Weekend Reading – How much do folks have saved for retirement?
Welcome to a new Weekend Reading edition, wondering: how much do folks have saved for retirement?
First up, a few reminders:
I recently highlighted some key things you need to know about when it comes to the upcoming and new Tax-Free First Home Savings Account (FHSA).
(More on the FHSA below too.)
Now, onto the theme…
Weekend Reading – How much do folks have saved for retirement?
Here in Canada, it’s hard to find good, consistent year-over-year data.
“Around 32% of Canadians aged 45 to 64 say they have no retirement savings.
(Source: BNN Bloomberg)
The sum of the average Canadian retirement savings in 2018 was roughly around $184,000.
Some 19% of respondents had less than $50,000, and 30% had no retirement savings.
In the age group approaching retirement (45-64), 32% had nothing put aside. This cohort’s average savings were $345,000, while 49% had less than $250,000 in their accounts.”
Of course, this is a huge disconnect from what some Canadians feel they actually need based on recent polling:
There are more than enough debates in the personal finance community about what Canadians need to save for a comfortable retirement. Let’s start with some rules of thumb before some American context.
Rule of Thumb #1: Live off 70-80% of your pre-retirement income
Some retirement experts recommend strategies such as saving 10 times your pre-retirement salary and/or living off 70-80% of your pre-retirement annual income. That means if you make $100,000 annually at retirement, you need at least $70,000-$80,000 per year to have a comfortable lifestyle after leaving the full-time workforce.
Since everyone’s situation is different, so estimating a percentage isn’t the best strategy, and therefore you don’t need any expert or financial advisor to help you come to that conclusion.
Rule of Thumb #2: Use the 4% rule
Some retirement experts have fallen in love with the 4% rule for an early retirement plan. It’s a decent rule of thumb IMO but it ends there. This study is flawed for today’s times since that study was only based on U.S. historical research and included an era of much higher, assumed fixed income returns.
Using a desired $80,000 in annual retirement income, as an example, this rule implies you would need a retirement nest egg of about $2 million ($80,000 / 0.04). Not many folks really need that much money but your mileage may vary.
Rule of Thumb #3: Saving by the age
The big money manager Fidelity in the U.S. published content years ago that is still used today. Fidelity devised a savings age-based model to help assure you’re at least in the ballpark to have enough money for retirement.
How much do Canadians have saved for retirement?
You and I can slice-and-dice the Statistics Canada data below:
|Age Group||Private Pension Assets||Financial Assets||Total Average Savings|
|45 to 54||$406,700||$110,000||$516,700|
|55 to 64||$567,500||$130,800||$698,300|
|65 and Older||$405,600||$166,800||$572,400|
How much do Americans have saved for retirement?
That depends on the study too…
According to data on Ben Carlson’s site recently, the same Fidelity folks found not as much as you might think.
Vanguard also had a study in 2022 as well entitled How America Saves.
When it comes to (Vanguard) defined contribution pension plans in particular, the results are not overly positive but still meaningful savings progress is being made by many in those contributory plans:
The takehome message is: there is a behavourial disconnect between what people are saving/doing and what people feel they need.
Where is my thinking on this subject?
Since everyone’s situation is different, and will always be personal or at least personal to your family, I would always consider at minimum the following, some personal answers to these universal questions:
- what retirement (or even semi-retirement) even means to you, and
- what your expenses might be.
And then layer on the following:
- When do you plan to retire?
- What date/age are you estimating to live to?
- How much might your investments earn? (I suggest you be a bit conservative somewhere up to 6% but not much more!)
- What do you believe inflation/your spending with inflation to be?
- How much money or assets (if any) do you expect to leave behind for loved ones?
- Do you have any expectations of/for long-term healthcare services?
- What about health insurance benefits for retirees?
All of this is very personal stuff. That makes sense. No two retirement experiences could ever be alike.
To help you with any case studies or support, check out my free posts and resources on this page: some folks that have “been there and done that” to figure out their enough number.
Figuring out what your personal retirement lifestyle might look like is probably the best way to get a handle on it. That lifestyle and spending is forever up to you.
