Weekend Reading – Not Enough Retirement Savings
Hey Everyone,
Welcome to a new Weekend Reading – this one about not enough retirement savings…
First up, some recent posts on my site:
The annual RRSP contribution deadline for this tax year is coming up soon – March 3 – so along with that milestone date here are some RRSP facts and considerations you must remember this year and beyond!
And…more recently I have this new book giveaway on the go for you to enter; you can win a free autographed copy of Everything but Money from the author:
Weekend Reading – Not Enough Retirement Savings
Headlining this edition was this article and recent study from BMO:
“Among the 63 per cent of Canadians who say rising prices are limiting their ability to save for retirement, the top four ways they are adjusting their financial planning are:
- Cutting other spending to maintain current retirement savings levels
- Putting less into retirement savings
- Planning on working longer
- Putting off retirement savings completely”
All very prudent measures: save more/work more, spend less, retire later.
Interestingly, this 2025 retirement “enough number” of $1.54 million is down a good $150,000 since the last time BMO did a similar study.
You might recall this post on my site:
Weekend Reading – Do you really need $1.7 million to retire?
Do you need $1 million to retire?
Do you need $1.54 million to retire?
Do you need $1.7 million to retire?
Do you need even more??
I’ve helped well over a hundred people answer this question in recent years via these low-cost services and I can help you out too of course, anytime, but for me part of the answer always comes back to a few simple steps:
- how much do you want to spend in retirement,
- what dependable income sources do you have in retirement, and what is the timing of those income sources.
You can check out my free playbook on those very subjects below:
Since inflation remains a huge headwind to combat throughout retirement, one of my personal solutions is to keep a heavy bias to stocks.
Here is an older but very important article about inflation on A Wealth of Common Sense. In that post, Ben Carlson highlighted one of his favourite ways to combat inflation: the stock market.
“The stock market is a wonderful hedge against inflation for a few reasons. Since 1928, the U.S. stock market is up 9.8% per year while inflation has averaged 3% per year. So stocks have grown at nearly 7% more than the rate of inflation. One of the reasons for this is the fact that earnings and dividends also grow at a healthy clip above inflation. Over the past 93 years, earnings have grown at roughly 5% per year. Stocks also have perhaps the greatest income stream of any asset. Dividends have grown at roughly 5% per year.
So earnings and dividends both have a history of growing above the rate of inflation.”
Same thoughts here Ben.
Do you know your retirement income number? Is it close to those values above? How might you know? How is inflation impacting your portfolio plans and finally, do you invest in mostly stocks and equity ETFs like I do to combat inflation? Do share!
More Weekend Reading – Not Enough Retirement Savings
I’m travelling now at the time of this post so apologies if my comment replies are a bit delayed. I will get back to you – including any opportunties to deliver some low-cost retirement income projections reports your way too. 🙂
In my readings this week:
You already know home ownership and owning cars are the two biggest expenses you might ever have. This was a good post from RateHub.ca that highlighted the total cost of owning a car:
“According to our calculations, the average cash expense of car ownership totals $1,370 each month. This may differ depending on your specific case, but experts recommend that the cost be kept between 15-20% of your take-home pay.”
Not trivial depending on what you want to own.
Hindsight is always 20/20; not sure my Brookfield stock will grow this much in value (!!) but interesting all the same to see what some stocks deliver over long periods of compounding time!!!
Source: https://x.com/BarrySchwartzBW/status/1891577496241356872
While there are now nearly 1,500 ETFs to choose from in Canada, I believe there are only a few dozen to choose from. From this Investment Executive article I found:
“The report noted that over the past five years, an average of 119 active ETFs launched in Canada each year, almost double the amount of passive ETF launches.
As a result, the number of active ETFs has now surpassed the number of passive ETFs — more than half (53%) of the total in Canada are active, the report said.”
It’s no wonder some DIY investors have some paralysis from analysis – and why some advisors push investors into certain products. Be safe out there.
Related Reading:
A reminder I have completed and keep dozens of free retirement income case studies for you to check out on this page here.
Including this one:
Have a great weekend.
