Still discouraged about retirement

Some time ago, MoneySense Magazine chatted with actuary and pension guru Malcolm Hamilton about retirement.

In the article Hamilton stated the following:

“I was cautious and now have more than I need. I have no good use for the money, although I might if we have another 2008.”

At the time of the article’s print, Malcolm Hamilton was 63.  He works as a senior fellow for the C.D. Howe Institute.  He is one of Canada’s to-go experts for anything related to pensions and retirement.

I have to wonder by making such a statement, if Hamilton is duly encouraged about his own financial affairs largely because he saved “enough money” but also because he knew how to do so.  Thanks to his trade, he understood long before most, spending less than you make, saving 10% of your net income (or more), and keeping your investment costs as low as possible for as long as possible, are some of the keys to financial freedom.  Most Canadians are either unaware of these essential retirement building blocks and/or they cannot consistently execute on these gems of financial wisdom for various reasons.

The article goes on to quote Hamilton a bit more:

“Most of us will be able to get by with 50% or even just 40% of what we earned in our working lives.”

“No one can tell exactly how much we will need to save. Canadians are unduly and irrationally discouraged about their prospects.”

I think most Canadians should be worried about retirement.  I know I am and I’m fortunate to have a good job with good benefits, benefits that include a pension, insurance and more.  The thing with life is there are no guarantees or certainties.  You also don’t know what you don’t know.  That makes it essential to learn about personal finance and investing for your financial well-being, since nobody will care more about your financial future than you do.

I do appreciate the context of the article.  The reality is unless you have the requisite knowledge to put together a well-designed financial plan and you can stick to this plan for decades on end you have every right to be discouraged about retirement.  The discouragement begins with how much you should be reasonably saving, where to invest, using what financial institutions and products, how to disaster-proof your life and much more.

Do you have a comprehensive financial plan and if so, how did you figure it out?  Who helped you?

29 Responses to "Still discouraged about retirement"

  1. This week I was looking into switching our investments to lower cost ones. Turned out to not be such a clear cut decision for us. We’re young and we live within our means, so I’m looking forward to our retirement, I’m pretty confident that we’ll do ok. But, it only takes one life event for our outlook to change.

    Reply
    1. The financial body of knowledge is huge really. While some things are easy to understand, it does not always make them easy to execute upon. Things change and that can complicate the matter. Thanks for your comment Emily.

      Reply
      1. I totally disagree. You can read a glorified pamphlet and get 98% of the way there which is far and away in the realm of good enough. Hyperoptimization by chasing irrelevant differences in MER is a distraction.

        For example, just investing in the TD e-series funds is good enough and far better than most. FAR FAR beter.

        C’mon mark, give the couch potato a plug! 🙂

        Reply
        1. So you’re not discouraged about retirement none? Or, you think it’s easy?

          I think some planning for retirement is easy, but executing on your retirement plan is rather hard, especially over time. There are many temptations to spend for starters. I see that all around me!

          Yes, Canadian Couch Potato is a great resource for sure!

          Thanks for your comment.

          Reply
          1. Hi Mark,

            Yes I’m a bit stressed – I’m newly divorced so my net worth is now divided by half. Good news is that I just stared a good government job with the golden pension (it’s not that gold). Plus I have a 4 year old son.

            Basically, I’m 41 – have about 80K in RRSP; 35K in TFSA, & 15k in cash. Am I stressed? Yeah, just a little.

            Basically my plan is:
            1) Keep contributing to my pension (duh);
            2) Save max TFSA each year;
            3) save $4500 in RRSP each year;

            Based on a return rate of 7% per year through indexing (sure we can debate that) I’ll have 1.3 million by the time I’m 65 PLUS my pension. Even at 5% I’ll have 900K plus pension. I think I’m in OK shape.

            I’m also EXTREMELY fortunate. My job is great and I plan on staying at the for the next 25 years.

            Huh, thanks for making me do that. If I can stick to my plan I think I should be just fine. I guess I shouldn’t be stressed out at all.

            🙂

          2. This too will pass none. It sounds like a very stressful time but things will work out for you. Based on what I’ve read, you have a great job and great benefits to go along with your desire to save and invest properly. Those are great things to be proud of and that’s only on the financial front.

            Best of care to you and thanks again for reading.

