Have You Saved Your First Million Yet?

[Belguy]

I hope that your portfolio will be up to the task:

http://www.theglobeandmail.com/globe...rticle4607635/

[My Own Advisor]

Working on it!

[doctrine]

Of course this is at best a poor example. How hard is it to achieve the goal of $50k a year, even assuming you get zero pension benefits, but use the RRSP and TFSA vehicles, over a working career? Of course the answer is not hard, but few people do this early enough to make a difference. At a minimum, this theoretical discussion should have included CPP and OAS in the calculations with any clawbacks such that $50k is reached.

[sags]

Already retired at age 55.......with DB pensions thank goodness........because,

I worked for 40 years, starting in 1966 with a salary of $7,000 per year.

The salary very gradually went up for 12 years until a big jump to $20,000 in 1978.

Another 28 years during which my income went up from $20,000 to $80,000 the year I retired.

After 40 years of working..........did I even earn $1.3 million total over that time period?

Maybe the gross income...........but deduct income taxes, CPP contributions, EI contributions, union dues and pension contributions (for many people) and the net wouldn't be anywhere near the necessary 1.3 million.

Then you have to live somewhere, pay utilities, car payments and maintenance, kids, and on and on.

It seems a totally unrealistic proposition.

People need a return of DB pensions they can count on............not some pie in the sky plan to save every dime they earn.

[GoldStone]

Sags, your DB pension doesn't come out of thin air. The PV value of your future pension payments is very likely *well* over 1 million. One way or the other, that amount has to be put aside. There are no miracles.

[MoneyGal]

Sags, your DB pension doesn't come out of thin air. The PV value of your future pension payments is very likely *well* over 1 million. One way or the other, that amount has to be put aside. There are no miracles.

No doubt. But his contributions would not have equalled $1M. Nor would his contributions plus those of his employer. DB pensions have an actuarial present value which typically exceeds (often by a significant margin) the amounts paid into the plan; this is the nature of insurance.

[GoldStone]

No doubt. But his contributions would not have equalled $1M. Nor would his contributions plus those of his employer. DB pensions have an actuarial present value which typically exceeds (often by a significant margin) the amounts paid into the plan; this is the nature of insurance.

Good point. Many DB pension funds are also underfunded because past actuarial calculations overestimated investment returns (and underestimated longevity advancements?). In case of public pensions, the taxpayers will be on the hook to fund the shortfall.

BTW, sags:

Your 1966 salary of 7K is worth 48.5K in 2012 dollars.
Your 1978 salary of 20K is worth 65.5K in 2012 dollars.

See Bank of Canada inflation calculator.
http://www.bankofcanada.ca/rates/rel...on-calculator/

Your career pre-tax earnings totaled 3M+ in today's dollars.

[MoneyGal]

Good point. Many DB pension funds are also underfunded because past actuarial calculations overestimated investment returns (and underestimated longevity advancements?). In case of public pensions, the taxpayers will be on the hook to fund the shortfall.

Not exactly. The fall of interest rates has been a much bigger driver to the rise in present-value estimates of DB pensions than any other single factor. Investment returns will not be set by actuaries. Actuaries are probably also most attuned to increases in longevity than any other population group.

[Square Root]

i think this kind of saving result is possible but perhaps not easy. If we assume SAGS averaged about $40k over a 40 year working life and was able to set aside $5k/year and earned 10% on these investments(not outrageous over this period) he would have well over $1million according to my calcs. Easy? No. Doable? Yes especially when combined with CPP and OAS.

[sags]

It would have been impossible to save 5,000 during the first 12 years, so the weight of the savings would have had to come from the last 20 years. That would have been possible, but difficult and there would have been less time for the savings to grow.

We actually tried one of those popular "get a loan and buy unused rrsp room"..............deals that were popular at the time.

It didn't work out too well. The balanced fund lost 50% of it's value and my wife cashed it out and put it into GICs where it made almost nothing for a decade.

We still had the loan payments to make though.

Looking back, I wish we had bought a house with multiple rental units, lived in one and rented out the others.

But there is a lifestyle choice in that, and the wife wouldn't go for it................lol.