Mark
Mark, I see your contributors correctly mention the need to know what your expenses are prior to retirement, and I’m 100% in agreement. We determined our number by living for several years as if we were retired, removing from our tracking anything associated with work, such as travel costs, parking, work attire, buying coworkers’ kids Girl Guide cookies, etc.
In 2020, our target retirement spending, including gifting and travel, was $69,500. Due only to inflation, by 2024, this had risen to $81,200. With our move to “die with zero [plus a little bit]” our 2024 spending target was actually $96,000. For anyone interested, here’s what 2024 looked like for us (excluding a new vehicle purchase):
$2,423 Property tax
$1,562 Property insurance
$2,003 Electricity
$475 Water and waste
$2,386 House maintenance and tools (we painted the stucco)
$6,153 Yard maintenance and tools (includes a new yard tractor)
$3,687 Furniture (includes a new bed)
$1,128 TV – satellite and streaming
$862 Internet
$1,619 Home and cell phones
$10,905 Groceries
$452 Beer, wine etc.
$1,168 Eating out
$1,442 Dog food, treats, toys, etc.
$5,162 Vet and medications
$2,724 Vehicle insurance & licences
$2,434 Gas, car wash, and parking
$3,678 Vehicle maintenance (includes set of wheels and winter tires)
$3,505 Medical and dental (includes a medical plan)
$413 Hair cuts
$1,636 Clothes and footwear
$552 Electrical and electronic goods
$1,991 Computers, parts, and software (includes a new laptop)
$446 Hobbies, books, music, and movies
$2,431 Purchase of things just for us incl. Birthdays
$12,958 Vacations, days out, and activities
$2,831 Cash gifts
$4,419 Non-monetary gifts and assistance
$7,100 RESP contributions
$1,483 Life insurance
$683 Miscellaneous and Unknown
$5,288 Not used and returned to investments
Bob
A few other notes:
– We have two vehicles.
– Our dog is insulin dependent hence the high Vet and medications figure.
– Only my wife and I live in our house.
Thanks, Bob! 🙂
That’s a very good tally. Very detailed!
Yes, what you spend is always the starting point and I appreciate a bit of the validation from someone that has “been there, done that”.
We’re targeting about $6k per month spending starting 2025/2026. We’ll see how that plays out!?
We’ve got some cash buffer as you might recall so that should be good too.
We’ve also factored in about 5% annualized returns with 3% spending inflation.
As someone going through this real-time, thoughts on those values? I would be curious! 🙂
All my best to you, Bob!
Mark
Hi Mark,
I think your numbers (5% return and 3% inflation) are very reasonable assumptions. I’m less conservative, at 6.7% return and 2.5% inflation. I’ve had money in the markets since 1987, mostly in high-fee mutual funds up until January 2013, when I started paying attention to our financial predicament. During those early decades my investments were also effectively halved due to the weakness of the British pound against the Canadian dollar. And yet, with all that, plus the numerous market crashes, my average return has been 6.37%. So, I’m fairly comfortable using the higher return. As for inflation, when most of your income is from sources that are indexed to inflation (DB, OAS, CPP), and with dividends historically increasing likewise, the inflation number is somewhat neutralized.
I would be feeling quite confident with your assumptions.
Ya, I’ve been earning much more than 5% in recent years, since inception for sure when I really started to monitor things around 2009-2010 but I like being a bit conservative with my long-term projections.
In the last 10-years, including keeping some cash on the sidelines, we’re probably closer to 9%.
Totally agree. I should eventually have a small DB + CPP + OAS in my 60s so inflation somewhat neutralized to your point.
I appreciate you sharing those details – helpful!
Mark
You’re most welcome, Mark. I do hope my contributions are beneficial to your subscribers.
Bob
Hi,
Fully agree with Lloyd. Also, I always consider the source of these articles, and what they are trying to sell you.
CJ
Yes, everyone has a bit of a bias for sure. Best to understand those motives from such headlines!
Mark
I agree with Lloyd, these surveys are a waste of time. As is a lot of conventional wisdom we keep being bombarded with. Just make a plan and keep it simple.
It all depends on what you hope to spend. If you have worked most of your pre-retirement years you have a good CPP income, add OAS and you have a lot of your basics covered. These are guaranteed income streams so you can take more risk with investments. We are still 100% equities and dividends keep growing. Never having to sell shares or worrying about running out. No need for a cash wedge when dividends are coming in consistently.
