# TVO's The Agenda: "Private Pensions, Public Problems"



## MoneyGal (Apr 24, 2009)

(aka "Moneygal's shameless self-promotion thread"). 

I participated in a debate for TVO's "The Agenda" on the topic of Private Pensions, Public Problems. It will air on April 5 at 8 p.m. in Ontario, should be posted on their web site shortly thereafter. 

The other participants were:

Murray Gold, partner, Koskie Minsky LLP & Expert Advisor to the Ontario Expert Commission on Pensions 

Ken Georgetti, president, Candian Labour Congress 

Malcolm Hamilton, senior partner, Mercer Canada 

Bill Kyle, Senior Vice-President, Group Retirement Services Great-West Life, & Ontario Government Advisory Council on Pensions and Retirement Income. 

The impetus for the debate was this op-ed I co-wrote for The Toronto Star, which was based in turn on an article in this magazine, which is an excerpt from this (forthcoming) book. 

I'm no media expert and for all I know, I came off like a total doofus. However, given the level of interest in pensions here, I thought this show might be of interest.


----------



## brad (May 22, 2009)

Looking forward to watching it online next week!

I also look forward to the book, although I must say the term "Product Allocation" in the subtitle could be off-putting for a general reader...it's a simple enough concept but "product allocation" sounds technical and complicated to me, something that is likely to induce the MEGO (My Eyes Glaze Over) effect. 

Even just calling it "Pensionize Your Nest Egg: How to Create a Guaranteed Income for Life" would make it more compelling and less scary-sounding. But that's just me.


----------



## andrewf (Mar 1, 2010)

Congrats! I think people are doing us all a service by sticking their neck out and sharing their ideas in public like this.


----------



## Spidey (May 11, 2009)

I also look forward to watching the program. As a general comment, I wonder how we are going to satisfy the baby-boomers (of which I'm one) demands for health care, comfortable pensions and pension protection, along with ever increasing salary and benefit demands from public employees while at the same time we are running massive federal and provincial deficits, watching our manufacturing move to China and India and the largest percentage of the population in our history wants to retire.


----------



## andrewf (Mar 1, 2010)

Spidey said:


> I wonder how we are going to satisfy the baby-boomers (of which I'm one) demands for health care, comfortable pensions and pension protection


The cynic in me says that the boomers are going to rob us blind by racking up a huge government debt to pay their pensions and health.


----------



## Berubeland (Sep 6, 2009)

Well Moneygal I just finished watching The Agenda and you did extremely well. 

You did a great job of making your points. I thought the graphs were a nice touch. You were definitely the prettiest debater 

In any case it is a real problem that most people don't understand their own pensions. One change I have thought should definitely be made as these companies go broke and people get ripped off for their pensions, is that the contributions should always belong to those who gave them including whatever the rate of return. Employer's part of the contribution should also have to go in to the fund right away and stay there. 

No part of this fund should be used as a "credit card" for companies. If there are excessive returns in the fund this is not found money for the companies, lower contributions or increase payouts. The worker's retirement funds should be under those rules not part of any type of collateral for these companies.

Kudo's to you well done


----------



## MoneyGal (Apr 24, 2009)

Thank you so much! I got to sit in the hair and makeup chair for half an hour before the taping. It was a tiny bit intimidating to go up against the "big boys" of pension debates...but I think the show appreciated having someone slightly different to debate the issues.


----------



## Berubeland (Sep 6, 2009)

I'm a little nervous tonight as tomorrow I'm meeting some investors to possibly do a consultant gig for them. 

I always struggle with the "professional" vs "feminine" balance when meeting with people for the first time. You absolutely nailed it.... which I am currently very jealous about. 

Awesome way to improve your brand... when I saw the graphs come out I laughed a little to myself .... of course MoneyGal always has the best graphs.


----------



## CanadianCapitalist (Mar 31, 2009)

I wanted to catch this show but missed it tonight. Anyone know if it is rebroadcast sometime later this week? Or is it archived online?


----------



## Potato (Apr 3, 2009)

CanadianCapitalist said:


> I wanted to catch this show but missed it tonight. Anyone know if it is rebroadcast sometime later this week? Or is it archived online?


It should become available online in a day or two on TVO's website:

http://www.tvo.org/cfmx/tvoorg/theagenda/index.cfm

I missed it live as well and will be waiting for the online rebroadcast.


----------



## Four Pillars (Apr 5, 2009)

I watched it - MoneyGal you rock!


----------



## MoneyGal (Apr 24, 2009)

Thanks! I'd love more specific commentary than that I rock, but I will take what I can get.


----------



## andrewf (Mar 1, 2010)

Update this thread when it becomes available on their site, and I'll try to take some notes if you want some more specific feedback.


----------



## brad (May 22, 2009)

It's actually available now, but you have to hunt for it...not on the home page at this point. Here's a link:

http://www.tvo.org/cfmx/tvoorg/thea...&subaction=viewpost&blog_id=323&post_id=12341


----------



## brad (May 22, 2009)

Interesting discussion.

Like MoneyGal, I've never worked anywhere that had a pension plan (well, actually my current employer has one, but only for US-based employees; I lost that benefit when I moved to Canada, although our Canadian office provides an annual bonus instead that employees are supposed to put in their RRSP).

And having spent most of my life in the U.S., I've been trained to assume that I can't count on a public pension to be available to me when I retire. So I agree that it's up to individuals to ensure that they have enough to survive on in retirement.

I also agree that, while doubling CPP is a nice idea, it would be foolish to count on it happening.

It's too bad MoneyGal couldn't get into the details of the Pensionize Your Nest Egg strategy, as the concept is definitely intriguing.

As an aside: I listened to this through headphones and kept hearing these ominous rumbling sounds: was there a thunderstorm during the show, or is the studio located near a subway station?


