# How much do you need to save to retire?



## CanadianCapitalist

There are two schools of thought on how much money is needed for retirement. One school, pushed typically by the money management business and based on rather shaky foundation, is that most people need about 70 percent or more of their pre-retirement incomes to enjoy a comfortable retirement.


*Fidelity's Retirement Math*
*Are Canadians Saving Enough For Retirement?*
*Are Canadians Saving Enough For Retirement? Part 2*
*Fidelity’s ‘Scary’ Retirement Findings*

The other school, the most prominent of which is Malcolm Hamilton, argues that there is little data to support the notion that most Canadians need nest eggs of $1 million or more to retire at the traditional age of 65.


*Research on Financial Circumstances of Retirees*
*Spending Patterns in Retirement*

I think the latter school has a sounder argument. Most Canadians retiring at the traditional age of 65 will probably find OAS and CPP will provide most of their required income. A modest nest egg of a few hundred thousand dollars should suffice for the rest. Whether most Canadians of working age who don't have traditional pensions are on track to save up even modest nest eggs is a different story.


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## Sampson

I've always thought that the requirement for 70% of current income was ridiculous. Maybe we're TOO frugal - but I know if our housing is paid for - we could live off 35% of our current income.

I think the problem stems with the fact that most Canadians don't give enough forethought to retirement - and get themselves in trouble.

I suppose the other contributing factor is that since most Canadians have well below average returns on their investments - they have to aim for a nest egg that will give them 70% of their current income, but after fees and expenses to the financial industry  - their nest egg will only provide 40-50% of current income.


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## FrugalTrader

Sampson said:


> I've always thought that the requirement for 70% of current income was ridiculous. Maybe we're TOO frugal - but I know if our housing is paid for - we could live off 35% of our current income.
> 
> I think the problem stems with the fact that most Canadians don't give enough forethought to retirement - and get themselves in trouble.
> 
> I suppose the other contributing factor is that since most Canadians have well below average returns on their investments - they have to aim for a nest egg that will give them 70% of their current income, but after fees and expenses to the financial industry  - their nest egg will only provide 40-50% of current income.


The thing about the set percentage is that the retirement requirement is a moving target as wages tend to increase with age. Instead, I like to look at it in the "Why Swim with the Sharks" perspective. Basically calculate your retirement expenses that you expect to have, and aim to have your portfolio/cash flow cover that. You'd be surprised as to how much you really need when you take away RRSP contributions/savings/work clothes/cars etc.


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## stephenheath

To me the biggest factor was not what % of my income, but how many years I expect to live. Most of my family has been active and healthy well into their mid to late 90's. Assuming I retire at 65, that's 25 years if I'm as lucky that I would need... and as medical advances continue that might even increase. 

Once you start living on your income, even if you aren't depleting your principal, your principal is now no longer keeping up with inflation. Let's say right now you wanted $50,000 a year to live on, being conservative and assuming a 4% return on your principal, you would need 1.25 million dollars. That's great for year one. But year two comes along and there's been 2% inflation. Your principal is now still 1.25 million dollars, and it still gets you $50,000, but in today's dollars that's only $49,020. And in 25 years, because each year you've spent the income, you still have that 1.25 million, but that's got the purchasing power of $30,475. 

To compensate for that (assuming you don't want principal depletion due to worries about long life) you actually need $75,000 per year... $25,000 to increase the value of your principal, and $50,000 to live on.... and for me, that's the main reason I'm targetting returns equal to 75% of our current income, even though I only expect to spend 40-50% in the early years (I realize that number may go down as I get closer to 90, but at least while insurance is still cheap I want to travel a fair bit).


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## mfd

Rough estimates put me at needing 1.5 to 2.5 million future dollars 25 years from now. Like I said this is rough and only looks RRSP savings and a little of the cpp. I haven't fully account for the fiances pension and non-rrsp investments. I'm in the process of mapping the actually total requirement for my retirement


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## Jon Chevreau

$2 million invested at 5% = $100,000 a year.

Seems like reasonable target to shoot for. If you don't aim high, you won't get close. Overshooting wouldn't be tragic, particularly if you love your work.

This assumes, of course, no Defined Benefit plans, which are becoming an endangered species, particularly for the younger generation. It also doesn't factor in government income sources like CPP and OAS. Many financial planners I talk to view CPP/OAS as a bonus but it's a worthwhile exercise to calculate how much capital you'd need to generate a reasonable retirement income, and not counting on DB or government pension incomes. 

Book:

www.financialpost.com/fd

Blog: 

www.wealthyboomer.ca


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## Hazelnut

I just roughly calculated my pension, CPP and OAS & personal savings and if I live to age 98 (my grandmother lived to 94 and her mother to 106) then I will have live on 1.9 million. Being the frugal person I am I think this will be more than enough.


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## Retireat50

As noted by others, you really need to account for lifestyle, debt, company pensions, indexed or not all play a huge factor in the selection of the right number. I think if you do not have a company pension you will need anywhere between 50 to 70 percent of pre retirement income not taking into account cpp/oas.


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## 2 yen

I tend to work backwards....calculate all expenses on a monthly basis and multiply by 12 for a year. That's what I need in retirement. CPP / OAS are certainly not a bonus as a previous poster's advisor implied. For a working couple, with full careers, that's over $32000. As a non-resident, planning a return to Canada, we won't have much of either CPP or OAS, so the monthly expense method seems best for us. Our answer is blue chip dividend paying stocks. They should, and it's a big should, cover inflation.


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## archanfel

$0. OAS+GIS should be more than enough.


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## ethos1

archanfel said:


> $0. OAS+GIS should be more than enough.


as well, dont forget the CPP and to max on the GST credits, that, by todays numbers all-in is about $2500+ per-month for a couple.

I dont suppose that you have a company pension plan of any kind?

Are you expecting any of your investments that you have now r will build on and that you may hold at retirement which may include a combination of TFSA & RRSP's to yield zero & that you will simply be able to live from the OAS, CPP, GIS & GST credits - if so that is absolutely fantastic ... well done


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## Ben

It's important to track your spending over the years so you have a really good idea what you spend, and where. Once you know how much you spend, you know how much you need to bring in. Important to account for changes in your spending patterns as well.

For now, I assume that CPP and OAS won't be there for me, and save accordingly. As the years pass, and the probability of government funding becomes more (or less) certain, I'll adjust the scenario accordingly. If the plans are fully funded when I'm 60, then there's a good chance I'll be able to count on them. For now, that time is too far away to be confident the money will be there. If it is, bonus.

I would like to be able to fund retirement lifestyle purely from income, withdrawing say 4% a year without touching principle. 

And early retirement (or perhaps financial independence...) before age 65 is a tough thing mainly because those government funds aren't flowing yet. That income is not insignificant, and requires a substantially larger nest egg to take the place of that income stream.


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## ethos1

Jon Chevreau said:


> $2 million invested at 5% = $100,000 a year.
> 
> Seems like reasonable target to shoot for. If you don't aim high, you won't get close. Overshooting wouldn't be tragic, particularly if you love your work.
> 
> This assumes, of course, no Defined Benefit plans, which are becoming an endangered species, particularly for the younger generation. It also doesn't factor in government income sources like CPP and OAS. Many financial planners I talk to view CPP/OAS as a bonus but it's a worthwhile exercise to calculate how much capital you'd need to generate a reasonable retirement income, and not counting on DB or government pension incomes.


$2-million for someone that is retiring today seems like an awful lot of money - but is it

The $100k gross per-year from investing the $2-million will probably net you after tax about $60k-$70k, but is that enough for the long haul to someone like FT who is not yet 30 years old?

For someone retiring today at 55 -65, its possible that the $60-70k per-year net without government security benefits, that amount may or may not be enough.

At 65+ today with $2-million, even if it was not invested and you began drawing down $60k/yr out of the capital, the money would probably last just over 30-years, at which point whatever is left over could be willed or be shared amongst any living relatives or donated to charity


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## FrugalTrader

Ben said:


> For now, I assume that CPP and OAS won't be there for me, and save accordingly.


From "The New Retirement", the author mentioned that CPP is viable for the next 75 years. Mind you, the book was written in 2007 before the market correction. However, I think it may be safe to say that CPP will be available when it comes time to retire. 

OAS, on the other hand, is another story where it's paid out of the current tax base. I can see OAS being reduced somehow (perhaps increasing the age qualification) as demographics are trending towards more retirees (claiming OAS) and less workers (paying for OAS).


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## archanfel

ethos1 said:


> as well, dont forget the CPP and to max on the GST credits, that, by todays numbers all-in is about $2500+ per-month for a couple.
> 
> I dont suppose that you have a company pension plan of any kind?
> 
> Are you expecting any of your investments that you have now r will build on and that you may hold at retirement which may include a combination of TFSA & RRSP's to yield zero & that you will simply be able to live from the OAS, CPP, GIS & GST credits - if so that is absolutely fantastic ... well done


I expect my TFSA account to be fully funded whereas my RRSP account will be zero by the time I reach 65. Hopefully I will also have purchased by dream house on the east coast or some quiet Ontario town by a lake with full solar/wind power. With no car, no rent, low property tax, low utilities, I suspect my monthly expense should be minimum and either the TFSA or the OAS should cover me. Ah, one can always dream.


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## ethos1

archanfel said:


> I expect my TFSA account to be fully funded whereas my RRSP account will be zero by the time I reach 65. Hopefully I will also have purchased by dream house on the east coast or some quiet Ontario town by a lake with full solar/wind power. With no car, no rent, low property tax, low utilities, I suspect my monthly expense should be minimum and either the TFSA or the OAS should cover me. Ah, one can always dream.


why dream, it sounds reasonable too me & doable

Good luck


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## Ben

FrugalTrader said:


> From "The New Retirement", the author mentioned that CPP is viable for the next 75 years. Mind you, the book was written in 2007 before the market correction. However, I think it may be safe to say that CPP will be available when it comes time to retire.
> 
> OAS, on the other hand, is another story where it's paid out of the current tax base. I can see OAS being reduced somehow (perhaps increasing the age qualification) as demographics are trending towards more retirees (claiming OAS) and less workers (paying for OAS).


I agree with you on both counts. On the CPP, although I believe it will be there for me, it seems most prudent for now to save like it won't, and be pleasantly surprised when/if it is. As my silver years approach, and if CPP continues to fair well, I would be more likely to include the payments in my retirement income scenario. Has the CPP made public yet how it faired in the market downturn? I recall they had made some changes in their investing philosophies over the last decade, which served them well in the good times... I imagine they are pouring over their figures as we speak.

And the OAS, and many other tax-based programs, will almost certainly be altered in the face of demographic changes.


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## CanadianCapitalist

Ben said:


> Has the CPP made public yet how it fared in the market downturn?


You can check the numbers on the *CPP Investment Board* website. The fund has about 40% in fixed income, so the effect of even severe market corrections should be limited.

I agree that CPP will likely be there when we need it in another 30+ years and OAS probably not. Then again, 30 years is a long time, so who knows? Maybe they will increase the age at which you can qualify for full CPP benefits as some are suggesting already.


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## Jon Chevreau

Sure, there's a "sticker shock" to the $2 million figure but if it gets you moving, it's not a bad number. If you have a great DB plan you may not need even a fraction of that but who does these days, especially among the folk that frequent this forum? 

And sure, some people can get by on less than $100K/a year though it would be hard if you live in a big city and you have children. Diane McCurdy tackles this topic in her book, How Much is Enough? When I pushed her for a rock-bottom minimum, she gave me $450,000. That's someone with a very modest lifestyle, likely debt free in the country, with basic government pensions and probably no cash drain from dependents.


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## ethos1

Jon Chevreau said:


> Sure, there's a "sticker shock" to the $2 million figure but if it gets you moving, it's not a bad number. If you have a great DB plan you may not need even a fraction of that but who does these days, especially among the folk that frequent this forum?
> 
> And sure, some people can get by on less than $100K/a year though it would be hard if you live in a big city and you have children. Diane McCurdy tackles this topic in her book, How Much is Enough? When I pushed her for a rock-bottom minimum, she gave me $450,000. That's someone with a very modest lifestyle, likely debt free in the country, with basic government pensions and probably no cash drain from dependents.


For some folks on here not yet 30 like FT that believe at 30, 35 or 40 that $1-million in assets will be enough to retire for life - to that I say you will need to revisit your needs, possibly work longer towards getting to the one, two, possibly three million dollar mark.

Then again, everyone has their own desires, needs, dreams & expectations and possibly as Diane McCurdy points out, $450k may be enough


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## FrugalTrader

ethos1 said:


> For some folks on here not yet 30 like FT that believe at 30, 35 or 40 that $1-million in assets will be enough to retire for life -


My goal is $1 million in net worth by the age of 35, but it's not a retirement goal. I will consider retiring when my portfolio income is enough to cover living expenses. Even then, I doubt that I would stop doing stuff for income.


