Is there power in postponing retirement?
Over the years of running this blog, I’ve had the good fortune to meet and speak with a number of very bright minds in the personal finance and investing space.
One subject that often comes up with these experts is the subject of retirement.
If you’ve done any thinking on this subject yourself, or in fact, you’re already retired you probably know the rules of retirement have changed over the last decade or so in particular.
- There’s longevity risk – many people are living longer and need to finance more years of retirement expenses.
- You have market risk – such as in our current days with this horrific COVID-19 virus triggering market meltdowns. This means, long gone are the days of healthy interest and savings rates via fixed income investments. You need to learn to live with stocks more.
- Last but maybe most importantly (given the anxiety we are all feeling right now with this global viral pandemic), there are psychological and leisure risks when it comes to retirement. I mean, going from 100% work mode to 100% leisure mode or other may not be sustainable nor desirable to keep a healthy mind (and body).
Retirement benefits in transition
Canada’s private sector has been migrating away from a defined-benefit pension system to a defined-contribution pension system over the last few decades. And it’s very easy to see why. Employers in a defined benefit pension system incur all the investment risk. Workers who have enjoyed a multi-decade contribution period to a secure, viable defined benefit pension plan have it made. Essentially cash for life…
Flipping the model to a defined contribution pension system essentially transfers the investment risk from the employer to the employee. And certainly based on the products and services offered by some institutions running those group pension plans, there is an abundance of new employer-related risk to be had.
Which, for the purposes of this post today, makes me wonder this:
why there is such an adoration for early retirement?
Here are some reasons why I believe there is great value in postponing any retirement.
On the concept of FIRE (Financial Independence, Retire Early)
I by FAR AND AWAY prefer any drive towards becoming financially independent vs. any sort of early retirement. I prefer and I’m personally striving for FIWOOT.
The concept of FIRE, really doesn’t jive with me because I don’t know of anyone who is a 30- or 40-something, who might claim to be an early retiree, that doesn’t make money off a blog, a podcast, a book (or more), or speaking engagements related to early retirement. If you know of anyone that does any of this stuff for free, please let me know. I would be happy to exclude them from any list.
Now, becoming a financially-independent-work-on-own-terms entrepreneur certainly doesn’t make you a bad person in my book. In fact, on the contrary! Kudos to you for following your passion and having the financial savvy to get there faster than most! Just please go easy on the heavy marketing and selling courses that some of you do on how to get rich quickly.
To paraphrase something that ABC’s “Shark Tank”, Canadian business mogul Kevin O’Leary said some time ago…
I achieved great liquidity and I thought to myself, ‘hey I’m 36, I can retire now’…but I was bored out of my mind.
You don’t need to go very far to read up on research that has found there are a number of number of health benefits linked to older-age retirement, including a decreased risk of dementia. Heck, some research has even referenced even if older workers dislike their colleagues, studies have highlighted these are far better outcomes for these older workers than any social isolation!
On the COVID-19 crisis and FIRE: it’s going to be a lot harder to retire early – that’s a good thing
I found this recent article by Tanja Hester, a notable blogger and personal finance podcaster in the U.S. very refreshing when she wrote about any impending U.S. recession triggered by this COVID-19 crisis.
Here are snippets from this article that really resonated with me:
“If anything, we should expect to see more people interested in securing their financial security permanently, most especially workers who are too young to have been scarred by the Great Recession in 2008-2009, an event that certainly pushed a great many of us who’ve already retired or who are pursuing FIRE to take their financial future into their own hands.”
“Everyone is a brilliant investor in a bull market, and so the last decade has allowed quite a few authors, bloggers, and podcasters to gain footholds as respected voices in the FIRE movement, whether or not their ideas were actually sound. The one positive effect of the recession will be to illuminate who has been giving out good advice, and who was just in it to cash in on a trend.”
And probably my favourite:
“The fundamental principle of FIRE is still true: If you spend less than you earn and invest the difference, eventually you will have saved enough that you can live off your investments forever. What was never true, and what is much more obviously untrue now, is that you can rush that process and cut corners, and still end up with an entirely secure plan.”
Beyond lifestyle benefits, postponing retirement can mean more savings and flexibility
On our home front, a fresh off the press publication by the C.D. Howe Institute this week concluded some other great merits in delaying retirement, yielding more systematic benefits for all.
The report that you can find here, for free, highlights:
- Our federal government should consider raising the allowable contribution limits in the defined-contribution system to reflect the fact that retirement at age 60 “requires a significant rate of savings during a much shorter working lifetime”. If, in the alternative, the government wishes to discourage retirement before age 60, then the first step is the elimination of the generous early retirement benefits available to many public-sector workers before that age. “Ultimately, the goal of equal outcomes in the defined-benefit and defined-contribution regimes should be restored”… Indeed.