----------



## MoneyGal (Apr 24, 2009)

That ominous rumbling sound was the future of public pensions imploding!


----------



## lister (Apr 3, 2009)

brad said:


> As an aside: I listened to this through headphones and kept hearing these ominous rumbling sounds: was there a thunderstorm during the show, or is the studio located near a subway station?


TVO is on top of Yonge subway line with the Eglinton station next to it.


----------



## OptsyEagle (Nov 29, 2009)

Well done Moneygal. You carried those guys.

Problem for non-pensioners is:

1) No additional contributions or support from an employer. This is huge.
2) Everyone has to become a financial manager or pay large fees to higher one.
3) Totally dependant upon capital market returns and as MG says, sequence of returns.

That's the 1,2,3 punch right there. The fact that Canadians do not have any money to contribute is rediculous. Most Canadians act like children and should be forced to contribute to their own well being just as we force our children to go to school and eat their vegitables, etc. Here the Canada Pension plan option makes sense, since it is mandatory. My only arguement is that it doesn't resolve the issue that pension benefits will be a function of capital market returns. If no returns, who pays. If more pension benefits are wrapped up in CPP, then what, do we borrow more money as a country to pay the underfunded pensions of our citizens or do we pay more tax so that we can make more money and pay more tax. Another quagmire.


----------



## MoneyGal (Apr 24, 2009)

Thanks. 

I note that Wiley has the book page up for pre-orders, here. I'll give a couple of copies out to financial bloggers, too, if anyone wants to review/provide them as giveaways. 

As an aside, if anyone ever wants to talk about the process of writing a book, I'm all for that.


----------



## Spidey (May 11, 2009)

Good job Moneygal. I wasn't initially sure if I would watch the entire program, but it was an interesting discussion, so I did watch till the end. I also liked the way Malcolm Hamilton presented his views. 

Improving CPP sounds interesting but as you say, it will likely be ineffective for those of us close to retirement and the best bet is for people have to take responsibly for their own retirement savings.


----------



## andrewf (Mar 1, 2010)

I think it's worth pointing out, as it wasn't clear in the program, that doubling CPP benefits would be phased in over a long period of time, such that those who are worrying about pensions now (those 45-50+) won't see much of the benefit. If some are suggesting that we immediately double benefits, I'm prepared to camp out on Parliament Hill to protest it--that would be intergenerational theft on a grand scale.

MG: I agree that in absence of government leadership, it really is up to individuals to provide that basic level of guaranteed income by using pension-like vehicles (guessing you're mainly talking about annuities). Seems to me that the problem is accumulating a sufficient nest egg to pensionize in the first place. I think that some sort of Canada Supplementary Pension Plan with opt-out contributions into individual accounts, with contributions and investment risk based on a plan each individual is comfortable with could be a good way to achieve this. It could be gradually annuitized, in whole or in part, as the individual approaches retirement. This would be my preferred option, since it would give unsophisticated individuals a trustworthy option for retirement savings that is low-cost and appropriate for their needs, and not designed to generate commissions. It seems like many Canadians feel like they've been abandoned to the shark waters of predatory 'financial advisors'.


----------



## MoneyGal (Apr 24, 2009)

I agree that a big unsaid message in the whole debate is just that people have to save more. 

The risks I was describing - inflation, sequence of returns - really only matter if you have money saved (if that makes sense). I mean, they are going to affect you if you don't have money saved, as well; but you are going to have bigger problems than sequence of returns risk if you have no money saved for retirement. 

When I read about average retirement savings contributions and average RRSP balances in this country I often think, wow, people are just fundamentally optimistic - way more so than me.


----------



## MoneyGal (Apr 24, 2009)

The other thing, for me, about a supplementary pension plan is that I would be in favour of something opt-out-able, maybe (I have not done a lot of thinking about this). But I would not be in favour of a mandatory increased public pension. 

Why not? Because it is coercive. Some people are not risk-averse, even with longevity risk. And why should they be forced to participate in a pension plan that would cover longevity risk? 

Hey, I'm no libertarian. But I just don't think putting a large government plan into place would be efficient. I don't see how it can be. I think people have to be smart about their finances and choose their own low-cost options. If they care about their costs to invest. But what I think people need is information, not a publicly-funded work-around for a lack of individual savings and a lack of attention to investing costs.


----------



## brad (May 22, 2009)

I don't think the lack of savings among Canadians is due to optimism; rather I think it boils down to basic human instinct. We are genetically hard-wired to prefer immediate benefits even if they have long-term negative consequences. This is a fundamental underlying reason for many social and individual ills: smoking, climate change, consumer debt, obesity, etc.

Sure, there are many people who can't save enough because their income is low (and/or their expenses are high) and they can't put much away for retirement. But even when you look at the people who COULD save considerable sums, most of them aren't doing so. I don't think it's due to lack of information or education. Even when people know something they're doing (or not doing) now will have serious negative consequences for them down the line, most of them continue to do it because they get immediate gratification without experiencing any immediate harm.

Cultural evolution is mostly about transcending our baser human instincts, and while we've had some success we still have a long, long way to go. And while I do think individuals should be responsible for ensuring they have enough to maintain whatever standard of living they want in retirement, the reality is that most people won't have the discipline to make it happen. 

So I think that a baseline "survival" level of retirement income has to be provided by the government through a forced savings system like CPP. And I think the government has to be very clear with people that CPP will give them enough to live on a diet of cat food and water; if they want to live any better than that it's up to them to make it happen.


----------



## Berubeland (Sep 6, 2009)

I agree with Brad on this one. 