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## ethos1

FrugalTrader said:


> My goal is $1 million in net worth by the age of 35, but it's not a retirement goal. I will consider retiring when my portfolio income is enough to cover living expenses. Even then, I doubt that I would stop doing stuff for income.


I suppose that means (for clarity) that the _milliondollarjourney_ is a target, in fact is an asset target & not a cash amount target

To have the all-in all-paid for assets with no-debt, then I suppose one-million dollars in assets at 35 is a nice round number & you by my calculation have about 6-7 years to get there - the question is, is it doable?

On the after life of attaining the million in assests, the goal then for the next 30-years to 65 is to save, invest, work at something & hopefully at the golden age of 65 to have enough income without dependancy on DB plans & Canadian social security programs.

As JC pointed out, in todays numbers you'd be typical at that point of the $450k cash invested retiree(s)

FT, to you and your family, I say - enjoy life to the fullest, tag to that, minimal stress & to take care of your health and of those around you - money isn't everything, it is in fact a very small part of the short time spent on this green earth.

Are Canadians by nature worriers of not having enough money


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## FrugalTrader

ethos1 said:


> I suppose that means (for clarity) that the _milliondollarjourney_ is a target, in fact is an asset target & not a cash amount target
> 
> To have the all-in all-paid for assets with no-debt, then I suppose one-million dollars in assets at 35 is a nice round number & you by my calculation have about 6-7 years to get there - the question is, is it doable?
> 
> On the after life of attaining the million in assests, the goal then for the next 30-years to 65 is to save, invest, work at something & hopefully at the golden age of 65 to have enough income without dependancy on DB plans & Canadian social security programs.
> 
> As JC pointed out, in todays numbers you'd be typical at that point of the $450k cash invested retiree(s)
> 
> FT, to you and your family, I say - enjoy life to the fullest, tag to that, minimal stress & to take care of your health and of those around you - money isn't everything, it is in fact a very small part of the short time spent on this green earth.
> 
> Are Canadians by nature worriers of not having enough money


Is it doable? Who knows.  We started in 2003 (graduation) with a -$50k net worth and we're up to around $300k now. Hopefully we can keep the momentum to reach our goals.

The 1 million in net worth goal is almost like a game to me, it's fun! The real prize though is the journey on my way there.

But ethos, I completely agree with you. Life is short and we believe in living a balanced life. Thanks for the note!


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## Jon Chevreau

FT, you're talking about Financial Independence, not Retirement. The two are not the same, which is why I wrote the book, Findependence Day. 

www.financialpost.com/fd

I also think you have to distinguish between net worth and pure financial assets. If you have a paid-for home of $750,000 (possible in Toronto), then another $250,000 in investments gets you to $1 million in net worth. As Theo, (the CFP in the book) says, "the foundation of financial independence is a paid-for home."

But I think you want a paid-for home AND $1 million in financial assets.


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## FrugalTrader

Jon Chevreau said:


> FT, you're talking about Financial Independence, not Retirement. The two are not the same, which is why I wrote the book, Findependence Day.
> 
> www.financialpost.com/fd
> 
> I also think you have to distinguish between net worth and pure financial assets. If you have a paid-for home of $750,000 (possible in Toronto), then another $250,000 in investments gets you to $1 million in net worth. As Theo, (the CFP in the book) says, "the foundation of financial independence is a paid-for home."
> 
> But I think you want a paid-for home AND $1 million in financial assets.


Yes, that is right, my ultimate goal is financial independence. My million dollar net worth goal is simply a time based goal. Even after I reach the mile stone, I will continue building assets.

I do include my home in my net worth calculation, but only the purchase price ($275k).


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## pantograph

Jon Chevreau said:


> Sure, there's a "sticker shock" to the $2 million figure but if it gets you moving, it's not a bad number. If you have a great DB plan you may not need even a fraction of that but who does these days, especially among the folk that frequent this forum?
> 
> And sure, some people can get by on less than $100K/a year though it would be hard if you live in a big city


Ridiculous. Tjere are people who get by just fine on 40000 a year even in a big city and others who are strugling at 400000. Know thyself!



Jon Chevreau said:


> Diane McCurdy tackles this topic in her book, How Much is Enough? When I pushed her for a rock-bottom minimum, she gave me $450,000. That's someone with a very modest lifestyle, likely debt free in the country, with basic government pensions and probably no cash drain from dependents.


Again ridiculous. If you're married, both 65, the house is paid for, the kids are gone, and collect OAS and average CPP, you have about 2000 a month to spend. That isn't luxury but it isn't poverty either.

I know people like this. They are just coming back from Floridawhere they go every winter.

Your Money or Your Life? How long do you want to work to collect what the "experts" say is "necessary"?

BTW, google Malcolm Hamilton. He'll set you straight on two million or 450000 or a hundred thousand a year.


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## ethos1

FrugalTrader said:


> Yes, that is right, my ultimate goal is financial independence. My million dollar net worth goal is simply a time based goal. Even after I reach the mile stone, I will continue building assets.
> 
> I do include my home in my net worth calculation, but only the purchase price ($275k).


agree with you & JC

No debt, home paid for as well as income from all sources to be enough to sustain a comfortable lifestyle post retirement - indeed should be every persons goal & age has no boundaries to it.

FT, you said $50k in 2003 & now at $300k net worth, with a current residence worth $275k, which I'm sure has appreciated since you purchased it. 

At that rate $250k/6yrs = $41.66k/yr year-on-year asset increase. How much of the assets has the house given you in appreciation?

So the question is 'what rate are you accumulating or expecting to accumulate wealth by 35' - is it in paying off the house and investing wisely, along with any passive income?

Whether the retirement age is 30, 40, 50, 60 or 65, IMO you always have to factor in inflation to have enough to carry you till 80, 90 or 100 (pick an age).

If you have the health and energy then extra money is needed for things such as - the toys or travel that you would plan post retirement, maybe add-in seniors health care.

JC made a good point about the $750k home in Toronto along with it the upkeep, taxes etc - which would lead you to believe most retirees may want to leave the great metropolis for quieter peaceful & more moderate climates to live, or will stay in their expensive to run fully paid off assets living miserable.

To each their own 

On the Canadian government social security programs, retirees with everything paid off - you'd probably have an exisitance. A lot of retirees post 65 are probably done with future planning, indeed done with a lot of things, so $2500/mth in todays money may just be more than adequate.

I think there must be some stats somewhere about people who flog themselves to death working hard and saving, to scrimp & save, only to pop-off right after they retire - all because they did not plan the unwinding very well as part of that plan


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## FrugalTrader

ethos1 said:


> agree with you & JC
> 
> No debt, home paid for as well as income from all sources to be enough to sustain a comfortable lifestyle post retirement - indeed should be every persons goal & age has no boundaries to it.
> 
> FT, you said $50k in 2003 & now at $300k net worth, with a current residence worth $275k, which I'm sure has appreciated since you purchased it.
> 
> At that rate $250k/6yrs = $41.66k/yr year-on-year asset increase. How much of the assets has the house given you in appreciation?
> 
> So the question is 'what rate are you accumulating or expecting to accumulate wealth by 35' - is it in paying off the house and investing wisely, along with any passive income?
> 
> Whether the retirement age is 30, 40, 50, 60 or 65, IMO you always have to factor in inflation to have enough to carry you till 80, 90 or 100 (pick an age).
> 
> If you have the health and energy then extra money is needed for things such as - the toys or travel that you would plan post retirement, maybe add-in seniors health care.
> 
> On the Canadian government social security programs, retirees with everything paid off - you'd probably have an exisitance. A lot of retirees post 65 are probably done with future planning, indeed done with a lot of things, so $2500/mth in todays money may just be more than adequate.


Ethos,

We actually started with a _negative_ $50k net worth out of school and now have close to $310k (recent net worth update). The gains over the years have not been equal as our incomes and assets to build on have increased.

The house was purchased in 2008 at the price of 275k. Our local real estate economy is still booming with property values increasing fairly significantly. However, as we know, with large increases come corrections, which is why i'm conservative with my home valuation.

My goals are to pay off the remainder of the mortgage in the next 3 - 5 years ($75k), continue to build the online business, and push any excess cash (above mortgage pay down) into investments.


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## Jon Chevreau

Even a paid-for home has property taxes: they never end and -- in my experience -- never go down. Also, once you stop working for an employer, you may end up having to pay for more of your own medical and dental bills: just when they really start to pile up. 

With the extra leisure of retirement -- or "findependence" -- comes plenty more time to spend money and travel. And most of all, we have the ever-present spectre of inflation which -- like property taxes -- never seems to go down for long.

My figure is assuming a dual-income couple that stays the course together. If they're in a city, it's reasonable to assume they each earn $50,000, and so are accustomed to a $100,000 joint income, before taxes. 

If anything, according to Fidelity, in the early years of Retirement, you may need slightly more than the joint income a couple enjoyed while working -- all that pent-up desire to indulge in expensive travel or hobbies like skiing or golf. 

I'm well acquainted with Malcolm Hamilton and you can find three video interviews I did with him at www.wealthyboomer.ca. He's certainly at the bottom end of the Income Replacement Ratio argument but others are at the other end of it. 

This a friendly and hopefully informative discussion, an exchange of views. It's not productive to attack freely given posts with emotionally laden ad-hominen descriptors like "ridiculous." I've thrown out the $2 million figure in the past and while the non-savers get upset by it, I find many in the financial industry itself view it as reasonable and conservative. In fact, many prefer $3 million or more for their own objective but many investment pros tone it down because they don't want people to throw their arms up in despair about the enormity of the figure and give up altogether. $250,000 is certainly better than zero and with the new TFSAs the argument that OAS and GIS gets clawed back no longer holds.

No big loss in aiming high and falling a bit short. Aim low and you may attain the goal on paper, only to find yourself financially constrained in practice.


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## ethos1

FrugalTrader said:


> My goals are to pay off the remainder of the mortgage in the next 3 - 5 years ($75k), continue to build the online business, and push any excess cash (above mortgage pay down) into investments.


Thats very good & from what you've told us the target is reasonable to achieve.

I trust you have factored in the financial plan the next 10-20 years, the children, which stay at home spouse it will be, working or earning lifestyles, increases in expenditure for the kids (they do cost plently) as well as any tax implications on the income streams, medical plans etc

Looks like the plan is in motion, you have a good start at an early age - as a suggestion if the plan works and you are both good with it - then, if it ain't broke dont try to fix it, or do the DF flip-flop - learn from other peoples mistakes not their successes


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## ethos1

Jon Chevreau said:


> This a friendly and hopefully informative discussion, an exchange of views.
> 
> I've thrown out the $2 million figure in the past and while the non-savers get upset by it, I find many in the financial industry itself view it as reasonable and conservative.
> 
> In fact, many prefer $3 million or more for their own objective but many investment pros tone it down because they don't want people to throw their arms up in despair about the enormity of the figure and give up altogether. $250,000 is certainly better than zero and with the new TFSAs the argument that OAS and GIS gets clawed back no longer holds.
> 
> No big loss in aiming high and falling a bit short. Aim low and you may attain the goal on paper, only to find yourself financially constrained in practice.


JC, my opinion on the cash number (not the asset number) by age that someone is today, what they may expect to need at 65 independant of DB pension & OAS programs



20 - $5 mil
30 - $4 mil
40 - $3 mil
50 - $2 mil
60 - $1 mil
65 - $0.5mil

Take an average home valued at $300k with $2500 in property tax. 25-years from now you'd expect that same home to be valued at least $600k with property taxes to be at least $5000, on top of which you have utilities, cell phones, internet, cable, land lines ... the list goes on


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## CanadianCapitalist

pantograph said:


> Again ridiculous. If you're married, both 65, the house is paid for, the kids are gone, and collect OAS and average CPP, you have about 2000 a month to spend. That isn't luxury but it isn't poverty either.
> 
> I know people like this. They are just coming back from Florida where they go every winter.


Why is it ridiculous? The standard rule-of-thumb for someone retiring at 65 is a 4% withdrawal from their portfolio. Let's say you are accustomed to spend $4,000 per month and you pay an average tax rate of 15%. $2,000 is provided by Government benefits, so you need another $2,700 from your portfolio. At a 4% withdrawal rate, you need ($2700 x 12 x 25) $800K in savings. 

Instead, if you are spending $6,000 per month, you'll need $1.5 million. Add some inflation and you are looking at something close to $2 million.

You may argue that you are not going to spend $6 K per month in retirement. But others may want to fund their extensive travels or put their kids through an Ivy League college. To each, her own.


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## pantograph

Jon Chevreau said:


> I've thrown out the $2 million figure in the past and while the non-savers get upset by it, I find many in the financial industry itself view it as reasonable and conservative.


It isn't a big surprise that the financial industry views the number as reasonable. They expect to get paid a %age every year. The bigger the number, the bigger there cut. You might as well ask a realtor if it's a good time to buy a house.



Jon Chevreau said:


> No big loss in aiming high and falling a bit short. Aim low and you may attain the goal on paper, only to find yourself financially constrained in practice.