- Ottawa, our government, should consider raising the age at which workers must stop contributing to tax-deferred saving vehicles and start receiving income from them to age 75 from the current 71. This would increase the age threshold for savers looking to defer their retirement and rebuild their nest egg after the recent market crash. “It would also give some breathing room to retirees forced to sell stocks at a loss to meet mandatory minimum withdrawals of their tax-deferred savings” – as in now.
- Ottawa, with cooperation from the provinces and territories, “should amend OAS and the CPP to allow for the deferral of income from these programs to age 75, with appropriate rates of increase in the benefit rates”.
Certainly the simplification of our financial regulations are a major opportunity for improvement. In times of crisis or otherwise.
Is there power in postponing retirement?
Absolutely. For many of us. For most of us. Maybe more so now than ever.
From the C.D. Howe publication:
“Saving for retirement is filled with great uncertainty due to unpredictable and volatile factors such as career wage changes, accumulated investment returns, retirement lifestyle desires, health conditions and longevity.”
Now, this is not to say that those individuals or families that have the vast financial means to retire or not work at all based on their accumulated wealth have to work. By all means, enjoy all the time you have earned through growing a business or other. You’ve managed to save, earn and be very, very fortunate more than most. What I am saying is for the majority of Canadians (or anyone else for that matter reading this), I would argue there are HUGE benefits to postponing full-on retirement and HUGE risks if you retire too early.
For me, I have no idea what the future holds. This crisis has certainly impacted me – and we’re just getting started to get through this. I’ve always believed some form of semi-retirement might actually be the perfect fit to balance my desire to remain purposeful, keep me engaged, while earning some income to combat whatever the future holds. I probably believe in that now more than ever. With stock markets behaving how they are only time will tell if I get to live any semi-retirement dream.
For many of us living through this time, I suspect the power in postponing retirement becomes a very, very easy case to make.
Please stay safe out there…
Thoughts? Is there merit to postponing your retirement? What about keeping any side hobby to ensure you have multiple income streams as part of semi-retirement? Do share in a comment.
This is your essential retirement income guide.
This is a beneficial retirement income blueprint to follow.
I think you should strive for financial independence (yes…for sure) but not early retirement.
Good article. My plan is still to retire before the end of the year at 60. We have no DB plan, so the current market conditions are concerning, but we have enough cash on hand in both CDN$ and US$ for 3 years. Hopefully things will be better by then. If not and if we can’t travel down to Florida in January as planned, I may consider working thru the winter before cutting the cord next spring.
One of my favourite quotes….”No one every lied on their deathbed wishing they’d spent more time at work!”.
Great quote and well put. I think if you have >1-2 years’ of fixed income + cash and enough to draw down a portfolio at about 3% if you have to Dave, even without DB or any pension, you should be fine.
The key thing I’ve learned through this is to have a significant cash wedge to enter retirement or even semi-retirement with. I won’t do it unless there is > 1 year in cash in the bank.
I don’t consider it retirement but rather a change in direction with less stress and lots of flexibility. Try to keep my mind sharp by reading this blog and writing. My dad passed two years after he stopped working completely but had developed a bit of a FIWOOT lifestyle for 13 years prior to his passing. I admired that as he lived his dream. You truly don’t need a huge income to live an amazing life. You can create that amazing life where you are but you must be willing to make adjustments. None of us get off the rock alive and we don’t know when our time is up. There is power in postponing retirement. There is also power in simplifying life and living in the moment.
You and Colin are alike, re: don’t get out of here alive and we don’t know when our time is up.
It is my hope I can make the best decision I can in the years to come.
Stay well Gruff!
Hey Mark, good conversation. Your title in itself is powerful. (Is there power in postponing retirement) It gives many the dignity to continue working without feeling that they failed to save in earlier years. It gives them the ability to re-frame their thinking from a negative to a positive. “I chose to continue working” from “I must continue working”.
Thanks Paul. I wasn’t going to post this for feeling it might come off the wrong way but I went ahead anyhow because there is nothing wrong with continuing to work, work part-time, work full-time, or even not work at all. As long as it is an informed decision, like most big decisions in life. I find retirement is very much a personal and emotional decision. Everyone is different and I respect that.
I think so many want to stop working because so many work situations over a long term are near unbearable to anyone not full convinced a career is a worthy life purpose. I think work needs to change, but I do not see market forces supporting a change for the better. More vacation, four day weeks bit more flexibility. Your FIWOOT concept certainly does allow you to create more flexibility.