To quote Roosevelt on this "I can't believe a full half of people are of below average intelligence" 

To say that people should be smarter and more responsible does not make it so. Furthermore; social programs like EI and Child tax benefits and Social services and old age pensions etc have a significant positive effect on the economy. Almost every single dollar goes right back into the economy as people pay rent, buy groceries, buy rent to own furniture and pay their utilities. 

Increasing government pensions would allow the have nots to be a little less subsistence level. Saying people should be different is not really solving the problem.


----------



## Four Pillars (Apr 5, 2009)

I'll agree that most Canadians are probably not saving enough - but I do have a problem with the scary "rrsp" stats that get pushed out every year by various financial institutions right around...you guessed it - RRSP season.

There are lots of reasons why someone not have any or "not enough" money in RRSPs which don't necessarily lead to a bad retirement.

Age - Yes, it's nice to start saving early for retirement but you don't have to. The stat I'd like to see is some sort of index adjusted for age ie if someone who is 55 with no pension, makes $100k a year and has only $50k in their rrsp is heading toward a huge standard of living downfall if they retire at 65. The 30 year old in that situation? I'm not so worried.

Income - There are a lot of Canadians who are too young for rrsps or don't have enough income to make it worthwhile.

The RRSP max is only an arbitrary limit - not a minimum. A lot of people assume that if they max out their RRSPs then they will be fine in retirement. They also might assume that if they don't max out then they won't be fine in retirement. It really depends on the individual circumstances as to how much someone should be contributing.


----------



## brad (May 22, 2009)

One idea that might help: In the U.S., the Social Security Administration sends you a four-page report every year showing you how much your payments will be per month at age 62, age 66, and age 70. (Social Security in the US is analogous to CPP in Canada.)

It also tells you how much money you paid into the system, how much your employers paid on your behalf, and how much you contributed toward Medicare.

I have to say that when those reports started arriving every year, it put things into perspective for me and helped spur me to start become more serious about putting money away for retirement. If the Canadian government sent out notices like that every year, it might have a similar effect.

I worked in the US from 1975 until 2002, and contributed $47,000 into the Social Security system; my employers contributed the same amount. And yet my monthly benefit at retirement age will be just $898/month.


----------



## MoneyGal (Apr 24, 2009)

Great points all around. 

I was a little too hasty in my response. What I should have said was (something like) I think people should be smart about money _and I don't think society as a whole should take on the risk if they are not_. I don't want to have to worry about overcoming *everybody's* "basic human nature" to seek immediate gratification over longer-term success. I only want to have to worry about my own.

CPP, OAS and GIS provide a subsistence level of pensionized income in retirement. For people who have never earned much, their income replacement rate in retirement is actually quite good. It's the middle-income earners who don't save who may (or many not!) encounter some difficulty in retirement. And that's where it is difficult for me to get super-concerned about this group. Pay attention to your finances, or not - but don't make me participate in a plan to "save" you from yourself. 

I hope that doesn't sound overly harsh. I'll work on my delivery.


----------



## MoneyGal (Apr 24, 2009)

Oh - and Brad - CPP in Canada made some kind of commitment to send out yearly contribution statements to contributors. (This link just says they "regularly mail" statements out. Somewhere else on the gc.ca site I read that they committed to once-a-year, though.) You can request a statement of contributions from them, though; and you can check your statement online, too.


----------



## the-royal-mail (Dec 11, 2009)

brad said:


> ...from 1975 until 2002, and contributed $47,000 into the Social Security system; my employers contributed the same amount. And yet my monthly benefit at retirement age will be just $898/month.


That doesn't _seem_ that bad initially when you consider that CPP and OAS should add up to about another $1000 a month, no? The two are about $1900 a month and I'm guessing this amount is subject to taxes, leaving you about $1200 a month net. Yeah that would just barely cover the rent. Yikes. Doesn't sound so great anymore.

I wonder if there's a handy dandy spreadsheet that someone developed, where I could put in my age, amounts contributed to date and then project the various income levels I would have, retiring at various ages. Something I could play around with to help me better understand how much I need to save or have at retirement. I am sure there are websites for this but I would prefer to do this offline, for security reasons. Does such a thing exist? Maybe someone here cobbled something together in excel?


----------



## MoneyGal (Apr 24, 2009)

TRM: the company I work for develops (and sells) retirement calculators. I'm not 100% sure what you are asking, though. 

You may be looking for a Monte Carlo simulator which gives you the statistical probability of having a certain sum available at retirement. 

Or are you looking for the sustainability of a given retirement plan - i.e., if I have a lump sum of $x and I plan to withdraw $y in income each year, what is the sustainability of that plan, given my age, health status, gender, asset allocation, and product allocation (stocks/bonds/annuities)?

Or are you just asking how much CPP you will have in retirement?

The calculator you are looking for may be here, but you need to know how much pension/pensionized income you will already have at retirement (i.e., what fraction of CPP you will have).


----------



## brad (May 22, 2009)

MoneyGal said:


> Oh - and Brad - CPP in Canada made some kind of commitment to send out yearly contribution statements to contributors. (This link just says they "regularly mail" statements out. Somewhere else on the gc.ca site I read that they committed to once-a-year, though.) You can request a statement of contributions from them, though; and you can check your statement online, too.


Good to know, but have you ever actually received one of these statements in the mail? I haven't. But I've only been contributing to CPP since 2002 so maybe I haven't contributed enough yet. I have to sort out which of these benefits I will end up receiving when I retire: US Social Security or CPP -- it can only be one of them, not both. I have the name of someone to call to get it sorted out, but just haven't gotten around to it yet.


----------



## the-royal-mail (Dec 11, 2009)

brad said:


> Good to know, but have you ever actually received one of these statements in the mail? I haven't. But I've only been contributing to CPP since 2002 so maybe I haven't contributed enough yet. I have to sort out which of these benefits I will end up receiving when I retire: US Social Security or CPP -- it can only be one of them, not both. I have the name of someone to call to get it sorted out, but just haven't gotten around to it yet.