There are two sides to that coin. Living expenses and retirement savings come out of the same pot. Aiming high for retirement = aiming low today. Who should say which is more important.

You interviewed Hamilton so you know where he stands. His argument is really good and really underappreciated. If a couple earns 50000 each, puts 9000 each into RRSPs, pays 10000 each in taxes, they have about 60000 left. On a 400000 house, they pay 20-25000 in interest and 5000 in property tax. Kids take another 5-10000. What's left is their spending money and it's only 25000 a year. Thats what their used to all their working lives. Then they retire with house paid for and kids gone. OAS and CPP pays 25-30000 a year and 2 million in RRSPs which isn't hard to get to if you save that much every year would throw off 100000.

There's no balance there. These people scraped by on 25000 spendable a year for 30-40 years and all of a sudden they need/want 125000? That's ridiculous. (You're not ridiculous. The argument is.) Even the 450000 number is too high because it still means living like youre on the edge for years and years just so you can live about twice as high after.

Malcolm Hamilton is right. Fidelity and Dynamic and AGF are all self serving and wrong.


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## pantograph

CanadianCapitalist said:


> To each, her own.


_There are two ways to get enough: one is to continue to accumulate more and more. The other is to desire less._ - G. K. Chesterton


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## ethos1

For a couple or individual at 65 today that had the $450,000 cash & invested in a 5% GIC , that gives them a pre-tax of $22,500 approx

With no works/company pensions, TFSA's or RRSP's, if they received the max on their OAS,CPP & GST credits they'd get around $25,000 combined or $2000/mth.


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## Jon Chevreau

We've moved from talking about an "absolute" number ($2 million, $1 million, whatever it is) to a discussion about Replacement Ratios.

Malcolm -- who I agree is brilliant and entertaining -- thinks Canadian retirees need only "replace" 50% of the income they earned in Retirement. He says that Canadians are so overtaxed when working that they're used to being frugal and that by sheer momentum once they're retired they can get by on 50%. And he's right if you're a stay-at-home type who likes to walk, read library books and watch cable TV.

But remember that's the low end of the range of opinion. Most financial planners use a 70% replacement ratio. If you agree with them, then in my example of a couple with a $100,000 lifestyle, they'd need just $1.4 million in Retirement -- in order to spin off $70,000 a year. That's assuming a 5% return from long bonds or dividends: it would require a new thread if you want to talk about how to get 8% or 10% annual returns.

Then finally there's Fidelity, which argues for 80% and in some cases of conspicuous consumption in early Retirement, 100% or even a 105% replacement ratio. 

There's no one-size-fits-all answer. All I can say is that even though I'm a frugal guy myself, as is my wife [see the many references to Guerilla Frugality in Findependence Day], my personal goal is the higher RR and figure I mentioned. And I DO have a small DB pension and we are mortgage free. You'll know I reached it when I no longer write, blog or post here. 

For more, see www.financialpost.com/fd


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## Sampson

I also am somewhat skeptical that a couple needs $100k (present value) to live off of annually. We don't have children, - but if our housing was paid for, we could easily get by on $2500-$3000 month.

Heck, my grandpa has been retired for over 15 years and all he's ever lived off of was OAS and CPP - he's doing just fine.

My personal goal is in the $2.5M range though


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## ethos1

Sampson said:


> I also am somewhat skeptical that a couple needs $100k (present value) to live off of annually. We don't have children, - but if our housing was paid for, we could easily get by on $2500-$3000 month.
> 
> Heck, my grandpa has been retired for over 15 years and all he's ever lived off of was OAS and CPP - he's doing just fine.
> 
> My personal goal is in the $2.5M range though


The frugal thread says it all, and I am assuming those that posted are not retired yet - but are trying to save a million or two or more to be able to retire one day. 

http://canadianmoneyforum.com/showthread.php?t=111 

It really is ridiculous why retirees need to over do the savings, although with no debt and everything paid off, I still say that having $50k/year income from all sources for a couple of 65 year old retirees today would be a good number


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## mfd

My father is on OAS and CPP and he is definitely not doing fine. If it wasn't for my brother he would have to sell his home. He would probably have been fine if he downsized but that's easier said then done when its been your life for the last 20 years.

I am personally trying to accomplish my goals without CPP and OAS. I don't really want to put a lot of faith into the big black pool of unknown financial obligation that will one day crush everyone who decided to rely on it.


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## archanfel

Another thing to consider is whether you are going to retire in Canada. 200K might not be much in Canada, but it's small fortune in some countries. My backup plan if OAS and GIS are not there is to move out of the country and become a non-resident. Things are fluid in third world countries though, so it's very hard to predict what's going to happen in the future. 

As for the amount of money, are we talking about in today's dollar or nominal $2 million dollars? I'd think $1 million in today's dollar should be more than enough. Nominal is a lot harder to predict since hyper inflation might be around the corner.


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## DrStan

ethos1 said:


> The frugal thread says it all, and I am assuming those that posted are not retired yet - but are trying to save a million or two or more to be able to retire one day.
> 
> http://canadianmoneyforum.com/showthread.php?t=111
> 
> It really is ridiculous why retirees need to over do the savings, although with no debt and everything paid off, I still say that having $50k/year income from all sources for a couple of 65 year old retirees today would be a good number


$50K has vastly different meanings for different people depending on their circumstances and expectations. Some people plan on retirement on a cottage by the lake, with minimal costs. Great if they stay healthy until they drop dead chopping firewood at 99 years old. 

However, retirement residences can cost thousands per month (the one down the street from where I live charges up to $4,000 a month), and I don't think future retirees will accept living their final years in a dive like some retirees today who can't afford better or don't know any better. Boomers will be far less tolerant, and rates can be expected to skyrocket. Not many people account for this in their planning.

Anyhow, my figure is $1.5 million in liquid assets in 2033. Including pensions, RRSPs and TFSAs and accounting for all factors (inflation, taxes, etc.) this will provide $7,000 per month net in 2009 dollars. Enough to travel extensively in the first few years and later live in a nice residence or hire help if we want to keep our home. 

The key is to NOT compromise today's living standard to save for an eventual tomorrow. Anyways, I don't know any of my friends who save "too much". I know a lot of people who live for today only, live on line of credit and burn through their paycheques. They're a much bigger problem than the oversavers.


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## CanadianCapitalist

DrStan said:


> The key is to NOT compromise today's living standard to save for an eventual tomorrow. Anyways, I don't know any of my friends who save "too much". I know a lot of people who live for today only, live on line of credit and burn through their paycheques. They're a much bigger problem than the oversavers.


I agree that there is no point in simply accumulating a pile of money without any aim. And I don't see saving too much or aiming for too big a number to be an issue. Let's say, I'm aiming to retire at 55 years of age with $2m and if I turn 50 and I'm already ahead of my goals, I can simply retire then. Like you, I suspect not many will have this problem.


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## mfd

CanadianCapitalist said:


> I agree that there is no point in simply accumulating a pile of money without any aim. And I don't see saving too much or aiming for too big a number to be an issue. Let's say, I'm aiming to retire at 55 years of age with $2m and if I turn 50 and I'm already ahead of my goals, I can simply retire then. Like you, I suspect not many will have this problem.


That's one of the reasons I like to do my calculations with 3% inflation and 5% returns. If I can achieve my goals with those figures then I may be able to retire early.


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## ethos1

DrStan said:


> $50K has vastly different meanings for different people depending on their circumstances and expectations.


true, to each their own needs & wants



> Anyhow, my figure is $1.5 million in liquid assets in 2033. Including pensions, RRSPs and TFSAs and accounting for all factors (inflation, taxes, etc.) this will provide $7,000 per month net in 2009 dollars.


Wow, at 7000/mth net, I would take that kind of money right now

Is that an indicator the $7000/mth is what you need or that you are currently living on today pre-retirement, it supposing I assume that everything is paid off with no debt & no children to take care of? 

If so, what kind of lifestyle are you living as a single person or as a couple, I would really be interested to see how anyone needs that kind of money as a 65 year old retiree (single or couple) today, unless of course you are planning to travel for the next 10 - 20 years

BTW, of the $7000/mth net post retirement income that you are planning on (assuming its 65), the numbers work out for a couple as ... $2500 in combined government pensions with the other $4500 comining in from the $1.5 million investments


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## archanfel

Just to put things in perspective, 1.5 million in 25 years assuming an inflation rate of 3% and growth rate of 5% would require about 61.5K contribution every year. And that does not include mortgage payment.


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## mfd

archanfel said:


> Just to put things in perspective, 1.5 million in 25 years assuming an inflation rate of 3% and growth rate of 5% would require about 61.5K contribution every year. And that does not include mortgage payment.


61.5K in future dollars or todays dollars ?


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## archanfel

mfd said:


> 61.5K in future dollars or todays dollars ?


In constant dollar, meaning you will contribute 61.5K every year without indexing to inflation. 

Adding inflation to the picture makes the calculation harder, but let's see. The end result is $44.9K today. The last year you will need to contribute $94K (still $44.9K in today's dollar).


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## Sampson

@ archanfel - but that number, I'm guessing assumes 0 in assets today right?


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## archanfel

Sampson said:


> @ archanfel - but that number, I'm guessing assumes 0 in assets today right?


Yes. This is assuming somebody who got zero net asset today and will retire in 25 years. Any existing asset will greatly change the picture.


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## Jon Chevreau

Some may also want to factor in unexpected windfall assets, like inheritance. Many baby boomers can expect to receive at least the price of a home from their deceased parents, sometimes split with siblings. Cottages too.

Other unexpected sources might include severance packages from employers. In other cases, some may opt to take the commuted value from Defined Benefit pension plans.

And no, I wouldn't count on winning a lottery. Single people, however, may well end up coupling at some point, possibly adding to the joint financial assets. Used to happen all the time in Jane Austen novels!


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## mfd

archanfel said:


> In constant dollar, meaning you will contribute 61.5K every year without indexing to inflation.
> 
> Adding inflation to the picture makes the calculation harder, but let's see. The end result is $44.9K today. The last year you will need to contribute $94K (still $44.9K in today's dollar).




I'm sorry what are you using to calculate these numbers. When I crunch the numbers in order to get $1.5 million dollars in future dollars ($900,000 in current dollars) all you would need is to contribute is $30k a year(not adjusted for inflation) for 25 years with a return of 5%.


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## ethos1

mfd said:


> I'm sorry what are you using to calculate these numbers. When I crunch the numbers in order to get $1.5 million dollars in future dollars ($900,000 in current dollars) all you would need is to contribute is $30k a year(not adjusted for inflation) for 25 years with a return of 5%.


Thats correct, however the need to factor in inflation as well as taxes on the investment return at 5% is important, including the fact that inflation = investment net return, then the $60k/yr quoted by Archanfel is the right number

Not everyone (to be corrected on that point) can save an average of $60k/year each and every year.

I also do not not believe that two people could max RRSP's each and every year (never mind TFSA's) at that level to get to the $1.5 million.

Investing right, having the luck of the draw - anything is possible


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## archanfel

mfd said:


> I'm sorry what are you using to calculate these numbers. When I crunch the numbers in order to get $1.5 million dollars in future dollars ($900,000 in current dollars) all you would need is to contribute is $30k a year(not adjusted for inflation) for 25 years with a return of 5%.


Oh, I thought he meant $1.5 million in today's dollar. That's $3.14 million in future dollars. 

Ethos1, I assumed 5% is after tax returns.


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## archanfel

Jon Chevreau said:


> Some may also want to factor in unexpected windfall assets, like inheritance. Many baby boomers can expect to receive at least the price of a home from their deceased parents, sometimes split with siblings. Cottages too.
> 
> Other unexpected sources might include severance packages from employers. In other cases, some may opt to take the commuted value from Defined Benefit pension plans.
> 
> And no, I wouldn't count on winning a lottery. Single people, however, may well end up coupling at some point, possibly adding to the joint financial assets. Used to happen all the time in Jane Austen novels!


That's a good point. Although it's kind of bad taste to count on my parent's money when they are still alive. 

I wouldn't count on spouse though. I would thank lord if they don't come with debts. Also, they might take away half of what's yours. It's just a can of worm better left closed.


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## DrStan

ethos1 said:


> true, to each their own needs & wants
> 
> 
> 
> Wow, at 7000/mth net, I would take that kind of money right now
> 
> Is that an indicator the $7000/mth is what you need or that you are currently living on today pre-retirement, it supposing I assume that everything is paid off with no debt & no children to take care of?
> 
> If so, what kind of lifestyle are you living as a single person or as a couple, I would really be interested to see how anyone needs that kind of money as a 65 year old retiree (single or couple) today, unless of course you are planning to travel for the next 10 - 20 years
> 
> BTW, of the $7000/mth net post retirement income that you are planning on (assuming its 65), the numbers work out for a couple as ... $2500 in combined government pensions with the other $4500 comining in from the $1.5 million investments



Good questions, all. I have thought this through very well, though I'm sure there are people who will poke holes through it. 