Secondly; I worked in IT, have you ever worked with a cohort over 60? Just trying to be honest here, I am over 50 and have less mental speed and stamina, I can’t imagine what I will like at 65. My work required constantly being “on”, connected agile, technical knowledge, Project Management, aware of the interoffice politics as well as the job requirements etc. etc. Not so sure I will be anywhere near as capable at 60 as I was at 40, and I am sure employers are acutely aware of that.
I think we need to ask ourselves: as society has gotten so much wealthier and productive the past 50 years, why are we are thinking we must work longer? Where is all the wealth is flowing as it does not seem labour is getting its fair share of the bargain anymore.
Side question: U.S. Dividend Appreciation Index ETF, VGG vs VIG (hedged to CAD): Being that CAD$ has been hammered. Would VIG and the hedge be beneficial assuming it CAD would appreciate against the US Dollar now? (Not sure I understand how the hedging works is my question)
Great comments BG. I had to smile when you included the words “agile” and more. I live that dream now 🙂
I can’t wait for FIWOOT! I have a few years to go though…all good. But, I do believe I can have the best of both worlds in a few years that way.
Thanks for your side question. As you know, VGG = VIG in Canada.
Hedging works this way: changes in the U.S. dollar only works in your favour when the value of the U.S. dollar drops in relation to the Canadian currency. If the U.S. dollar rises while your investment is hedged, it reduces any gain. I hope that helps. Stay well!
Mark, I meant Vgg vs Vgh, funny how your brain association works.
So if i think CAD$ has no where to go but up relative to U.S then VGH gas a bit more upside than VGG.
Ah, OK 🙂 Then yes, if you believe we should get our CDN $$ out of the $0.70 range then VGH (not VGG which is not hedged) in relative hedging terms has some upside. Just know that hedging is not a precise science.
Certainly it’s a solid, low-cost dividend-oriented choice to grab some of the U.S. market.
@ BG I too worked in IT (a long time ago 🙂 )
One of my favourite quotes sums it up nicely –
Old age and cunning will defeat youth and inexperience every time. – Anon.
– applied then and applies now – check out Warren Buffett and/or Charlie Munger.
As long as you have retained the experience “old age” gives you the youngins are going to flounder in the same situation.
Case in point my niece (in that much discussed cohort) was completely and utterly unprepared for our current crisis – cupboard bare, zero supplies, no plan floundering – she was shocked when I could bail her without much trouble – she wondered aloud how did I know what to do – well being around for x years gives you some perspective – this ain’t my first rodeo – it is the first for many.
Maybe it’s that as you get older you are just too smart to be willing to work like a dog anymore and too financially prepared for them to force you to work this way. ?
Precisely BG! Bail and enjoy the ride – I certainly am 🙂
As an side I employed FIWOOT way before Mark coined the term (sorry Mark :))
In the decade prior to stopping work (nb: not retiring!) I worked 4 day weeks (MT and TF = 2 day work weeks) and took multi-months off for travel (I worked contract).
Until I decided that I didn’t want to work, there was always work available, maybe with some gaps but those had been worked into the overall plan.
As an aside I’d be a little cautious about CAD having “nowhere to go but up”. The MASSIVE money injections going on will have an impact on the CAD and I think it will not be positive – that said if the USD implodes due to Covid-19 (I truly hope it doesn’t because means truly horrendous costs in human life) the CAD may appreciate.
You sound like you put lots of flexibility into your plan, I think that’s smart. I’m trying to do that myself. I figure with a small pension, investments, blog income or other part-time work, let alone government benefits (not counting on them very much) I figure those are three decent income streams. The fourth, government benefits will be helpful but not essential for lifestyle.
I really hope parts of the U.S. don’t implode but I think it’s going to happen.
Hi fbgcai and BG,
I’m in my early 50s and also work in a knowledge industry where long hours and burnout are around the corner. As I’ve aged I’ve come to see that the little daily crises are no big deal in the grand scheme of things but keeping focused on the end goal (good work, good clients) is the name of the game.
This has also helped me weather yet another market collapse – this too will pass. A young Millennial coworker panicked and asked if she should sell her condo, now that the economy was about to collapse — what the heck? Why?
Agreed about the preparation – as people were frantically hoarding toilet paper, we just settled down for some home-made dinner and chuckled. This ain’t the zombie apocalypse. Turn off the news!
Well put including “turn off the news”- everyone needs a break from that stuff.