I've received at least two of these paper statements and they're great! I have them in my important papers box that I'll grab in case of fire. The first one arrived unsolicited about 10 years ago and then about 4-5 years ago I requested one following the procedure that moneygal described above.

I think anyone who pays into the CPP at some point is eligible to collect, based upon their contributions. So if you didn't contribute much while you were in the US, then you won't receive much if you retire in Canada. You obviously have a lot of reading to do on their website.


----------



## MoneyGal (Apr 24, 2009)

Yeah, I have gotten one randomly-mailed statement, and I have requested and received another statement.


----------



## steve41 (Apr 18, 2009)

> I wonder if there's a handy dandy spreadsheet that someone developed, where I could put in my age, amounts contributed to date and then project the various income levels I would have, retiring at various ages. Something I could play around with to help me better understand how much I need to save or have at retirement. I am sure there are websites for this but I would prefer to do this offline, for security reasons. Does such a thing exist? Maybe someone here cobbled something together in excel?


RRIFmetic will take you there, plus it incorporates the (sometimes important) issue of income tax as it effects your plan over time.... It may be overkill, but it is pretty easy to invoke. I sell it to both planners and individual DIYers, but there is a free demo (time restricted) you can download and play with.

It may go beyond your needs, but is definitely more rigorous and accurate than you will find with a spreadsheet. Spreadsheets don't do this type of (recursive) math.


----------



## the-royal-mail (Dec 11, 2009)

I guess I'm asking for something that would look at the retirements funds I currently have (and would be projected to have at retirement age given current contribution rates)...and then tell me about how much this will give me of annual retirement income. With this, I can plan now (I'm nowhere near retirement age) and save more as needed.

I don't understand how people make their retirement decisions and when. Do they go to the bank and sit down with them to review? What type of person do we need to see to make intelligent financial decisions about how much to save AND when we can/should retire (based on the numbers)?

Sorry if I'm not understanding/explaining this right.


----------



## MoneyGal (Apr 24, 2009)

Here's a (picture of a) calculator for you - it's the first one here - which answers the question, how sustainable is my retirement plan, given my age, gender, health status, current investable assets, desired withdrawals, asset allocation, and product allocation?

Most retirement calculators don't assume random longevity - instead, they have you pick a timeframe and spend out to that timeframe (i.e., "if you want to be really safe, plan to age 95").

I know you are asking the question a slightly different way - "how much money can I get?" - but the answer to that question is highly dependent on the other factors. And you can actually get the answer to that question with the calculator I linked to (a picture of) - you change the desired income amounts until you get a sustainability ratio you can live with. 

That's not a free calculator, though. I linked to the free one earlier, and here's the link again. 

I apologize if these posts seem spammy. It isn't my intention to be serving up spam. Actually, it feels kind of weird to have "come out of the closet" so openly about who I am and what I do.


----------



## the-royal-mail (Dec 11, 2009)

Thanks MG, I appreciate it. I had looked at your earlier link (and also the new one) but I'm just not getting it. I know you're trying to explain but I look at the world a bit differently. For instance, the links show charts and ask for input about bonds and portfolios and stuff. I view my retirement savings in terms of the dollar amount showing in my aggressive RRSP mutual funds account. That's it. I don't understand the other stuff. So, I'm out of the closet too...some things when it comes to money I am comfortable with and others I just don't get.


----------



## MoneyGal (Apr 24, 2009)

Well, I'm sure you know your age (really, your expected age at retirement) and gender. The last calculator I linked to just asks (in addition to those): 

how much income do you want in retirement, how much pension income will you get (CPP + OAS?), how much do you have saved for retirement, and what your allocation to stocks is (in your retirement savings account).

PM me if you want.


----------



## CanadianCapitalist (Mar 31, 2009)

brad said:


> Good to know, but have you ever actually received one of these statements in the mail? I haven't. But I've only been contributing to CPP since 2002 so maybe I haven't contributed enough yet. I have to sort out which of these benefits I will end up receiving when I retire: US Social Security or CPP -- it can only be one of them, not both. I have the name of someone to call to get it sorted out, but just haven't gotten around to it yet.


If you have an ePass, you can view and print out your CPP statement of contributions:

http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml


----------



## brad (May 22, 2009)

CanadianCapitalist said:


> If you have an ePass, you can view and print out your CPP statement of contributions:
> 
> http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml


Thanks (and to MoneyGal who provided a similar link). Actually since I'm in Quebec I'm covered by the QPP and they have a similar system with online reports available.

However, I do think that mailing out these statements every year is still a good idea (and worth the expense) rather than mailing them randomly once every five or six years or counting on people to know that they can get them online.

The point is that if you receive one of these statements every year, it's a periodic reminder that you're going to be living at poverty level in retirement unless you get your act together and start saving. Without those annual wake-up calls, I think too many people won't realize what they're in for until it's too late.


----------



## steve41 (Apr 18, 2009)

Your financial future involves much more than a nest egg growing in pre retirement and depleting post retirement.... there are a number of 'non-investment' entities/issues which have to be considered. Along with tax, there are entitlements (CPP/OAS/GIS/pension), loans which you will be paying off over time, a salary which may grow, stay level, or have discontinuities, rate/risk variations (you may become more risk averse as you age), insurance premiums, future cash events such as an expected inheritance, or selling real estate (the cottage) at some future time which will invoke capital gains, or buying a new car every 5 years. 

You subject these elements to a 'what if' analysis.... what if I retire in xx?, what if I sell my cottage in yy?, what will my estate see (net) if I die at 70/80/90/100?, what if rates follow a certain trajectory? what if I skew my savings to my TFSA or RRSP or both? what if I pay my loan off earlier or later? .... all driven by the after tax/after inflation paradigm.