- The 7,000 net target is for two people.
- Retirement is age 55, not 65. If life smiles down on us, it will be 50.
- The 1.5 million in liquid assets target was in 2033 dollars. It includes a few things I don't factor in my calculations below.
- Average lifestyle. Average house in the suburbs, 1.9 kids (one on the way), very early 30s. 
- No debt of any kind, definitely not planning to acquire any. This is how we plan on saving $20K per year, plus our pension contributions and RESPs.

NOTA BENE:
- All calculations based on *5% annual returns, 2% inflation *(somewhat low) and 35 year draw down (from age 55 in 2033 to age 90).
- 35% taxation rate in retirement. 
- *All numbers in 2009 dollars*. 
- Investment capital drawn down over 35 years using the RRIF schedule or a close approximation of it. 

Math:

1) Pensions: $53K net per year, indexed (assuming that neither one of us will ever have a promotion, which is unlikely).
2) TFSAs, maxed out, 2% increase in contributions per year. Will grow to $370K in 2009 dollars and provide $16K tax free per year.
3) RRSPs: current value $80K + 10K per year contributions. Will grow to $500K in 2009 dollars and provide $15K net per year after 35% taxes. 

Total net income per year: $84K in today's dollars, or $7K per month. Life is bound to be expensive, and we want all options open. 

Cheers!


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## CanadianCapitalist

DrStan said:


> I have thought this through very well, though I'm sure there are people who will poke holes through it.


We are in a similar situation as yours -- young family, hoping for early retirement etc. When doing long-range retirement planning, we can only hope to be approximately right given what we know today. If things don't go according to plan, as they almost certainly will, both in our personal lives and in the wider world, we'll just have to adjust accordingly. If markets don't co-operate and deliver our expected returns, we simply work for a few more years or transition to retirement by working part-time. Then again, markets might surprise on the upside. We then just retire a bit early. IMHO, it's all about being flexible.


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## archanfel

DrStan said:


> Good questions, all. I have thought this through very well, though I'm sure there are people who will poke holes through it.
> 
> - The 7,000 net target is for two people.
> - Retirement is age 55, not 65. If life smiles down on us, it will be 50.
> - The 1.5 million in liquid assets target was in 2033 dollars. It includes a few things I don't factor in my calculations below.
> - Average lifestyle. Average house in the suburbs, 1.9 kids (one on the way), very early 30s.
> - No debt of any kind, definitely not planning to acquire any. This is how we plan on saving $20K per year, plus our pension contributions and RESPs.
> 
> NOTA BENE:
> - All calculations based on *5% annual returns, 2% inflation *(somewhat low) and 35 year draw down (from age 55 in 2033 to age 90).
> - 35% taxation rate in retirement.
> - *All numbers in 2009 dollars*.
> - Investment capital drawn down over 35 years using the RRIF schedule or a close approximation of it.
> 
> Math:
> 
> 1) Pensions: $53K net per year, indexed (assuming that neither one of us will ever have a promotion, which is unlikely).
> 2) TFSAs, maxed out, 2% increase in contributions per year. Will grow to $370K in 2009 dollars and provide $16K tax free per year.
> 3) RRSPs: current value $80K + 10K per year contributions. Will grow to $500K in 2009 dollars and provide $15K net per year after 35% taxes.
> 
> Total net income per year: $84K in today's dollars, or $7K per month. Life is bound to be expensive, and we want all options open.
> 
> Cheers!


I am assuming this is a defined benefit pension plan? Does the 1.5 million include the pension? If so, how do you determine how much your pension is worth?


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## DrStan

archanfel said:


> I am assuming this is a defined benefit pension plan? Does the 1.5 million include the pension? If so, how do you determine how much your pension is worth?


Hi there,

Yes, it's defined benefit. There is a rough way to determine how much a pension is worth, and that is to calculate how much an annuity that would deliver the same income would cost to purchase. At 55, one needs about $100K in non registered assets to generate $6000 from an annuity per year. Our pension plans will provide $80K pre-tax in 2009 dollars at age 55, meaning our pensions will be equivalent to an $1.3 million annuity, still in today's dollars. That's assuming we work the full 30 years.

We can calculate how much our pension credits are worth today. If my wife and I quit our jobs today, we would receive a combined total of $16K per year at age 60, based on our current years of service (only 6 years) and our current salaries. Obviously, this would be severely eroded by inflation, and worth only about $7K in 2009 dollars with 2% inflation. This doesn't go very far. Under this assumption, our pensions are worth something like a $120K annuity in today's dollars. That value will increase considerably over the years. 

Maybe we should add this pension value to our net worth, since it's guaranteed as future retirement income? What do you guys think?


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## DrStan

CanadianCapitalist said:


> We are in a similar situation as yours -- young family, hoping for early retirement etc. When doing long-range retirement planning, we can only hope to be approximately right given what we know today. If things don't go according to plan, as they almost certainly will, both in our personal lives and in the wider world, we'll just have to adjust accordingly. If markets don't co-operate and deliver our expected returns, we simply work for a few more years or transition to retirement by working part-time. Then again, markets might surprise on the upside. We then just retire a bit early. IMHO, it's all about being flexible.


Absolutely, all of this is fluff for now, but it's a good starting point. Just having a plan puts us way ahead of the vast majority of early 30-somethings. It's not everything in life, but it's strong motivation. We follow the "how much is my time worth" theory. For instance, we sell our time to our employers for about $23 net an hour. Well, purchases better be worth our time, so we break things down per hour. I have to work X hours to get X purchase. If it's not worth the effort, it doesn't get purchased. It's an incredibly powerful way of thinking, and the best evidence it works is that my most heavily indebted friends think it's nuts. Great indicator!


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## archanfel

DrStan said:


> Hi there,
> 
> Yes, it's defined benefit. There is a rough way to determine how much a pension is worth, and that is to calculate how much an annuity that would deliver the same income would cost to purchase. At 55, one needs about $100K in non registered assets to generate $6000 from an annuity per year. Our pension plans will provide $80K pre-tax in 2009 dollars at age 55, meaning our pensions will be equivalent to an $1.3 million annuity, still in today's dollars. That's assuming we work the full 30 years.
> 
> We can calculate how much our pension credits are worth today. If my wife and I quit our jobs today, we would receive a combined total of $16K per year at age 60, based on our current years of service (only 6 years) and our current salaries. Obviously, this would be severely eroded by inflation, and worth only about $7K in 2009 dollars with 2% inflation. This doesn't go very far. Under this assumption, our pensions are worth something like a $120K annuity in today's dollars. That value will increase considerably over the years.
> 
> Maybe we should add this pension value to our net worth, since it's guaranteed as future retirement income? What do you guys think?


Thanks for the explanation. 

Definitely should be in the net worth because somebody with a defined contribution pension would need to have a large RRSP, thus in his/her net worth as well. 

Then your net worth would be 1.3 million + 370K (TFSA) + 500K (RRSP) = 2.17 million, in today's dollar. Very impressive indeed.


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## Bullseye

My grandmother lives on CPP/OAS/GIS alone in downtown Vancouver. Gets nearly free public taxi service (no car), and deferred property taxes. She owns her home. She tells me that she feels she lives very well, and that she's never had such a feeling of financial security. 

We're 33 now. I expect that my wife and I will be able to live in full CPP/OAS of $32k per year (adjusted for inflation) in retirement, so if we wanted to live on the edge and count on that, we could blow every penny till retirement. 

We don't, of course, we have a secure DB pension, a small DC pension, and an RRSP funded enough that it should cover the loss of OAS. When we got to that point, we stopped RRSP contributions (still do pensions), and turned our focus to getting the mortgage paid off. 

I still invest, but it's all leveraged plays, with the goal being extra cash flow to further pay down the mortgage with.


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## archanfel

Bullseye said:


> My grandmother lives on CPP/OAS/GIS alone in downtown Vancouver. Gets nearly free public taxi service (no car), and deferred property taxes. She owns her home. She tells me that she feels she lives very well, and that she's never had such a feeling of financial security.
> 
> We're 33 now. I expect that my wife and I will be able to live in full CPP/OAS of $32k per year (adjusted for inflation) in retirement, so if we wanted to live on the edge and count on that, we could blow every penny till retirement.
> 
> We don't, of course, we have a secure DB pension, a small DC pension, and an RRSP funded enough that it should cover the loss of OAS. When we got to that point, we stopped RRSP contributions (still do pensions), and turned our focus to getting the mortgage paid off.
> 
> I still invest, but it's all leveraged plays, with the goal being extra cash flow to further pay down the mortgage with.


Sorry, might be a dumb question. Why are you leveraging while still paying off mortgage? Wouldn't the mortgage rate be lower than the leveraging rate?


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## Bullseye

Not currently, no. Mortgage is fixed til Dec 2010 at 4.5%, HELOC is at 3.5%. 

I could use the HELOC to pay my mortgage down, of course, as I've written about here, but right now I'm getting a higher return than 4.5% buying equities instead.


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## Shawn Allen

*A logical Approach...*

Setting a certain dollar NEED for a retirement nest egg, the same number for everyone is ridiculous.

We all have vastly different incomes and so one man's retirement fortune is another's pittance.

As Jon Chevreau at Financial Post, Wealthy Boomer says a target of percent of income makes more sense.

The precent income replacement ratio should deduct CPP, OAS and any company pension.

So the question becomes what percent do I need to repalce or what annual income (in today's dollars).

Then divide that by (arguably) about 0.05, that gives the amount you need in today's dollars. So $50,000 per year needed (most may need less) would mean you need a $1 million in today's dollars at retirement age. 

Now figure out how to get there.

You will probably need to save as much as you REASONABLY can. Reasonable 
for most of us will not mean scrimping for a lifetime but means maybe 10% of pre-tax income saved.


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## ethos1

Shawn Allen said:


> The precent income replacement ratio should deduct CPP, OAS and any company pension.
> 
> So the question becomes what percent do I need to repalce or what annual income (in today's dollars).
> 
> Then divide that by (arguably) about 0.05, that gives the amount you need in today's dollars. So $50,000 per year needed (most may need less) would mean you need a $1 million in today's dollars at retirement age.
> 
> Now figure out how to get there.
> 
> You will probably need to save as much as you REASONABLY can. Reasonable
> for most of us will not mean scrimping for a lifetime but means maybe 10% of pre-tax income saved.


Does this also include the about to retire 60 something couple that has zero debt, who live in their own mortgage free home & whose monthly living expenses are less than the total they'd get from the Canadian government OAS system, that they still need to have a retirement fund?

In that case- why save, save & save & the answer is because the F.P, F.A's & I.A's (all investment advisors) and the scary media will keep on telling you that you need overkill & to save like mad, max on RRSP's (now TFSA's) and life insurance just so you can leave a legacy or inheritance to some greedy unselfish ba$tard$ (CRA included). 

Too me that is absolutely friggin stupid

My wife and I are early 60's, we've saved, saved & saved all of our lives, we've maxed on RRSP's, invested wisely & diversed ourselves to having passive income which is more than my current employment income.

All of those assets and money we have is nice (choice of words), but do we really need it if all of our monthly living expenses will be covered by the OAS benefits - simple answer is no!

As you approach retirement time or the mandatory retirement age, you need to refocus, revisit or re-plan your needs, which are totally different than when you are early 20's & 30's


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## George

ethos1 said:


> Are you saying that a ready or about to retire 60 something couple that has zero debt, who live in their own mortgage free home & whose monthly living expenses are less than the total they'd get from the Canadian government OAS system, that they still need to have a retirement fund?
> <snipped>
> Too me that is absolutely friggin stupid


I wholeheartedly agree, and I'm only 31. My parents are retired and get CPP, OAS, and a small pension. They have no debts whatsoever, and lead a modest but comfortable lifestyle. The CPP and OAS income pretty much covers their living expenses, and the pension is just a "bonus" on top of that - they have no RRIFs or other income, but they live quite well.

It's not the lifestyle that others might choose, but it works for them. It's very difficult to tell when you're young what you'll want to do when you're old, but having some extra cash in the bank certainly opens up more possibilities.


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## takingprofits

I am a boomer who is contemplating beginning to receive CPP in a few years at 60. I do not have a "number" and do not have a pension plan.

I agree with the previous poster who said one's outlook changes the closer you get to retirement. 

Since I have been self employed I am used to receiving irregular income and find that big swings in income does not really have that much of an effect on lifestyle. What may seem like a big change in income really isn't since half of the income would have gone to taxes anyway. Life adjusts to the new lower or higher income without much notice. It is kind of like quitting smoking - you never notice having more money because of it.

Since I am used to being flexible I expect retirement will be the same. I will continue to actively invest and will have more money in good months and less in bad. I don't see retirement as the day I put all my money into GICs and attempt to live off the predictable interest.


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## beyondfunds

*Great dialogue*

I see retirees almost daily in my work as an investment advisor.
I believe way too much thought is given to "the number," and way too little to helping people understand and manage the transition to retirement. People can get by on a lot, or a little, but they really need to work it backwards...figure out what you want, then work out "the number."

