (you should be concerned). However, what the numbers don’t account for is that you probably will increase your savings. That’s why I like to do my math.

2) 90 years old is great! Still playing golf?

3) I know you have a plan so I am not concerned for you For anyone reading, I think it’s important to map saving growth over time.

I made the over a million $$$ realization a few years ago. That’s why I am building an income portfolio.

Cheers!

I guess I’m hoping for more than a real return of 2.9% before retirement and definitely more than 0% after retirement. On the other hand it can be dangerous to just up the returns until your plan works.

Um, you won’t need the full 48.5K becuase you and your wife both have defined pensions through work, right?

Aren’t these calculators designed by mutual fund and insurance companies, so people think they are way behind, and add more money into their mutual funds?

$700 per year isn’t that much extra. I suggest you put that into actively-managed mutual funds, with MERs over 3% so you get the best return possible I think those “dividend mutual funds” you just reviewed are looking pretty good, lame returns and no dividends. You should do this right away!

Cheers

Really? I don’t want $1.4 million in my RRSP… Think of all the taxes you pay as you unwind that thing… Unregistered account for me thanks!