  2. There was another moneysense article not too long ago about how much you really need in retirement. It said the first few years will probably be your highest living expense per year, then after that retirees tend to spend less than anticipated.

    Going further they point out its a great idea to shift into more bond allocation leading into retirement but once a few years into retirement its a good idea to shift back towards equities. Reason being predictable spending.

    But hey, you cant go wrong with over saving!

    Reply
    1. I could see that AG, most retiree expenses are higher in the first few years for a number of reasons but then things level out. I think shifting to bonds makes some sense in retirement but it really depends on your risk profile and need to draw down capital.

      Saving is good and so is living for today…I guess the premise of my post was about being told not to be too discouraged about retirement from someone who understands pensions and retirements better than most and already has their FI ticket punched. I have tons of respect for Mr. Hamilton but it’s easy to climb a particular “mountain” if you’ve already done it.

      Reply
  3. The important thing is to start saving as early as possible. Too many Canadians put aside retirement saving until they’re in their 40s and that really puts them in a disadvantage compare to someone who starts when they got out of university in their 20s. Compound interest is very powerful and should not be taken lightly.

    I think we as Canadians need to stop thinking that the government will bail us out when we’re retired. Don’t depend on the government, have your own personal retirement plan.

    Reply
    1. You raise an interesting point that savings starts the day you can. Waiting until you are 40 or until your 40s, puts middle-agers at a huge retirement planning disadvantage. I know for us, I’m not counting on our government for a cent. I need to think and act for myself. I appreciate the insight Tawcan.

      Reply
  4. Hi Mark,

    I believe everyone should have a financial plan, but not for the investing part. When you are young you need to have a plan for paying down debt, have a will, the proper insurance (life and disability), paying for the childrens’ education and all the other items a financial plan entails.

    Financial planners can’t seem to look too far into the future (what’s happening today will continue) so their investment plans don’t seem to work out. What you need after the plan has been completed, is a fee only investment advisor to help you with investments if you can’t do it on your own.

    A revised financial plan would be advisable once the mortgage is paid off or the children have left. Five years before retirement is another good time for an update.

    Retirement planning is simple. Live within your means and save everything else.

    Regards
    John

    Reply
    1. Agreed John, and all the things you mentioned are part of a good financial plan. I guess I’m thinking it takes time and effort, to construct and maintain our financial plan, which I’m ready to do but I wonder how many others feel the same.

      Retirement planning can be simple but I think it’s the execution of the plan that’s the hard part.

      Thanks for the detailed comment John.

      Reply
  5. Hi Mark,

    I don’t know whether I have a comprehensive financial plan but I am confident that I will be alright if I keep saving and investing 20-40% of my income every month to many solid dividend companies or low cost ETFs. I gotta admit that I was one of individual investors that left my financial future to those investment advisers that who really care about their commissions from several mutual funds recommendations than my own future. What woke me up was many great personal finance bloggers like you.

    BeSmartRich

    Reply
    1. Well, I would certainly agree with a savings rate like that, you should be fine – certainly if you focus on equities – primarily some low-cost ETFs and a few blue-chip stocks and don’t tinker with the portfolio. There is also more to personal finance and investing that just, well, the investing. There is insurance, taxation and estate management. It’s a huge body of knowledge but as a starting point if you are focused on keeping your money management fees low and diversifying your assets, that’s a great start. If you learned that from this blog, even better 🙂

      Thanks for sharing.
      Mark

      Reply
  6. I break personal finance down into cash flow ( you cant save what you don’t have ) disaster proof your life ( living within means actually mean less insurance required so leaves more to save ) make debt work for you and then invest in the most fee and tax efficient way,

    Life changes so must your plan. 95% of people spend more time planning their vacation than their retirement

    I agree with Malcolm. if your home is paid off then you can live on a lot less in retirement. People run 1 car not two and such. I see many run the house on $30k net. if you want to travel internationally allow a lot more.

    I also agree the first few years are most expensive for optional expenses but later on people do spend on in home help and renovations to help them stay in their home , step in tubs, grab rails etc.

    Kathy fee only planner working with her son fee only investment advisor in Saskatchewan

    Reply
    1. I agree with Malcolm as well Kathy, and certainly respect him for his knowledge and expertise, but I struggle with the “you don’t need to worry so much about retirement” message. If you want to retire around age 65 or 70, then yes, you probably don’t need to save very much and you don’t need to worry.