I see people happy on a couple hundred thousand, and anxious and uncertain with millions.

try the readiness assessment tool on my website www.jeffwareham.ca if you are interested, or visit my radio show blog http://tinyurl.com/dar4nx for more information.


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## Jon Chevreau

One variable you have to answer is whether you intend to eat into capital or not. I'm old-time and don't believe in eating into capital but of course if you intend to "die broke" you can revise the number downwards considerably. Only problem is that no one knows when they will die (except suicides and that's hardly advisable!).


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## archanfel

Jon Chevreau said:


> One variable you have to answer is whether you intend to eat into capital or not. I'm old-time and don't believe in eating into capital but of course if you intend to "die broke" you can revise the number downwards considerably. Only problem is that no one knows when they will die (except suicides and that's hardly advisable!).


Would annuity solve that then?


----------



## George

Annuities can help reduce the worry about outliving your money, but they come at a cost - you have to commit a large chunk of capital at the beginning, and you're betting that you won't die in the near future - if you get hit by a bus a year after signing the annuity papers, the insurance company "wins" the bet.

I think an annuity makes sense if it is designed to provide enough money, when combined with CPP/OAS and pensions, to cover basic living expenses (taxes, housing, food, etc). It would provide a lot more peace of mind if you knew those necessities will be covered for life regardless of what happens to the markets, and would free you to utilize the remainder of your funds for "lifestyle" spending, giving/donating, and other pursuits.

I don't think it makes any sense for somebody with a good DB pension to buy an annuity, since the pension plan is already essentially a mandatory annuity.


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## ethos1

Jon Chevreau said:


> One variable you have to answer is whether you intend to eat into capital or not.


100% yes, 



> I'm old-time and don't believe in eating into capital but of course if you intend to "die broke" you can revise the number downwards considerably


deplete the lot & do not leave anything behind - old school or not 

BTW, do you really care what happens after you're dead, not knowing of course when you are going to die

My own idea for the retirement plan is the total meltdown of all capital assets. Picking 80 as the termination age, with all of the OAS benefits factored into the equation and income from any investments, it should all be gone by the time that I am 80 _-"dead poor"_


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## George

ethos1 said:


> My own idea for the retirement plan is the total meltdown of all capital assets. Picking 80 as the termination age, with all of the OAS benefits factored into the equation and income from any investments, it should all be gone by the time that I am 80 _-"dead poor"_


What happens if you live to 105 (a full 25 years after age 80 is a LONG time) and incur significant medical and/or long-term care expenses during that time? With no capital at 80 and only CPP/OAS available, wouldn't this be a risky strategy?

Also, one thing I've noticed is that many people who get into the later life stages focus less on themselves and more on others, and the idea of creating a legacy - either through their children/grandchildren or through charitable giving. If you die broke, neither of these can be accomplished (unless you set everything up before you die and know your expiration date in advance...)


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## ethos1

George said:


> What happens if you live to 105 (a full 25 years after age 80 is a LONG time) and incur significant medical and/or long-term care expenses during that time? With no capital at 80 and only CPP/OAS available, wouldn't this be a risky strategy?...)


I'm OK with that

Are you looking towards getting an inheritance from your parents when they die (a question to anyone reading this)?



> Also, one thing I've noticed is that many people who get into the later life stages focus less on themselves and more on others, and the idea of creating a legacy - either through their children/grandchildren or through charitable giving


is not part of my (our) plan to focus on others or family members to consider leaving them anything. Ours is ours, not theirs'



> If you die broke, neither of these can be accomplished (unless you set everything up before you die and know your expiration date in advance


doesn't really matter we shall be dead anyway & BTW at 30, that is typical thinking, the same way I thought at your age

George, my spouse & I have worked for 40+ years & have built quite the asset base. We believe that we deserve to spend every single penny to make our retirement life as enjoyable as possible & to not leave anything behind.

Maybe we are wrong the way others see us, but it is our choice


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## takingprofits

I plan on dpleting capital as necessary and I don't plan on leaving a lot - some but not a lot. Regarding inheritance - all I will get is the bill for the funeral.

I don't worry about the cost of long term care as that cost seems to expand according to your wealth. You can get the same care if you are rich or poor in this country just if you are rich you pay more...


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## George

ethos1 said:


> Are you looking towards getting an inheritance from your parents when they die (a question to anyone reading this)?
> 
> is not part of my (our) plan to focus on others or family members to consider leaving them anything. Ours is ours, not theirs'
> 
> doesn't really matter we shall be dead anyway & BTW at 30, that is typical thinking, the same way I thought at your age
> 
> George, my spouse & I have worked for 40+ years & have built quite the asset base. We believe that we deserve to spend every single penny to make our retirement life as enjoyable as possible & to not leave anything behind.
> 
> Maybe we are wrong the way others see us, but it is our choice


I'm not expecting to receive a dime in inheritance from my parents. If I do receive something, I'll treat it as a bonus. If they spend all their money while they're alive, I'd be perfectly happy for them.

My parents (who were born in 1930s) often referred to children born during the "baby boom" as the "ME ME ME" generation. I never really understood what that meant until I read your post.

To be honest, your plan strikes me as being particularly greedy. Sure, it's your money to spend as you wish, but don't you think that giving some of it away would be a fun way to "spend" it? Especially if some of your giving can truly make a difference in the world? How much money do you really need to spend in order to make your life as "enjoyable as possible"? Isn't there a point of diminishing returns, beyond which spending more money doesn't bring you more happiness or satisfaction?

I've met with quite a few seniors, and the ones that have been happiest with their money and their lives are those who give generously to others.

Spending money wildly doesn't bring much satisfaction to my life right now, and I can't see why that would change as I age. My target is to have enough money to cover necessities and a limited number of luxuries - that's what brings me the maximum amount of happiness. If I have money above and beyond that, I hope to happily give it away to bring happiness to others and/or to do a little to make the world a better place.


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## takingprofits

The topic of this thread is "How Much Do You Need To Retire?" Saving to build a legacy is another issue. Planning on having money left when you die really has nothing to do with the money needed to save to retire.


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## George

takingprofits said:


> The topic of this thread is "How Much Do You Need To Retire?" Saving to build a legacy is another issue. Planning on having money left when you die really has nothing to do with the money needed to save to retire.


I disagree. If you're contemplating retirement, you need to look at several variables (these are only some of the financial ones - the lifestyle issues are considerably more important and often overlooked):

1) How much money you'll need each year to pay for necessities and for your desired lifestyle.
2) How much of a reserve you'll need to cover unanticipated expenses.
3) How long you expect to live.
4) Whether you want to preserve or eat into your capital (note that these are extremes and aren't mutually exclusive).
5) How much of your income will come from CPP/OAS/Pensions/Registered plans/Non-registered savings.

If you're deciding on how much money you need to retire, a fundamental question you need to ask yourself is whether you want to have money left when you die. If the answer is "no", then you'll need substantially less money to retire, since you'll be planning to spend it all before you die. If you want to preserve every penny for an inheritance or to give to charity, then you'll need a much larger nestegg.


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## Maple_Leaf

*Here's what I did and I am happy with the results.*

How much do I need to save for retirement? Economic research has found that most people want a consistent standard of living across their entire lifetime. You don’t want to live like a pauper in your twenties so that you can live it up in your seventies. So your goal should be to achieve the maximum sustainable standard of living throughout your lifetime, given your current net worth, forecasted future income and forecasted future expenses.

Income = spending + savings (savings can be negative)

savings is just deferred spending

Define your standard of living kind of like this… your spending minus the following “fixed” expenses:
-	income taxes, CPP deductions (because they are tied to your income stream)
-	mortgage payments and property tax ( tied to your shelter)
-	life insurance premiums (tied to your income stream)
-	university expenses (tied to your kids’ income stream)
-	etc.

This is a linear programming problem, so there are software packages out there to help you do this. Make sure all the numbers are in real 2009 dollars and be sure to include your CPP and OAS estimates from CRA, since these are inflation-indexed annuities with a high present value. There are actuarial tables to estimate a single or joint lifespan or just plug in 99 years to be safe.

Your goal is to define consumption then maximize it while keeping it constant over time by borrowing and saving as needed.

My personal results were that I needed about 55% of my current income in my first year of retirement. Your mileage may vary.


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## johnsazzr

I personally see the need for retirement savings as a bridging plan rather than a retirement plan.

Assuming you want to retire by 55, you do not have a pension, and you and your spouse will hopefully receive 1,000 mth each CPP and OAS at age 65, I often recommend using your rsps to bridge you to age 65...these may be the most enjoyable years in your retirement..so enjoy it...draw enough out to increase your discretionary spending capacity without a significant increase in your marginal tax rate..

Hopefully some modest non reg or TFSA investments will top up your income at age 65 instead of significant rsp/rif income.

I sure ain't leaving it all to the kids!


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## steve41

> I needed about 55% of my current income in my first year of retirement


Whoa. I can understand saving a few bucks on gas because there is no more commuting, and maybe some weekly savings- not needing to have your suits drycleaned... but 55%? I didn't change my eating habits, drinking habits, I still have hydro, telephone, cable. My spending changed very little when I retired, in fact there is a school of thought that says extra travel, medical costs... could well push you into the 100%plus range.


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## archanfel

steve41 said:


> Whoa. I can understand saving a few bucks on gas because there is no more commuting, and maybe some weekly savings- not needing to have your suits drycleaned... but 55%? I didn't change my eating habits, drinking habits, I still have hydro, telephone, cable. My spending changed very little when I retired, in fact there is a school of thought that says extra travel, medical costs... could well push you into the 100%plus range.


Are you spending 100% of your income?


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## steve41

> Are you spending 100% of your income?


Me personally? No. But I know quite a few retired friends who have caught the travelling bug. As well, who can tell when a major adverse event will strike. You can't eat less than three meals a day, jetison your car, TV, etc.

The only reason someone lives on 55% of his pre-retirement income is that he 1.) retired earlier than he anticipated, 2.) neglected to save enough for retirement, or 3.) just drew the short straw in a divorce settlement. 

55% might well suit some persons' life plan, however any financial plans I have seen have set a post retirement lifestyle goal somewhere between 70% and 100% of pre-retirement.


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## George

steve41 said:


> Whoa. I can understand saving a few bucks on gas because there is no more commuting, and maybe some weekly savings- not needing to have your suits drycleaned... but 55%? I didn't change my eating habits, drinking habits, I still have hydro, telephone, cable. My spending changed very little when I retired, in fact there is a school of thought that says extra travel, medical costs... could well push you into the 100%plus range.


100% plus is highly unlikely, especially for a typical employee with children. Let's look at a hypothetical example of dad with two kids. If Dad is earning $50k while you're working and raising the children, his deductions and expenses could include:


~$2100 in CPP contributions (~4.2%)
~$732 in EI contributions (~1.5%)
~$1200 in union dues (~2.4%)
~$3700 in private pension contributions (~7%)

Out of his net pay, he might be saving and spending:

~$3000 in RRSP contributions (6%)
~$2500 in RESP contributions (5%)
~$6000 in mortgage payments (assuming he's paying half of a $1000/month mortgage) - (12%)

Add up all of the above, and you'll see that over 38% of that $50,000 income is paid toward things that will simply vanish (or should have vanished, in the case of the mortgage) after retirement.

That same individual could have a retirement income of $31000 (62% of $50k) and have *exactly the same discretionary spending* as when he was working.

The retirement income could actually be even lower, since somebody earning $50,000 also pays around $9400 in income taxes, compared to around $4000 if you're taxed on $31000.

Determining a true "replacement ratio" is far more complicated than taking the rule-of-thumb numbers put out by the investment industry. The reality can be far different, especially for a two-income household that will be reaching retirement age with grown children and a paid-off mortgage.


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## steve41

OK... I should have defined terms a bit better. When I make a statement such as '80% of pre-retirement spending', the 'spending' I refer to is what financial planners refer to as after tax income (ATI). This number represents lifestyle spending... 'beer&groceries&gas'.

It doesn't include taxes, EI/CPP deductions, nor investment or pension contributions, loan pmts... it is restricted to the necessities of life.


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## archanfel

steve41 said:


> Me personally? No. But I know quite a few retired friends who have caught the travelling bug. As well, who can tell when a major adverse event will strike. You can't eat less than three meals a day, jetison your car, TV, etc.
> 
> The only reason someone lives on 55% of his pre-retirement income is that he 1.) retired earlier than he anticipated, 2.) neglected to save enough for retirement, or 3.) just drew the short straw in a divorce settlement.
> 
> 55% might well suit some persons' life plan, however any financial plans I have seen have set a post retirement lifestyle goal somewhere between 70% and 100% of pre-retirement.


70% - 100% spending does not equal to 70% - 100% income. 

A lot of people spend maybe 50% of their net incomes. The rest of it goes to mortgages and investment. Therefore, 55% of pre-retirement income represent a 110% pre-retirement spending. 