This interactive 'what-if' process is the essence of financial planning.


----------



## the-royal-mail (Dec 11, 2009)

Thanks MG, will do. I just don't understand why it needs to ask about allocation. I just want a calculator (like the one I built in excel to calculate car and mortgage payments for instance) that allows me to plug in variables and play around to see what needs to be done now so I'm ready for retirement. I don't know how much I want to have. How my retirement money is divvied up in the account shouldn't matter. It's worth $x. That's all that should matter.

But I played along and invented some numbers for the calculator and it produced a number like -$558,567 or some such thing. Made no sense at all.

Again, sorry. If this is too junior for you I'll understand. Maybe I'm looking for pretty basic advice. I know I'm a bit hard-headed when it comes to this sort of stuff.


----------



## brad (May 22, 2009)

the-royal-mail said:


> It's worth $x. That's all that should matter.


It's worth x today. But what it's worth in [y] years when you need it for retirement will depend in part on how it's allocated. There are different assumptions for growth rates (although they are of course assumptions because nobody knows what your portfolio will be worth in 20 years or however far away you are from the time you're going to start using it).


----------



## the-royal-mail (Dec 11, 2009)

brad said:


> However, I do think that mailing out these statements every year is still a good idea (and worth the expense) rather than mailing them randomly once every five or six years or counting on people to know that they can get them online.
> 
> The point is that if you receive one of these statements every year, it's a periodic reminder that you're going to be living at poverty level in retirement unless you get your act together and start saving. Without those annual wake-up calls, I think too many people won't realize what they're in for until it's too late.


I'm not sure I agree. Not contributing to CPP is not an option for most everyone who works for someone else. The contribution rates are set and an amount comes off your paycheque every two weeks, whether you like it or not until you make something like $39K. It's not like you can get the statement in the mail and react by calling up HR and asking them to invest more in your CPP. LOL!

I do review the statements whenever they come though and while I see some value to getting them more than once every 10-12 years, once a year is probably overkill to anyone under the age of 45.

I actually don't understand the logic the CPP follows in determining who gets sent these out of the blue statements. If we knew for sure it was once every x years then I think that would probably be sufficient for most.


----------



## MoneyGal (Apr 24, 2009)

Asks about allocation to incorporate different expected returns and, more importantly, different volatility for stocks vs. bonds. 

The main problem with the calculator you are describing (which is a very basic time value of money calculator) is that it is waaaaaaay too basic to actually help you plan for retirement. Those kinds of calculators only work if you know exactly when you are going to die, and you know exactly - and in advance - your average rate of return. 

The Nobel laureate Bill Sharpe, professor of finance at Stanford, actually wrote a great, accessible paper on the problems with doing retirement planning with those kinds of calculators, called "Financial Planning in Fantasyland."

You know, there's NO SHAME in saying you don't understand something. You are curious, and you opened your mouth to ask questions: which puts you far ahead of the pack already.


----------



## brad (May 22, 2009)

the-royal-mail said:


> It's not like you can get the statement in the mail and react by calling up HR and asking them to invest more in your CPP. LOL!


Right, but I think most people see the contributions going out of their paycheques and figure they're contributing to the Canada Pension Plan and therefore they will be covered for retirement. Showing them a statement every year that they will actually only receive about $12,000/year under CPP is the best way to make them realize that they are not in fact "covered" for retirement unless they're also saving up on their own.


----------



## the-royal-mail (Dec 11, 2009)

Sorry brad, now I know what you meant. Yes, I don't think many people understand how much they need for retirement. $12K sounds like a lot unless you boil it down. 

Let us remember the CPP is only one part of it though. Need to also add in RRSP income you've saved and anything else the gov't sends plus if you have any pension income from work. How can anyone possibly know what these amounts will be, to allow us to plan ahead today?

I think I need to take a break LOL! I've seriously derailed this thread.


----------



## MoneyGal (Apr 24, 2009)

But this is NOT a derail. These are exactly the kinds of issues that people need to get their head around if they want to plan effectively for retirement. Especially if they are worried about the health of private pension plans.


----------



## brad (May 22, 2009)

the-royal-mail said:


> Let us remember the CPP is only one part of it though. Need to also add in RRSP income you've saved and anything else the gov't sends plus if you have any pension income from work..


Right, but according to the statistics given at the beginning of the show, 70% of Canadians don't even have an RRSP. And more than 60% of working Canadians don't have a workplace pension plan. Furthermore, of those people who do have RRSPs, the average RRSP value for workers aged 55 and older is just $60K, enough to fund perhaps three years post-retirement.

So what I'm saying is, people need a wake-up call, and maybe an annual statement showing that they're only going to get $1,000/month from CPP might do the trick. People need to understand that CPP is just a bare foundation for retirement, and if they want to live above poverty level in retirement they will have to get serious--and quickly--about finding ways to supplement that foundation.


----------



## the-royal-mail (Dec 11, 2009)

Thanks for your efforts to try and educate us. Like so may other things like stopping at red lights and eating properly, saving money for retirement is apparently not convenient for many people. We are in the NOW era, where we must have the latest <insert latest toy here> and the old one goes into the landfill. People think nothing of racking up tens of thousands in debt to pay for these disposable consumer devices and they're inventing new ones every day. How many threads have we read where people in their 30s are talking about paying off sizeable debts like this? In the middle of it all, kids enter the picture, new house, need a new car, where is the opportunity to save? That's not my situation so I have the ability to save (as you know from my other comments in other threads) but as we've shown here even I don't really understand how to save and plan for retirement beyond socking money away into an RRSP.

Your comments and advice are definitely appreciated. Thank you.


----------



## brad (May 22, 2009)

the-royal-mail said:


> as we've shown here even I don't really understand how to save and plan for retirement beyond socking money away into an RRSP.