      I’m not sure I want to work that long nor are there any guarantees my health will be there for me at that age if I must work.

      Reply
      1. Financial services companies thrive on fear then sell weapons of mass destruction like leverage loans and 3.2% MER seg funds to the masses. In reality couples making $90k between them who have a mortgage , no company pension $300k mortgage, day care costs and 2 kids to help with further education don’t save a lot. ( yes that’s real life here in Saskatchewan ) They rely on CPP and OAS and the age for that will just keep going up,

        I would like to see people being proactive rather than “worry so much”. that seems to translate into giving up ostrich style sticking your head in the sand.

        What’s the big deal with retiring early any way 55 to 95 of what? no one can save enough to have fun for 40 years. find a job you love, make a hobby into a business.

        Reply
        1. Unfortunately Kathy the “how much is enough” retirement number must include, sadly, when you die and that’s impossible not to mention sad to predict.

          So, yes, while saving and investing is good and few adults would argue against that I suspect it’s much harder to stay disciplined for that same saving and investing mantra over a 30-year stretch. Few people have the discipline.

          If folks can work and get paid for their hobby, great, I’m all for that but that’s not always possible or realistic.

          Reply
  7. I saw a presentation Malcolm Hamilton made a while back. (Was it on Moneysense?)

    Anyway, he says if someone makes minimum wage, when they turn 65, they don’t have to replace any of their income. All of it will be replaced by government programs. Higher earners will have to replace whatever portion of their expenses minus saving for retirement, mortgage (if paid off), work-related expenses (clothing, transportation, etc), and hopefully child-rearing expenses and education expenses. If you net all that stuff out, it’s not that hard to replace your income. A lot of people I know seem to work past necessary because they find their work fulfilling. I didn’t take that route, but I admire them for it.

    Reply
    1. Hey Gene,

      Maybe there this a bias in my thinking because, some worry about “retirement” because I don’t want to work to age 65 or 70. That’s about another 30 years for me. Sure, higher earners today will likely need to replace a larger % of income to feel comfortable in retirement. I suppose you get used to whatever lifestyle you have after some time. We love to travel for example. I simply can’t see government programs looking after our basic expenses and travel fund. 🙂

      Thanks for the comment.

      Reply
  8. Been online for years, working in the financial field too. After all these years, I am still wondering why young Canadians don’t have real PF classes at school. Many Canadians still see finance as a taboo topic while it really shouldn’t. We should teach our kids how-to be financially healthy – starting by example for sure – as early as possible.

    Reply
    1. Great point: “We should teach our kids how-to be financially healthy – starting by example for sure – as early as possible.”

      If only I knew then just a little bit of what I know now….

      Thanks DivGuy, hope you’re having a good start to 2015.

      Reply
  9. Two words stand out for me in your post above :

    “get by”…

    I don’t want to “get by” – I want to maintain the lifestyle I have, and have enough income to do things and go places. Everything will be more expensive in 10, 20 30 years from now. I don’t want to move somewhere warmer, live in an aluminum bullet shaped mobile trailer, and cook beans that will last the week. So you need to seriously think of what you need to do to avoid such a dull existence.

    Reply
    1. I’m with you Paul. “Getting by” doesn’t sound very appealing to me and I figure if I don’t save and invest now, I’ll either be working to age 65 or living that dull existence you mentioned. Neither sounds good to me. Thanks for your wakeup call 🙂

      Reply
    2. @Paul N – I agree wholeheartedly. It’s one think to live like that by choice, but being forced to live like that because I have no other options scares the s**t out of me. That’s why you start planning as soon as you can, so you have that choice to do whatever you want, whether it’s live in an RV or a cabin or a mansion, or eat beans or filet mignon every day. Heck, get a financial advisor if you need to, but just having the plan and sticking to it makes things so much easier.

      Reply
  10. If I were the average person, I’d be pretty discouraged too perhaps. Thankfully, I’m not. I just don’t understand I guess how people can manage not to save 10% of their incomes and how people don’t realize what a total rip-off many mutual funds are. Just short-term thinking I guess.

    Anyway, I’m feeling pretty good about my situation! But, I think about 20 years from now and I’m not just making it through the day.

    Reply

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