If before retirement, somebody is spending 100% of his/her income, then he/she already got a problem.


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## steve41

To summarize... examine the checking and credit card statements of someone just prior to and just after retirement, not taking into account transactions relating to investments. There shouldn't be a substantial difference.


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## George

I think we've hit on a source of a great deal of confusion in the financial industry.

The discussions regarding how much money is needed to retire are usually focused on a "replacement ratio" - what percentage of your pre-retirement gross income you'll need to have in retirement to maintain the same lifestyle. On one end of the spectrum is Fidelity Investments, which absurdly recommends an 80% replacement ratio. On the other end of the spectrum are people like Malcolm Hamilton (an actuary) who suggests a 50-60% replacement ratio.

The problem with these numbers is that they are gross generalizations and don't take into account the *spending patterns* of individuals. They are based on the assumption that people spend pretty much all of their money on "consumption", which is simply absurd.

People vary greatly in their spending patterns, and it's your *total expenses* that determine how much money you'll need to retire. The formula that makes sense to me is as follows:


Take your current annual spending (excluding taxes, mandatory deductions and any saving/investing)
Add in extra items that you want to spend money on in retirement (i.e. travel)
Subtract items you won't have in retirement (work clothing expenses, commuting costs, mortgage)
Subtract the annual after-tax income you expect to receive from CPP/OAS and pensions
Multiply the remaining total by 25

This should give you a rough idea of how much capital you'll need to retire, assuming a 4% withdrawal rate each year, indexed to inflation.


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## archanfel

George said:


> I think we've hit on a source of a great deal of confusion in the financial industry.
> 
> The discussions regarding how much money is needed to retire are usually focused on a "replacement ratio" - what percentage of your pre-retirement gross income you'll need to have in retirement to maintain the same lifestyle. On one end of the spectrum is Fidelity Investments, which absurdly recommends an 80% replacement ratio. On the other end of the spectrum are people like Malcolm Hamilton (an actuary) who suggests a 50-60% replacement ratio.
> 
> The problem with these numbers is that they are gross generalizations and don't take into account the *spending patterns* of individuals. They are based on the assumption that people spend pretty much all of their money on "consumption", which is simply absurd.
> 
> People vary greatly in their spending patterns, and it's your *total expenses* that determine how much money you'll need to retire. The formula that makes sense to me is as follows:
> 
> 
> Take your current annual spending (excluding taxes, mandatory deductions and any saving/investing)
> Add in extra items that you want to spend money on in retirement (i.e. travel)
> Subtract items you won't have in retirement (work clothing expenses, commuting costs, mortgage)
> Subtract the annual after-tax income you expect to receive from CPP/OAS and pensions
> Multiply the remaining total by 25
> 
> This should give you a rough idea of how much capital you'll need to retire, assuming a 4% withdrawal rate each year, indexed to inflation.


You will probably still have to pay taxes, just maybe a bit less. You also need to take into account of any CPP, OAS and GIS incomes. 

In reality, i think $1 million is enough for most people, yet not a lot of people can achieve that.


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## George

archanfel said:


> You will probably still have to pay taxes, just maybe a bit less. You also need to take into account of any CPP, OAS and GIS incomes.
> 
> In reality, i think $1 million is enough for most people, yet not a lot of people can achieve that.


I think one million is *far more than enough* for "most people". It's enough to provide roughly $40,000 of pre-tax income on an annual basis - add in around $15k for CPP/OAS income (assuming you're over 65) and you've got a pre-tax income of $55k - that's higher than many people earn while raising a family and paying a mortgage.


----------



## FrugalTrader

George said:


> 100% plus is highly unlikely, especially for a typical employee with children. Let's look at a hypothetical example of dad with two kids. If Dad is earning $50k while you're working and raising the children, his deductions and expenses could include:
> 
> 
> ~$2100 in CPP contributions (~4.2%)
> ~$732 in EI contributions (~1.5%)
> ~$1200 in union dues (~2.4%)
> ~$3700 in private pension contributions (~7%)
> 
> Out of his net pay, he might be saving and spending:
> 
> ~$3000 in RRSP contributions (6%)
> ~$2500 in RESP contributions (5%)
> ~$6000 in mortgage payments (assuming he's paying half of a $1000/month mortgage) - (12%)
> 
> Add up all of the above, and you'll see that over 38% of that $50,000 income is paid toward things that will simply vanish (or should have vanished, in the case of the mortgage) after retirement.
> 
> That same individual could have a retirement income of $31000 (62% of $50k) and have *exactly the same discretionary spending* as when he was working.
> 
> The retirement income could actually be even lower, since somebody earning $50,000 also pays around $9400 in income taxes, compared to around $4000 if you're taxed on $31000.
> 
> Determining a true "replacement ratio" is far more complicated than taking the rule-of-thumb numbers put out by the investment industry. The reality can be far different, especially for a two-income household that will be reaching retirement age with grown children and a paid-off mortgage.


Great post George. I agree, pre retirement expenses include savings, RRSP contributions and mortgage payments. Post retirement should have all of those expenses eliminated thus reducing total monthly expenses during retirement.


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## steve41

A more rigorous approach is to itemize your assets such as current savings (reg/nonreg/equity), career (your 'career asset' is represented by future paychecks out to a retirement age, and pension income after), future CPP/OAS/GIS entitlement income, any future windfall (an inheritance, selling the family cottage in 15 years) and of course, loans. 

Now, project an after tax income (lifestyle spending level) which will take you out to some optimum age (95/100, say) under a rate and cpi assumption you feel comfortable with, and adjusting for a pre-post lifestyle bias (70/80/100%). You can determine not only how much, and over what period you should be saving (and withdrawing), but what lifestyle you will be enjoying, starting now, out to that optimum age, before your savings (just) run out.

Considering what's at stake, it is not a frivolous calculation IMHO.


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## steve41

As an aside.... I like to relate something my mother told me she learned in high school. This was back in the early 1930s... before computers were even in existence.

In her final year of home ec (NOT math, home ec!!!) they had a segement on financial planning. The textbook had 3 tables... a future value (FV) table, a sinking fund and an annuity table.

The skill that was taught was to take any current savings and project it out to retirement age using the FV table, take a portion of their salary and use the sinking fund table to determine the total they would have at retirement (the sum of those two numbers). Finally, take that future amount and drop it into the annuity table to see what retirement income they could look forward to. Presumably they would experiment around with retirement age and savings pct (the amount of salary they would dedicate to savings) to design an optimum plan.

I challenge any current high school graduate to replicate that same process.... with or without a computer.


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## George

steve41 said:


> A more rigorous approach is to itemize your assets such as current savings (reg/nonreg/equity), career (your 'career asset' is represented by future paychecks out to a retirement age, and pension income after), future CPP/OAS/GIS entitlement income, any future windfall (an inheritance, selling the family cottage in 15 years) and of course, loans.
> 
> Now, project an after tax income (lifestyle spending level) which will take you out to some optimum age (95/100, say) under a rate and cpi assumption you feel comfortable with, and adjusting for a pre-post lifestyle bias (70/80/100%). You can determine not only how much, and over what period you should be saving (and withdrawing), but what lifestyle you will be enjoying, starting now, out to that optimum age, before your savings (just) run out.
> 
> Considering what's at stake, it is not a frivolous calculation IMHO.


The only problem with this kind of calculation is that it assumes a fixed level of consumption throughout your life, which isn't realistic. Births, deaths, employment changes, moves, and all the other things that occur over your lifetime will have a huge impact on how much money you earn, and how much you spend.

I agree that doing a calculation to determine an "optimum" savings rate is a good idea, the reality is that it's just an estimate. It'd be something worth doing every five years or so, though, to ensure that you're still on track to meet your goals.


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## steve41

There's nothing which prevents you from contouring your lifestyle profile... increased during kid years, a new car every 4 years, reduced lifestyle during retirement.... you can get as creative as you require.

It's a plan which you can revisit once a year, or several times throughout. Let's face it, we live in an enlightened computer age. If someone can master the intricacies of the Windows PC, learning to craft a financial plan is not that big a stretch. Certainly, the DIY-er has a heck of a lot more time to play around with such a model... after all, who has better access to his personal financial dataset (both investment and non-investment) than the individual himself.

The financial planner has too many other priorities (selling, prospecting... to his entire client base) to be able to do your own plan justice.


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## Tim

WOW! Nice conversation and interesting reading. Thanks everyone.

A few general points.

1) Determine amounts needed based on income are useless. It's all about spending. Who cares is you make $50k, $80K or 140K if your spending is all the same at $40K? Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it.

2) The actual decision to retire will be less about money and more about do you 'feel' ready for it. Numbers are nice to know to a degree, but we can't predict the world for the next 30 years. Take your best guess and put in a few back up plans then jump in the pool and learn to swim.

3) Oversaving for huge dollar goals can significantly reduce your happiness now by shifting too much income into the future. Be careful to not over cushion your plan with 10% spending here and two percent lower returns there and a higher inflation number. It can really inflate the values you need.

4) Overestimating lifestyle. Some people plan unrealisitic retirement lifestyles. Most retirees end up living very similar to how they did before they retired. Keep that in mind.

My two cents on it all. Thanks everyone.

Tim


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## ethos1

Tim said:


> A few general points.
> 
> 1) Determine amounts needed based on income are useless. It's all about spending. Who cares is you make $50k, $80K or 140K if your spending is all the same at $40K? Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it.


not true



> 2) The actual decision to retire will be less about money and more about do you 'feel' ready for it. Numbers are nice to know to a degree, but we can't predict the world for the next 30 years. Take your best guess and put in a few back up plans then jump in the pool and learn to swim.


Agree & you will find mostly males get the mid-life crisis (well I did) and say they hate work, start to do funny things, switch and swap jobs, take on different extra curricular activities - some even start to wake up and make an effort to save for retiement



> 3) Oversaving for huge dollar goals can significantly reduce your happiness now by shifting too much income into the future. Be careful to not over cushion your plan with 10% spending here and two percent lower returns there and a higher inflation number. It can really inflate the values you need.


how do you know this?



> 4) Overestimating lifestyle. Some people plan unrealisitic retirement lifestyles. Most retirees end up living very similar to how they did before they retired. Keep that in mind.





> Post retirement, mine (our) plan is to do 100% the way that we have lived all of our married lives, minus the kids.




Tim[/QUOTE]


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## archanfel

ethos1 said:


> not true


why?


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## ethos1

archanfel said:


> why?


because I dont agree

Archanfel, do you agree with the statement from point 1



> Originally Posted by Tim
> 
> A few general points.
> 
> 1) Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it.?


I still say not true, always to be corrected with a reason


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## archanfel

ethos1 said:


> because I dont agree
> 
> Archanfel, do you agree with the statement from point 1
> 
> I still say not true, always to be corrected with a reason


Yes, I do agree with the same statement. Why do you say it's not true? Do you think when the spending is equal, higher income people would have a harder time to save?


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## Ben

Tim's Point #1 is actually bang on, and his strongest point, although I would reword it to say that "Higher incomes _should_ find it easier to save".

I generally agree with the rest as well.

I'm also wondering a deeper question: who will reach 100 posts first, ethos1 or archanfel?


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## ethos1

Ben said:


> Tim's Point #1 is actually bang on, and his strongest point, although I would reword it to say that "Higher incomes _should_ find it easier to save".?


in context, I agree




> I'm also wondering a deeper question: who will reach 100 posts first, ethos1 or archanfel?


I'm a marathon runner, Archanfel I believe being the younger of the two of us is the sprinter and will get the _redflagdeal_ first


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## archanfel

ethos1 said:


> in context, I agree


I still don't get why you disagreed. Care to explain? 




> I'm a marathon runner, Archanfel I believe being the younger of the two of us is the sprinter and will get the _redflagdeal_ first


Yeah, I spent way too much time here.


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## ethos1

archanfel said:


> I still don't get why you disagreed. Care to explain?


no, but would appreciate knowing from you if you agree with tim's #1 comment


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## archanfel

ethos1 said:


> no, but would appreciate knowing from you if you agree with tim's #1 comment


I think I already said yes several posts back. But anyway, yes, I agree with Tim's #1 comment.


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## George

I think Tim's first point makes sense - people with higher incomes should, on average, have an easier time saving a portion of that income. The assumption here, of course, is that the person with the higher income isn't stuck in a lifestyle that causes them to spend every penny they earn.

Somebody earning $100k per year has a higher capacity for savings when compared to somebody else who only earns $30k per year. Both of these people could live a lifestyle that costs $25k/year, but the person with the higher income would be able to save far more money while doing so, and could amass enough capital to continue that lifestyle far sooner. If the $100k earner insists on leading a life that costs $95k/year, they won't be able to save any more than the person earning $30k with a lifestyle that costs $25k.

Bottom line - it isn't necessarily how much you earn. It's how much you keep.