I'm in the same boat! That's all I'm doing too. I don't even have a real target in mind yet, because I'm so far away from having enough money saved up for retirement that my approach is to just "save as much as possible." I spent most of my career working for nonprofit organizations, universities, and small businesses, and mostly lived paycheque to paycheque. I have a good-paying job now, but have to make up for all the years where I didn't save anything. I don't think I'll ever be able to truly retire, but that's fine as I have a number of skills that lend themselves well to earning money part-time in semi-retirement.


----------



## MoneyGal (Apr 24, 2009)

Brad: read this fascinating article from your favourite paper about how long some people work past "normal retirement age."


----------



## andrewf (Mar 1, 2010)

There's some behavioural psychology going on here. People don't save because they have to opt-in to saving, and there's a built-in bias toward the status quo. The idea is that we can 'nudge' people to behave in socially optimal ways without compelling them to do so. So, a opt-out CSPP is really a tool to boost the savings rate for people who don't give retirement savings much thought. It also helps protect people from doing dumb things like buying high and selling low, developing terrible asset allocations, and putting everything into that hot stock the neighbour told you about over the fence. So, a CSPP to me is a tool for increasing the savings rate moreso than merely a vehicle for retirement savings. You can also incorporate things like setting aside half or all of your rise in pay automatically for retirement saving.

There have been some experiments done with uptake on these kinds of opt-out savings plans in the US, and as I recall, the participation rate was boosted to something in the 70% range. That alone would be a huge improvement over the status quo.


----------



## brad (May 22, 2009)

MoneyGal said:


> Brad: read this fascinating article from your favourite paper about how long some people work past "normal retirement age."


No joke (and I think I ate some of their sardines earlier this week!). The lawfirm where my girlfriend works hired a 74-year-old legal secretary last year. My 61-year-old brother, who creates plug-ins for LightWave, one of the computer animation programs used by Hollywood studios, has a surprising number of older customers, some of whom make money with their computer animation skills. One of them is the actor Dick Van **** -- my brother has spent hours on the phone with him answering tech support questions. He's fanatical about computer animation (although he did fall asleep one time on the phone while my brother was explaining a particularly complicated procedure to him) 

I play and teach traditional Irish music, and one of my idols is the Galway flute player Mike Rafferty, who recorded one of his CDs when he was 78 (called "Speed 78") and released another one last year at age 80 that's his best CD yet. They all sell well and he's in high demand as a teacher and performer. I'd like to be doing that when I'm 80.


----------



## Four Pillars (Apr 5, 2009)

It's better to be a good saver and not know how much you need for retirement than the other way around. 

I used to spend a lot of time trying to build the perfect retirement planning spreadsheet - but you know what? Unless you are pretty close to retirement then it's useless. There are too many assumptions (ie inflation rate, investment return), too many life changes: kids, promotions, wedding, divorces, unemployment, cottage etc that doing anything more than a general plan is a waste of time.


----------



## CanadianCapitalist (Mar 31, 2009)

Four Pillars said:


> I used to spend a lot of time trying to build the perfect retirement planning spreadsheet - but you know what? Unless you are pretty close to retirement then it's useless. There are too many assumptions (ie inflation rate, investment return), too many life changes: kids, promotions, wedding, divorces, unemployment, cottage etc that doing anything more than a general plan is a waste of time.


I agree. I've never bothered to even try and build a retirement spreadsheet for these reasons:

1. I am about 2 decades away from retirement (assuming I'd like to retire at 55). Who knows how much things will change over the next 10 years, let alone next 20 or 30?

2. Life changes so much. Just a quick example. In the recent past, my spouse started working for the Feds. My entire retirement savings is in a RRSP. Her savings will be mostly through a DB plan and somewhat through existing RRSP savings.

I figure that if we save everything we can within a RRSP and now TFSA, we'll do just fine. I'll worry about the actual "number", 5 to 10 years before actual retirement.

For those who are in the same boat that I am, I think they ought to focus on: (1) Getting out of debt (2) Save as much as possible within tax-sheltered accounts and (3) Invest wisely. If they do that, they'll be miles ahead of most of their peers.


----------



## steve41 (Apr 18, 2009)

Four Pillars said:


> It's better to be a good saver and not know how much you need for retirement than the other way around.
> 
> I used to spend a lot of time trying to build the perfect retirement planning spreadsheet - but you know what? Unless you are pretty close to retirement then it's useless. There are too many assumptions (ie inflation rate, investment return), too many life changes: kids, promotions, wedding, divorces, unemployment, cottage etc that doing anything more than a general plan is a waste of time.


This is quite true. Most individual financial plans I come across are created by mid-to-late career individuals, or by retirees. Some younger individuals will get into cash flow planning, but not many.


----------



## Berubeland (Sep 6, 2009)

Here's the other factor.... my dad who is in his 70's now did retire for a few years.... but found it incredibly boring and he felt "useless". He gave/sold his company to my brother in law for a few years then bought it back. He's now working 16 hour days again. 

My mom who also retired is just as busy now as when she was working, she did some work to bring a wind mill farm to the town, does the Kareoke for the legion, substitute teaches and helps my Dad out. 

My hubby's dad also works part time at Home Depot because he was bored too. 

All of these people can afford to retire quite comfortably, I'm not completely sure about my hubby's dad but I know for sure that my parents don't have to work at all. In fact they are quite proud of still saving money from their pension income on top of what they make. 

So sometimes it's not about having the means to retire it's about the next 20 years of doing nothing. I can imagine... after a few vacations staying home and counting my toes would grow old. We all imagine wow it would be great to stay home and lounge because we have to work everyday. So doing something productive is important to a lot of people.