I’m going to finish my Weekend Reading article now 🙂
When to retire is an important question for most people and there are many different answers. The key is to make sure you can live with the one you choose.
Personally, I do not recommend postponing retirement if you can afford to retire and your career is not your life passion. If you had a retirement savings and income plan that you have successfully followed and are approaching your retirement target, why wouldn’t you proceed? Yes, the markets and economy are uncertain but so is life. There are no guarantees that you will have the opportunity or good health in the future to do all the things you planned if you decide to wait because you are currently anxious or afraid.
I retired September 1, 2008 so I have been through a financial crisis where our life savings were down 44%. I know we will get through this crisis too. If I had delayed my retirement I wouldn’t have able to do a lot of the things we had planned on for years. I also got to do things I hadn’t foreseen. I got to help my wife and father-in-law through cancer chemo treatments, surgeries and radiation treatments. We got to help a close family member through mental health, addiction and legal issues. I wouldn’t have had the time to be there mentally or physically if I had still been working. These challenges changed me for the better even though they were painful and challenging. They also provided me with learning opportunities to keep my mind active. We are never too old to learn.
This post is too long and most won’t read but the Secret of Life is well described in James Taylor’s song. It doesn’t even mention money nor the markets.
That’s a great point Colin. I mean, when is really the best time? Nobody knows. Certainly you want health. You want people around you that you care about and vice-versa but I feel coming out of this I will personally have a few found appreciation for how fragile things are. Not to take too many things too seriously and treasure life’s small things just a little bit more.
Will have I “enough” to semi-retire in a few years? We’ll see. My goal remains the same. I’ve done our math. After no debt/debt is gone for good, I figure $50k per year in dividends/distributions from all accounts + some part-time work will be “enough”. We’re > 70% there with the dividend/distribution income today assuming no cuts come our way. Wildcard.
I really don’t want to wait too long. Who knows what life has around the corner for us.
Great perspective and thanks for sharing.
I expect with governments and central banks increasing spending, we could see a meaningful jump in inflation and taxes. Taxes are my largest expense so I would recommend adding high inflation and higher taxes retirement planning scenarios into your income planning.
Colin, have you ever lived through dirt-low interest rates but high inflation? Seems odd it would occur but I’m not saying it won’t. I could see that too.
I’m counting on my taxes being higher over time (almost a certainty) and real returns from my portfolio being 2-4%; so inflation could be at least 3-4% or it could be higher.
This is where I believe a focus on dividends might help me, a bit, in that I can invest in companies that offer dividend increases (after COVID-19) settles in a few months/quarters and I have a bit of built-in inflation protection.
I believe we had interest rates below inflation rate in the 70s while I was at school and starting my career.
It sparked the Silver and Gold markets to new highs and general stagflation.
I was just a very young lad in the 70s. I recall the early 1980s had very high inflation and interest rates no? Definitely the latter. My parents still complain about it.
Colin, I am so encouraged that you retired in a market crash year and are still retired. I just retired January 1st of this year and am struggling with how to minimize expenses (i.e. minimize the amount of $ I pull out of the market until it recovers). In some ways, the current world situation has helped by eliminating the all of my travel plans. I’m toying with the idea of going back to work on a short-term contract to buy some time until the market bounces back but not ultimately hoping that won’t be necessary. I do like the concept of FIWOOT but haven’t figured out what type of work I would engage in … and was really hoping to do some mindless globetrotting first.
We did the mindful globetrotting to all the continents. Travel prices were good after the gfc so perhaps there will be some great deals when there is a vaccine and people are still reluctant to travel. Fear of running short of money is not fun but I think most of us will be fine. Mark can help you with FIWOOT and staying on your path. Good luck.
Colin, I’m four months from retirement, and although we have a sizeable cash cushion + DB pension income (neither on their own is enough to meet our needs), I’ve been pondering the wisdom of leaving now. I’m for sure still going to do it, but you’re story reminds me of why I am. Many thanks. And also thanks Mark for your thoughts from the other side of the coin.
Bob: Retirement is a personal decision. Your comment that “neither on their own is enough to meet our needs” is concerning since it doesn’t sound like you are ready financially. Not sure why leaving now is a good idea unless there is a health risk in your workplace? Have you told your employer about retiring in 4 months? Don’t know your situation but sounds like you work for a large organization since you have a db pension. Is a downsizing program likely at your employer in the foreseeable future?
I think retirement is very much a personal decision that has many emotions wrapped into it Bob. You can only make the best decision based on the best, available data at the time, while striving to mitigate any risks. I’m sure you’re thinking it all through…
All the best, stay well.