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## ethos1

this is the piece below word for word from Tim's #1 that I said "not true" to

_"Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it."_

how does Tim know this a for a fact, what proof is there to that statement & in context define higher incomes relative to shortening the length of time to retirement

anyone?

do not add or change any words in Tim's #1 to try to explain or clarify that Tim meant this that or the other the way that Ben added the word _"should"_ in his 5:44pm post


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## archanfel

ethos1 said:


> this is the piece below word for word from Tim's #1 that I said "not true" to
> 
> _"Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it."_
> 
> how does Tim know this a for a fact, what proof is there to that statement & in context define higher incomes relative to shortening the length of time to retirement
> 
> anyone?
> 
> do not add or change any words in Tim's #1 to try to explain or clarify that Tim meant this that or the other the way that Ben added the word _"should"_ in his 5:44pm post


I think Tim mentioned in his point one "Who cares is you make $50k, $80K or 140K *if your spending is all the same at $40K? * Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it."


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## George

archanfel said:


> I think Tim mentioned in his point one "Who cares is you make $50k, $80K or 140K *if your spending is all the same at $40K? * Higher incomes find it easier to save, so can shorten the lenght of time till retirement. That's it."


I agree - the point was that it's easier to save if your income is significantly higher than your expenses (which is obvious).

The formula isn't really complicated - income minus expenses equals savings (if the result is positive), or an accumulation of debt (if the result is negative). The greater the difference between income and outgo, the easier it is to save, and the shorter the time needed before retirement becomes a possibility.

If you're living a lifestyle that costs $40,000, then you'll need roughly that much in after-tax income in retirement to maintain the same lifestyle. If you're living that lifestyle on $200,000 a year, you'll be able to bank $160,000 per year (minus taxes), which makes it possible to retire far sooner than if you're living a $39000 income on a $40,000 income.


----------



## Tim

Well one post can spin off a lot of talk.

George hit on the head. My statement #1 had everything to do with context of the entire statement, not just the end bit. Assuming your spending is the same, higher incomes make it easier to save.

In the case of higher income and higher spending it actually heavily depends on the math of a specific situation. RRSP contributions give you a bigger bang for the buck, but taxable account income can end up being taxed higher than those with a lower income. It also depends on your desired retirement income, which if you are used to spending more would likely indicate a higher retirement spending number so a longer and more difficult uphill battle is likely.

Ethos,

I believe you had a question a few posts back regarding my one statement on compounding assumptions: like adding extra spending, higher inflation and reducing investment returns all at once. Again I referring to the math of it. If you keep adding safety factor on top of safety factor you will end up pricing yourself into a huge retirement goal, which may not be all that realistic to your actual retirement.

I believe *New Rules of Retirement* that made mention of the fact that retirement spending actually goes down with age which is often a fact most people don't realize with their planning. So by assuming the same spending over the entire retirement period people often have a bit in safety factor to their numbers.

In general the planning is again about people's ability to handle risk. If you can handle a lower safety factor on your retirement calculations you can have the reward of stopping work earlier. If you can't handle the risk work longer.

Tim (am I up to four cents now?)


----------



## CFR

*Retirement - How Much Is Enough ? A Simple Answer !*

Despite all attempts to complicate this issue, the answer is fairly simple and depends on the following 2 factors :

1) Desired retirement income
-no magic percentage of your working income applies in all cases, as every family situation has different retirement lifestyle desires, and you can calculate your own individual answer based on your specific facts/desires 
-two families, both earning a total of $100,000 of working income could have drastically different desired retirement incomes, ie one family might get by and be very happy with a retirement income of 30% / $30,000, while the other family might have expensive retirement desires, and need 100% / $100,000, as their retirement income

2) Sustainable Investment Rate of Return
-this is the critical issue in determining how much, and unfortunately, most investors are mislead on this factor by the financial pedlar industry
-the general guideline is purported to be 4%
-therefore, dividing $40,000 of desired retirement income by 4% equals a required investment portfolio of $1,000,000
-however, dividing the same $40,000 of desired retirement income by 8% equals a required investment portfolio of $500,00
-the $500,000 difference can result in people working way too many years or even decades that are completely un-necessary
-at CFR, we believe that the 4% guideline is ridiculously too low, even bordering on fraudulent, and promoted by financial pedlars to cover up their high fees and poor investment results
-in today's great buying opportunity stock market, achieving an 8% sustainable rate of investment return is easily possible

Bob Novoselac B.Admin., C.A.
www.cfrca.com


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## archanfel

CFR said:


> Despite all attempts to complicate this issue, the answer is fairly simple and depends on the following 2 factors :
> 
> 1) Desired retirement income
> -no magic percentage of your working income applies in all cases, as every family situation has different retirement lifestyle desires, and you can calculate your own individual answer based on your specific facts/desires
> -two families, both earning a total of $100,000 of working income could have drastically different desired retirement incomes, ie one family might get by and be very happy with a retirement income of 30% / $30,000, while the other family might have expensive retirement desires, and need 100% / $100,000, as their retirement income
> 
> 2) Sustainable Investment Rate of Return
> -this is the critical issue in determining how much, and unfortunately, most investors are mislead on this factor by the financial pedlar industry
> -the general guideline is purported to be 4%
> -therefore, dividing $40,000 of desired retirement income by 4% equals a required investment portfolio of $1,000,000
> -however, dividing the same $40,000 of desired retirement income by 8% equals a required investment portfolio of $500,00
> -the $500,000 difference can result in people working way too many years or even decades that are completely un-necessary
> -at CFR, we believe that the 4% guideline is ridiculously too low, even bordering on fraudulent, and promoted by financial pedlars to cover up their high fees and poor investment results
> -in today's great buying opportunity stock market, achieving an 8% sustainable rate of investment return is easily possible
> 
> Bob Novoselac B.Admin., C.A.
> www.cfrca.com


Geez, no wonder so many retirees are crying foul. When would people understand that you are not suppose to put your money in the stock market if you can't afford the risks. 

If you really want to be in the stock market, give FIRECalc a try. According to it, $500,000 with $40,000 yearly spending over 30 years have a 16.5% success rate in the stock market.


----------



## ethos1

Tim said:


> Well one post can spin off a lot of talk.
> 
> Tim (am I up to four cents now?)


10-cents and a free coffee at McDonalds

I still say & I'm sticking to it that your statement #1 as posted is "not true"


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## CanadianCapitalist

CFR said:


> 2) Sustainable Investment Rate of Return
> -at CFR, we believe that the 4% guideline is ridiculously too low, even bordering on fraudulent, and promoted by financial pedlars to cover up their high fees and poor investment results
> -in today's great buying opportunity stock market, achieving an 8% sustainable rate of investment return is easily possible
> 
> Bob Novoselac B.Admin., C.A.
> www.cfrca.com


I'd like to know how a 8% withdrawal rate is "sustainable". I'd like to see Monte-Carlo simulation results if you have them because you are making a truly astonishing claim here.


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## CFR

*Is the stock market too risky for retirees ?*



archanfel said:


> Geez, no wonder so many retirees are crying foul. When would people understand that you are not suppose to put your money in the stock market if you can't afford the risks.
> 
> If you really want to be in the stock market, give FIRECalc a try. According to it, $500,000 with $40,000 yearly spending over 30 years have a 16.5% success rate in the stock market.



I always have fun asking financial pedlars (ie those who are compensated on commission/wrap fees) to consider the example of an 80 year old man, and what advice they would give this 80 year old. According to their pedlar guidelines, the person should have their age percentage, ie 80% in fixed income products, with only 20% in stocks.
Then, I tell the financial pedlar that I know of an 80 year old man who has 100% of his net worth in the stock market. To make matters even "worse", the 80 year old man has all of his stock market investment in only one company. At this point, the financial pedlars tell me that this 80 year old man must be risk crazy, and beg me for his name so that they can "straighten out" this person.
I then tell the financial pedlar that they could contact Warren Buffett.

Or, lets consider the stock of the Royal Bank, trading a year ago at $50 with a $2 dividend, ie 4% yield. However, recently during Feb/09, with investors acting on exaggerated fears, Royal Bank shares hit a low of approx $25, ie now 8% yield on the same $2 dividend. Using very simple common sense, my clients and I were buying during Feb/09. Would you consider buying Royal Bank at $25 risky ? Or, was buying it at $50 risky when the stock market was at a high and investors had warm/fuzzy feelings ?

Buying stocks thru financial pedlars and/or Firecalc is risky.

Buying stocks thru an unbiased hourly based planner is safe.

Bob Novoselac B.Admin., C.A. 
www.cfrca.com


----------



## ethos1

CFR said:


> Despite all attempts to complicate this issue, the answer is fairly simple and depends on the following 2 factors :
> 
> 1) Desired retirement income
> 
> 2) Sustainable Investment Rate of Return


That was a very good explanation

to add a twist to de-complicate

in a new sub-division live four individual families, mid 20-somethings with two children all the same age (pleasantville 1950's or Peyton Place)

Each have the same amount of mortgage at the same rate with the same bank & only pay what they have to over the 25 years they have mortgages.

The net take home pay of each of the single earner in each family is wide by comparison 1 - 4 by as much as $50k per year

Neither of them has a DBP, stock options or employee stock purchase plan

They decide as a group that the only savings & investments they will nest egg for retirement is to max out the RRSP's and TFSA, all invested in the same way

The highest earner spends all of the excess cash over the lowest earner on toys, vacations, eating out, buying designer clothes and changing cars every two years, even holds the annual outing or street party for the four families 

The lowest earner, the modest of all four will probably live within their means, to not take on any debt they cannot afford to pay

30-years + down the road they all decide to retire

In the end you need to ask - who saved the most or has the most money for retirement , which of them enjoyed their life the most & who will end up being broke or be depressed first

Tim's #1 remains unanswered and I still stick with my response to it as "not true"


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## Sampson

Sorry Bob, but your argument doesn't hold much weight with me.

Here you are criticizing 'peddlers' for creating a 100% allocation in equities for an 80 year old. This I agree with, if they argue 80% fixed income, 20% equities and then go on to sell something else - that's not right.

But neither is telling someone an 8% yield from RY is secure.

So were you suggesting to 80 year old clients that 100% of their portfolio should have gone into RY when it was yielding 8%?

Or were you doing the responsible thing as you propose, and suggesting the 80yr old have 20% of their portfolio in RY - and 80% in fixed income? If you did this, how is their portfolio going to return 8%?


----------



## CFR

*80% Buffett Invested v 80% Pedlar Invested ?*



Sampson said:


> Sorry Bob, but your argument doesn't hold much weight with me.
> 
> Here you are criticizing 'peddlers' for creating a 100% allocation in equities for an 80 year old. This I agree with, if they argue 80% fixed income, 20% equities and then go on to sell something else - that's not right.
> 
> But neither is telling someone an 8% yield from RY is secure.
> 
> So were you suggesting to 80 year old clients that 100% of their portfolio should have gone into RY when it was yielding 8%?
> 
> Or were you doing the responsible thing as you propose, and suggesting the 80yr old have 20% of their portfolio in RY - and 80% in fixed income? If you did this, how is their portfolio going to return 8%?



Hi Sampson

Unfortunately, you have interpreted my point backwards.

If you believe that following the example of the richest man in the world, who is also the most successful investor in the world, then YES, it is OK for an 80 year old man to be 100% in stocks.

It is the pedlars who would put an 80 year old person into 80% fixed income at 5% gross return less 1.5% pedlar wrap fees = 3.5%, less of course inflation and taxes for net return of likely 0%.

For the record, the Feb/09 RY $25 price, was both a screaming buy and a secure 8% sustainable cash rate of return.

However, like Warren Buffett, while I don't believe in the gross over diversification that most pedlars push, I do believe in a fairly concentrated portfolio with resonable diversification. With respect to RY, I would not suggest having more than 20% of your investment portfolio in it. Note that pricing is key, and at $50 per share, I would not suggest buying any RY.

Just love this debate !

Bob Novoselac B.Admin., C.A.
www.cfrca.com


----------



## archanfel

CFR said:


> I always have fun asking financial pedlars (ie those who are compensated on commission/wrap fees) to consider the example of an 80 year old man, and what advice they would give this 80 year old. According to their pedlar guidelines, the person should have their age percentage, ie 80% in fixed income products, with only 20% in stocks.
> Then, I tell the financial pedlar that I know of an 80 year old man who has 100% of his net worth in the stock market. To make matters even "worse", the 80 year old man has all of his stock market investment in only one company. At this point, the financial pedlars tell me that this 80 year old man must be risk crazy, and beg me for his name so that they can "straighten out" this person.
> I then tell the financial pedlar that they could contact Warren Buffett.
> 
> Or, lets consider the stock of the Royal Bank, trading a year ago at $50 with a $2 dividend, ie 4% yield. However, recently during Feb/09, with investors acting on exaggerated fears, Royal Bank shares hit a low of approx $25, ie now 8% yield on the same $2 dividend. Using very simple common sense, my clients and I were buying during Feb/09. Would you consider buying Royal Bank at $25 risky ? Or, was buying it at $50 risky when the stock market was at a high and investors had warm/fuzzy feelings ?
> 
> Buying stocks thru financial pedlars and/or Firecalc is risky.
> 
> Buying stocks thru an unbiased hourly based planner is safe.
> 
> Bob Novoselac B.Admin., C.A.
> www.cfrca.com


Firecalc is not a stock broker, it's an online calculator, how can you buy stocks thru it? For somebody working in the financial industry, that sounds pretty, well, let's say unprofessional. 