----------



## brad (May 22, 2009)

I think the basic message is: if you love your work, there's no reason to retire until you're mentally or physically incapable of working. Retirement in the traditional sense is more for people who don't like their job or else have plans for something else they'd rather do. My father hated his job and retired at 55, but spent the next 15 years revising Einstein's theory of special relativity (my dad's hobby was theoretical physics; he was an engineer by training and worked on the Avro Arrow project in the 1950s). He got his paper published in the end, although it was really a very minor revision to the theory and didn't rock any boats. But it made him happy and kept his mind occupied.


----------



## Ben (Apr 3, 2009)

CanadianCapitalist said:


> I agree. I've never bothered to even try and build a retirement spreadsheet for these reasons:
> 1. I am about 2 decades away from retirement....
> 2. Life changes so much....
> I figure that if we save everything we can within a RRSP and now TFSA, we'll do just fine.
> ...


A good philosophy. I've never bothered to make any projections, other than a recent 3-year cashflow projection. I've got my own version of that 3-point plan:

1. Spend less than you earn (or make more than you spend),
2. Use that cashflow to eliminate all debt,
3. And sock that cashflow into tax-sheltered accounts,
4. And invest wisely.

I have much to learn on the 4th point, but I know that I don't invest stupidly...


----------



## the-royal-mail (Dec 11, 2009)

Yeah I think I'm A-ok for points 1-3 but suck badly at point 4. Investing is one of those things I am red-faced to admit I just don't get. And yes, I've done all sorts of reading but it's like reading a foreign language to me. 

In my defence, at least I've got the cash in hand. LOL how does that expression go, a bird in the hand is mightier than the bush? LOL!


----------



## Four Pillars (Apr 5, 2009)

Royal - have you read "Four Pillars of Investing" by Berstein? Or maybe his latest book "Investor's Manifesto" (a little easier to understand).


----------



## the-royal-mail (Dec 11, 2009)

I have not.

But anything I've ever read about investing makes my eyes gloss over. Even something as basic as that link MG posted yesterday, I was following along until 60% of the way down, then as soon as they started talking about portfolios and assets I was lost. I've tried to lurk and follow along in the investing section of this forum and same thing. I don't have a clue what the heck anyone is saying. Remember, I'm just an average joe with life expenses like everyone else. Most in my situation are lucky to be able to save anything.


----------



## steve41 (Apr 18, 2009)

Lets not confuse hobbies with work. Virtually every individual who ceases to attend a workplace and receive a paycheck will take on one or more hobbies or activities which involve "working", but without compensation.

I choose to eliminate the parameter 'retirement age' from my cash flow model. I look at it as follows.... There are periods of time in which there is relatively more money coming in the door, and periods when there is less. When the inflows are large, we save, when the inflows are smaller (or maybe non existent), we draw down our savings. There is no hard and fast 'retirement age'.... many individuals will leave permanent employment and go into partial retirement. Or they may plan to take a sabbatical to travel or go back to school in the future. If I plan a 3 year sabbatical in 5 years, go back to school, then re-enter the workforce at a different salary... how do I determine a retirement age? Or, I plan to sell my cottage in 10 years after retirement.... in that year my withdrawals do a 1 year switcheroo as I replenish my savings with the proceeds from the sale, then revert back to withdrawing in the subsequent year.

The concept of retirement is outdated, IMHO.


----------



## the-royal-mail (Dec 11, 2009)

Well, I think of it as the ages at which you start receiving CPP, OAS et al and withdrawing funds from your RRSP and are no longer obligated to work to keep the lights on or save up for the things you want to see and do in the near future.

I have hobbies now and am nowhere near retirement age. My dad is nearing retirement age but I bet he'll always be tinkering around with various things in the shop, doing part time work and such. But just because he is doing these things, doesn't mean he isn't retired. There are lots of retired folks who take jobs as Wal Mart greeters just for something to do and collect a few extra pennies to pay for the little extras in life. I still consider them retired and I think the gov't (CPP et al) does too.


----------



## steve41 (Apr 18, 2009)

Don't get me wrong. Retirement is a biological reality. As we age, our physical and mental faculties aren't what they used to be. After all, a huge industry (investment) would cease to exist (along with pensions, CPP, OAS) if it weren't for that reality.

I am saying that models (spreadsheet and otherwise) need to acknowledge the issue of a retirement age being obsolete, and address the broader cash flow model I described above.


----------



## Highlander (Apr 9, 2010)

CanadianCapitalist said:


> I agree. I've never bothered to even try and build a retirement spreadsheet for these reasons:
> 
> 1. I am about 2 decades away from retirement (assuming I'd like to retire at 55). Who knows how much things will change over the next 10 years, let alone next 20 or 30?
> 
> ...


That's pretty much what we do, just save everything we can and invest it. I've also determined very little will change in that plan until we hit about 3 years from retirement. I do fool around with a custom retirement program for a few reasons tho:

1 - It gives us a handle on when we actually CAN retire. The "save everything" approach gets tedious after a while with nothing to show for it  So we have an actual target date in mind now that is realistic which we can work towards. 
2 - I incorporate real results every year/quarter so I can track progress. It shows the effect of fluctuations like the past couple of years. 2008 set it back 2 years, now its less than a year off from the original date. This also helps to establish over time that the calculator is accurate enough to trust. Its taken many years to refine it.
3 - It also allows me to model the effect of a significant change, helping make an informed decision. Ie, a few years ago we contemplated buying a cottage. I spent a fair amount of time evaluating different financing options until settling on one which had a minimal impact on the projected retirement date. I could show my spouse the numbers to prove it, and now we have a cottage. 
4 - I've modified my retirement income model significantly during this time as well, which actually moved the projected retirement date a number of years earlier. I'm glad I didn't leave this until the last minute as it turns out.