I’ll certainly keep you posted on my plans and I’m happy to write more content on this subject, just let me know!
More Weekend Reading…
As a brand new account option in Canada (the FHSA for 20- and 30-somethings in particular), there’s a lot more to know about this account to make the most of it. Questrade recently shared this great FHSA 101 resource here so stay tuned folks – the account is coming soon to a brokerage near you.
Great tips from Ken Kivenko in my inbox recently. I’ve summarized his points below as part of Fraud Prevention Month:
- Don’t be swayed by fancy advisor titles
- Read your account statements – report any inexplicable fees, charges or transactions immediately
- Ignore suspicious emails and phone calls and texts
- Review your annual (investment) report on fees and expenses – are you really getting value for money? (Me/remember: 1% paid to a financial advisor, on $100,000 invested, is $1,000 gone every year.)
- Have you considered buying low cost ETFs vs. any actively managed mutual funds?
- Do not name a salesperson/financial advisor as a beneficiary of your Will
- If want to make a complaint, get some help:
Read: How to make a complaint https://learninghub.prospercanada.org/knowledge/how-to-make-a-complaint/
If you need more support, contact an Investor Protection Clinic for help with your complaint:
If you not agree with how your complaint was settled, contact OBSI: www.OBSI.ca
Finally, “Control your own financial destiny or somebody else will.”
Kenmar Associates – Source: www.CanadianFundwatch.com
Incredible, low expenses, that is certainly one way to accelerate any path to early retirement. Dividend Daddy is doing just that.
“My total expenses this month were $1,646.91. Below I break down my spending into various categories that include housing, transportation, food, etc. Please note that my expenses below do not include the tax I may have to pay on dividend income (which is a lot lower than standard employment income).”
I participated in some Twitter banter recently on the subject of credit card rewards. I like the support/education that some bloggers offer when it comes to credit card rewards – but that wasn’t my point. A reminder that juicy credit card rewards are part of a system paved on the backs of all consumers including those that can’t afford their credit card payments. There is no free lunch, that is all. Rewards are simply incentives.
Yup. Good stuff. We've known this all along, right? These rewards are not free.
Think of rewards instead as incentives to spend more 💰.
Perceived "rewards" are paid for by consumers (who cannot afford to clear debt) and to incentivize convenience for merchants.
— Mark Seed (@myownadvisor) March 16, 2023
Here is a good article on the subject: who pays for credit card rewards?
“The catch on credit card rewards and points is that for the richest consumers, there might not be one. Instead, the catch is for everyone else.”
Dividend Growth Investor offered his take on stocks vs. bonds today but also for the health of your portfolio:
“With dividend growth stocks, you may be getting a lower yield today, but there is a decent chance that over a longer period of time that dividend income will grow at or above the rate of inflation. This helps preserve and even increase purchasing power of that passive income. In addition, there is the opportunity to generate capital gains as well, as those businesses earn more money and distribute more to shareholders over time. Of course, nothing is guaranteed and there is risk, but if history is any guide, it is possible that a diversified portfolio of dividend growth stocks would be generating a higher income in 10 or 20 or 30 years from, while also being valued at higher prices over that same time period.”
On Cashflows & Portfolios we looked at high-interest ETFs:
In some local news, maybe, Deadpool mega-millionaire Ryan Reynolds might be freeing up some cash to be a part-owner of my Ottawa Senators – selling his stake in Mint Mobile.
“It’s possible that this sale could net Reynolds more than $100 million, depending on Mint Mobile’s valuation within that $1.35 billion deal. Mint was looking to be acquired at a valuation of $600 million to $800 million in 2021, according to the New York Post.”
Want to consider owning stocks that rock?
Mike Heroux and his team work hard to cover many companies over many months. Given there are always many moving parts in the stock market, you might want to consider Mike’s membership to support you on your DIY investing journey.
Mike continues to partner with yours truly to offer all My Own Advisor readers a whopping 33% off LIFETIME Discount for you to get started and remain informed with Dividend Stocks Rock.
Check that link out to learn more.
Have a great weekend!