Totally: “It all depends on what you hope to spend.”
I know many DIY investors that have saved well and invested well, and now can “live off dividends” whereby any CPP or OAS income is gravy per se. Once income from the portfolio is > expenses, you’ve certainly won the investing race. No need for big cash wedge, drawdown plans or other.
That might be you?! 🙂
Cheers,
Mark
“On average, Canadians surveyed believe they will need just over $1.54 million to retire, down from $1.67 million in 2023.”
I literally laugh out loud reading this. I highly doubt these Canadians have done much in the way of analysis of what they might “need”. I suspect it’s more along the lines of surveying an average person walking down the street how much they “believe” they might need to retire, with an off the cuff response along the lines of “I dunno, a couple of million?”. Which then leads to the follow up question….”do you think you’ll achieve that?” to which the respondent probably laughs.
I’m not implying most Canadians have their retirement finances in order, I’m saying these surveys, and the reporting on them, is a waste of time.
Yes, unless you know what you are going to spend then folks are guessing. 🙂
Probably correct: “I suspect it’s more along the lines of surveying an average person walking down the street how much they “believe” they might need to retire, with an off the cuff response along the lines of “I dunno, a couple of million?”.”
Ha.
Mark
For us, the number is my wife’s DB pension, supplemented with the dividend income we generate from our portfolio. I’m still targeting $84k in annual dividends across all accounts. This month we’re up to $73k.
My forecast tells me without any new investments we will hit $85k by January 2027. That sounds about right to me. We will spend more than this based on depleting our modest RSPs over the first 10 years of retirement. Then we will let CPP pick up the slack after that (so far, we plan to take OAS at 65).
As for spending, I think we have a decent plan. It includes all our living expenses (including some debt – we shall see) plus a very healthy Go-Go travel / experience budget.
A popular CFP I follow on YouTube was touting the cash wedge this week. I still struggle with the idea of 2 – 3 years of spending set aside in cash. We expect to retire in July of 2027 – for me, if I’m working on something fun – I’ll delay. I’ll turn the DRIP off January 1, 2027 and start building cash. That would mean only a six month cash wedge. I just don’t think I want to work longer than that to build up more cash.
There is plenty of time to make final decisions on this and it will depend on several factors. I recall Bob’s calculation of a cash wedge, and that is what I tend to follow. Six months of dividends will get us right into the ballpark, based on his calculations – thanks again for that Bob – if you see this!
Oh, is that me? Well, if it is, you’re most welcome.
It’s definitely you Bob. Thanks for sharing your approach!
That’s very good – James!
As you well know I believe from my site, it is my hope that I shouldn’t have to touch the capital from the portfolio too much in my 50s to fund our semi-retirement spending.
Keeping 2-3 years in cash/cash equivlents could be smart but also a drag on portfolio returns. We’ll have about a year saved up – that’s our plan.
Mark
As usual your milage depends on how much gas you have in the tank (pre EV days).
If you don’t budget what you are presently spending on necessities there is no way you can figure out how much you need to retire. A subsistence retirement if you will. Then you look at the inputs – CCP/RRQ, OAS, maybe a company pension. These are your guaranteed incomes. If they can cover your subsistence retirement then you are ready to plan for a fillet minion every now and then. If they DO NOT cover a subsistence budget then you need to dip in to, hopefully, that RRSP you have been building up over the years and figure out how it will support you. Will it carry itself for 10/20/30 yrs to augment the necessities of life? Maybe you were really lucky and have a TFSA as well. Are they invested in stocks/GIC’s/bonds that pay you something to stretch out the inevitable “0” timeline?
I know a couple who live quite happily on their CCP/RRQ, OAS and maybe a company pension. Your necessities of life may vary from theirs.
You need to do your homework first.
RICARDO
I agree Ricardo: if you don’t budget/have no idea what your spending is….then there is little way to figure out how much you need for retirement.
We should be fortunate in that CPP x2 + OAS x2 + my small workplace pension as of age 65 should be enough to life from – but we don’t want to wait until we are age 65 for semi-retire. 🙂
Thanks for your comment and yes, homework first!
Mark