So although its not strictly necessary, I do find it helpful in giving me something tangible to show for all that money we don't spend. I may not have a big flat screen TV, but I *do* have a pretty solid idea of when I'm retiring  It might not be as instantly gratifying, but at least its something...


----------



## steve41 (Apr 18, 2009)

Somewhere there is a middle ground between scrimping like mad only to have your rotten kids inherit a gazillion dollars or ending up sucking air at age 70 wondering whether or not to go with the KD or splurge and buy that can of Fancy Feast for that special occasion. 

Using some kind of calculator, no matter how simplistic, is surely in everyone's best interest.


----------



## andrewf (Mar 1, 2010)

This thread got a bit off-topic. This thread is about the pension system in Canada and need for reform.


----------



## steve41 (Apr 18, 2009)

You're right. How about this.... if individuals took more interest in personal financial planning when they were younger and saved/spent their capital more wisely, maybe we wouldn't need to change or augment our public or private pension schemes.


----------



## MoneyGal (Apr 24, 2009)

How 'bout this: we don't need to change our public pension schemes.


----------



## andrewf (Mar 1, 2010)

steve41 said:


> You're right. How about this.... if individuals took more interest in personal financial planning when they were younger and saved/spent their capital more wisely, maybe we wouldn't need to change or augment our public or private pension schemes.


If only people weren't stupid, reckless, irrational, malicious, etc. we wouldn't need most laws. Until that day comes, I suggest we work under the assumption that you can't change human nature in any systematic, lasting way.


----------



## Square Root (Jan 30, 2010)

Berubeland said:


> Here's the other factor.... my dad who is in his 70's now did retire for a few years.... but found it incredibly boring and he felt "useless". He gave/sold his company to my brother in law for a few years then bought it back. He's now working 16 hour days again.
> 
> My mom who also retired is just as busy now as when she was working, she did some work to bring a wind mill farm to the town, does the Kareoke for the legion, substitute teaches and helps my Dad out.
> 
> ...


I think that only boring people get bored in retirement. I'm 59 been retired for 3 years and love it. Extensive travel, physical fitness, learned to downhill ski, mountain biking- having a great time. Many other things I would like to do but too busy (golf, more volunteering,maybe a corporate board, etc). Most people don't put enough non financial planning into their retirement.


----------



## goertzen (Nov 18, 2009)

*government RRSP account idea*

andrewf talked about some ideas from the book "Nudge", and I'd like to expand on them a bit. 2 ideas from the book that I thought were great are:

1. Use an opt-out system for retirement savings. People are apathetic and will just go with the flow.

2. "Pay more tomorrow" idea. In their 401k experiments, savings started at a relatively low level when an employee was hired, but a large fraction of raises, say 50%, was automatically allocated to retirement savings. People still saw a raise on their paycheck, so were happy. Employees very rapidly hit the max savings rate for the plans that were offered to them, and very few opted out.


I think this could be done in Canada within the confines of RRSPs. It would go something like this:

1. In addition to the existing RRSP accounts that people may (or may not) have, everybody gets a government managed RRSP account. Goverment investment experts decide what is held in the account. You can transfer funds from this account to a standard RRSP if you don't like it.

2. Employees have an automatic deduction from their pay that goes to this government RRSP account. The rate starts small, but the "pay more tomorrow" idea is applied and the rate rapidly climbs as income increases.

3. For people that know what they are doing, you fill out a form, give it to your employer, and contributions stop. Use your old-fashioned RRSP.

4. If this system was brought online, I think that all existing employees would have to start at 0% contributions so that there is no change to paychecks. There would be uproar from the otherwise apathetic masses if it went down. They would have build up their contribution rate with the "pay more tomorrow" idea.

Thoughts?


----------



## the-royal-mail (Dec 11, 2009)

Only thing is, I don't want the government to manage it, based on their track record with the UIC and CPP systems. Not to get into politics here, but remember the $40 billion or so they raided from the UIC fund? The original purpose of that fund was to protect workers from unemployment. Now everytime I turn around it seems the gov't is making it more difficult for workers to access and use it, and they are turning into a fund to pay out mat leave, disability and other social causes at political whim. I am sure those who benefit from these things will disagree with me here but I don't make these comments to stir debate. I am making them to prove my assertion that the gov't cannot be trusted to manage our money as suggested above. Far too subject to ideaological and political whim.

How about we train kids in school how to manage money? That would be far better IMO.


----------



## andrewf (Mar 1, 2010)

Those ideas are in nudge, but I would credit Ambachtsheer, who wrote a paper about pension reform options in Canada for the CD Howe institute.


----------



## andrewf (Mar 1, 2010)

the-royal-mail said:


> Only thing is, I don't want the government to manage it, based on their track record with the UIC and CPP systems. Not to get into politics here, but remember the $40 billion or so they raided from the UIC fund? The original purpose of that fund was to protect workers from unemployment. Now everytime I turn around it seems the gov't is making it more difficult for workers to access and use it, and they are turning into a fund to pay out mat leave, disability and other social causes at political whim. I am sure those who benefit from these things will disagree with me here but I don't make these comments to stir debate. I am making them to prove my assertion that the gov't cannot be trusted to manage our money as suggested above. Far too subject to ideaological and political whim.
> 
> How about we train kids in school how to manage money? That would be far better IMO.


The government doesn't run the CPP Reserve Fund. It is administered by the CPP Investment Board, and they've done a pretty good job so far. Don't conflate CPP and the EI fund, they are entirely different. For one thing, the EI reserve fund is an accounting fiction. The CPP money is all there, invested by some of the best pension managers in the world.

Secondly, teaching kids about money is a good idea. It won't fix anything in a meaningful way though. Do you really think that a high school course will cure all the profligate spenders who don't want to pay attention to their finances?


----------