I think we got another believer of market timing here. The price is not important at all, otherwise Lehman Brothers would be a great buy in Sep. Even if you are timing the market, you want to look for value rather than price.


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## archanfel

steve41 said:


> I see a lot of financial plans created by financial planners, and I can't remember the last time I saw anything in excess of 6% as a market rate of return. Most of the good ones go with 4 or 5%. Any time your advisor starts injecting 'leverage' into the conversation, or 8-10-12% rates of growth, be afraid... be very afraid.
> 
> Most monte carlo simulations examine investments in a vacuum. To get a better feel, you need to include all the non-investment entities in the MC... CPP, OAS, loans, salary, real estate, and of course, income tax.


Try FireCalc. It's pretty good (albeit geared towards Americans). However, my feeling is that if you put too many variables into the equation, the conclusion become useless since there are too many assumptions.


----------



## George

Tim said:


> I believe *New Rules of Retirement* that made mention of the fact that retirement spending actually goes down with age which is often a fact most people don't realize with their planning. So by assuming the same spending over the entire retirement period people often have a bit in safety factor to their numbers.


Indeed. I've seen retirement described as having three phases (this reflects my observations of currently-retired people):

1) "Go-Go" - this is the phase where people are still relatively young, travel a lot, and aim to accomplish everything on their "bucket list". 

2) "Slow-Go" - this is the phase where people settle into a fairly predictable daily routine. They aren't travelling as much, but they're still involved in activities they enjoy.

3) "No-go" - this is the phase where health issues become more pronounced, and routines become more constrained. People aren't likely to travel much at this point, and they may be confined to some sort of nursing home or assisted living facility.

On average, expenses are highest in the "Go-Go" and "No-go" phases, and lowest in the "Slow-go" phase. For many retirees, the "Go-Go" phase might last 3-5 years, the "No-go" phase might only last 1-2 years, and the "Slow-go" phase might last 25+ years.


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## ethos1

archanfel said:


> LOL. I'd say it's a bad idea for a financial adviser to look for business in any financial forums. You will just get knocked around left and right.


we wouldn't do that would we 

Bob has gone awfully quiet

Hey Bob are you there, what about it, answer some of my posts to you


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## Sampson

>>"Unfortunately, you have interpreted my point backwards.

>>If you believe that following the example of the richest man in the world, who is also the most successful investor in the world, >>then YES, it is OK for an 80 year old man to be 100% in stocks."

i don't believe I did interpret incorrectly.

You argue against following the advice of other financial planners. They pitch asset allocations far too risky in order to get their commissions - fair enough. Agree 100%

Then you discuss how you could help someone produce a sustainable 8% return. And the only examples of how you could do this is through investing in equities (and REITS).

But as you point out when describing the negative aspects of other advisers (ie. over allocation in equities and too much exposure to market risk) you do not mention how you could produce the same 8% return for an 80 year old - for whom all academic research in portfolio risk points out that should only have a small weighting in investments with any sort of beta.

Invoking Warren Buffet doesn't really serve a purpose. We all have read what he writes, but how many of us (Zero) has done what he has? (aside from maybe Prem Watsa)


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## Ben

Can I be the only one wondering what all this talk about REIT's, NAV's, AFFO's (surely UFO's cannot be far off next..) has to do with the topic of the thread, "How much do you need to retire?" 

It's good theatre, I have to admit, but the troupe could create a new thread for a playhouse...


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## CanadianCapitalist

Ben said:


> It's good theatre, I have to admit, but the troupe could create a new thread for a playhouse...


Good point Ben. I'll be moving this discussion to a new thread.


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## steve41

I am sure this has been pointed out before, but this 'how much' question has to be qualified. For the 30 yearold shooting for a $40K retirement lifestyle, the required nest egg needs to be 1.9M (RRSP) or 1.6M nonreg. (Using a 4% ror and 2% inflation, living in BC)

For a current 65 yr old retiree, that number is 650K rrsp and just 570K nonreg.

(This is assuming the nonreg is taxed as interest. For a dividend and/or capgains content, the required nonreg asset would be lower yet)


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## steve41

To show fully the effect of tax on the financial planning process... if the tfsa had been with us long before now, that number reduces to 460K.


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## steve41

Sure you can. As long as you are prepared to live a pre-retirement lifestyle (diet) of roughly $2K per year. Once you get to 65, then the $40K lifestyle kicks in. Not a particularly fun way to go, however.


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## ethos1

CFR said:


> Recently, a retired couple came to me holding BMO dividend fund, ie cash yield 6% less 2% MER = 4%. After coming to me, they sold out this BMO dividnd fund, purchased Riocan and several other investments, that now results in a 10% cash yield, ie TWO AND ONE HALF time more monthly cash flow for them. No complaints yet.


I question the quote above & wonder since I have a curious mind as well _I am from missouri_ how is this all possible getting 10% return today

Based on the investment, will it be still be 10% next week or 12-months from now or is this in flux.

What about the capital those retirees have invested, is that also guaranteed to be the same 12-months from now

how much MER & how much management fees as well as the tax on the cash yield - what is the net cash in hand these retirees are getting?


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## ethos1

CFR said:


> ]
> -at CFR, we believe that the 4% guideline is ridiculously too low, even bordering on fraudulent, and promoted by financial pedlars to cover up their high fees and poor investment results
> -in today's great buying opportunity stock market, achieving an 8% sustainable rate of investment return is easily possible
> 
> Bob Novoselac
> www.cfrca.com


thats as close to a guarantee as its gets, even in todays market, or have I misinterpreted it 

But what about ongoing - say 20 years from now, or even 5-years from now

Am I reading that the poster is saying they can always do two times better than a pedlar, or is the firm saying to their clients to switch to them again saying we can do better than what you are getting today


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## Sampson

ethos, I'm hoping it can be sustained for 55-60yrs. If that's the case, then I'm in!


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## ethos1

Sampson said:


> ethos, I'm hoping it can be sustained for 55-60yrs. If that's the case, then I'm in!


I'm with you also, but in my case I do not have 50-60 years

The target of 8% -10% pre tax, pre-MER is way too low

I'd like to see 10% net after tax and all expenses


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## steve41

If you can luck into a (nominal) rate of return of 10.8%, then that $500K RRSP will see you through a $40K after tax lifestyle from age 30, before it runs out at age 95. This assumes no CPP and full OAS.

Best of British luck!


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## CFR

*More free time / advice !*



ethos1 said:


> thats as close to a guarantee as its gets, even in todays market, or have I misinterpreted it
> 
> But what about ongoing - say 20 years from now, or even 5-years from now
> 
> Am I reading that the poster is saying they can always do two times better than a pedlar, or is the firm saying to their clients to switch to them again saying we can do better than what you are getting today



Hi Ethos1

With respect to your post regarding the BMO dividend fund, this switch from BMO dividend 6%gross - 2% MER = 4% to Riocan/other investments happened during Mar/09, with Riocan purchased at a yield of 11%, therefore it was easy to get an overall yield of 10%.

MER ? ZERO with Bob !
Bob is frugal (cheap !) - as noted before my annual hourly fees range from $500/year to $1,500/year for most clients.
My clients generally have self directed accounts, or if they want a full service broker, I refer them to a broker that has pre-agreed to 0% wrap fee, and instead he charges a 1.5% commission per trade, ie no activity = no fee for him - this broker advised me that he has now switched approx 80% of his clients over to a 1.5% wrap fee, and although he is not really looking for more old style commission clients, especially buy & hold types, he will take my clients as he like new business if the group volume is high

So, net return to my clients of their 11% Riocan yield - rounds to 100% !

Ethos1, as is your chronic challenge, yes , you have misinterpreted me again regarding guarantees - please re-read, maybe a few times, my previous reply to you about guarantees

Does Bob always get clients DOUBLE the return v pedlars ?
Answer is an obvious NO ! In some cases, we can get the client more than DOUBLE their existing return by lower fees / better investments, and sometimes we can't - However, I have NEVER had a case where my fees were more than any pedlar.

Lower fees, and better investment results are just two of many issues !

Truly unbiased advice is the real starting point.

I met with a 73 year old man last week, still working full time, who was talked into buying $100K of mutual funds by a pedlar, using 100% debt. Now, the loan has increased for unknown reasons to $115K, with the mutual fund is down to only $90K for an underwater situation of $25K. These situations are difficult to unwind, and such "portfolio rescues" are unfortunately what I am presented with far too often, due to significantly conflicted advice being followed.


Does this mean that we are dating again ?


Bob Novoselac B.Admin., C.A.
www.cfrca.com


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## archanfel

CFR said:


> Hi Sampson
> 
> EXCELLENT POINT !
> 
> Intrinsic value, as defined by Buffett and other great investors, is the net present value of all FUTURE cash flows from an investment.
> 
> Past history, while it can provide useful guidance, should never take the place of focusing on the investments future prospects.
> 
> With respect to Riocan, or any other investment, in order to protect your investment for the next 20 years or more you can :
> 
> 1) Do indepth research, ie go far beyond reading the same 3rd party reports that everybody else does, ie participate on conference calls, directly call CEO/CFO (although some don't like to get calls from Bob ?), dig deep on all financial statement / securities circular/other filings, visit various malls/properties and talk to both tenants/mall managers, etc, etc - see the Investment Research section of my website for more )
> -such indepth due diligence will help, not guarantee, your ability to predict future prospects for the business/investment
> 
> 2) Re-Evaluate Constantly
> -although only 7 of Canada's 30 REIT's pass my strict investment criteria, the 7 do NOT get a pass for life
> -I constantly re-evaluate both my 7 quality REIT's, and also the other 23 REIT's to see if any changes are warranted
> 
> 
> Riocan, as with any other currently good investment, can't be purchased and than forgot about for 50 years. However, by following the above 2 steps, you can get some early warning signals if it becomes necessary to move on.
> 
> Between constantly re-evaluating existing investments, and also constantly seeking new investments that pass my strict investment criteria, Bob stays busy !
> 
> Unless, of course, I get sidetracked for hours on internet forums ?
> 
> Thanks again for the great future v past history point !
> 
> Bob Novoselac B.Admin., C.A.
> wwwcfrca.com


All sounds good and every actively traded mutual fund manager probably will tell you they do the same thing. Moreover, I suspect some of them can probably get to the CEO/CFO directly whereas Bob has to charm the secretary first.  

The problem is of course as soon as early warning signals start to appear, all the fund managers will start to move on. If the secretary had a flu that day, Bob might miss the boat. And as soon as a good new investments appears, everybody will jump on it, whereas Bob is too busy chatting on an Internet forum to notice. And since Bob is not investing directly for his clients, maybe one of his clients is on vacation for two weeks, too bad for him. 

And of course the better question is if Bob is so good, why is he not a multi-billionaire already? Why are his stocks under water? Didn't he get the warning signals? What would happen if a client needs the money and his stocks are underwater?


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## CanadianCapitalist

The discussions on RioCan have been moved to this thread:

http://www.canadianmoneyforum.com/showthread.php?t=245


----------



## CFR

*Still Testy ?*



archanfel said:


> All sounds good and every actively traded mutual fund manager probably will tell you they do the same thing. Moreover, I suspect some of them can probably get to the CEO/CFO directly whereas Bob has to charm the secretary first.
> 
> The problem is of course as soon as early warning signals start to appear, all the fund managers will start to move on. If the secretary had a flu that day, Bob might miss the boat. And as soon as a good new investments appears, everybody will jump on it, whereas Bob is too busy chatting on an Internet forum to notice. And since Bob is not investing directly for his clients, maybe one of his clients is on vacation for two weeks, too bad for him.
> 
> And of course the better question is if Bob is so good, why is he not a multi-billionaire already? Why are his stocks under water? Didn't he get the warning signals? What would happen if a client needs the money and his stocks are underwater?



Hi Archanfel

Just when I thought that we had some kind of peace, you're still testy ?

Despite sometimes having a tough time getting thru to the CEO/CFO, I do get thru. However, bigger point is that jumping out / in of an investment is generally a gradual process, and NOT something done immediately.

Why is Bob not a multi-billionaire ? As I have stated before, I don't claim to be perfect, and I have made lots of business/investing mistakes. However, my clients and I are getting an 8% sustainable rate.

Yes, as I noted before, some of my late 2008 investments, like Buffett and Prem Watsa, are currently underwater, however I do believe that they will recover in the long run. Other investments, like my Feb/09 $12.15 Riocan purchase are up 20%. Clients who can't afford to leave money in an investment for at least 3-5 years don't make stock investments, and in this way, they never get caught in a cash squeeze, even if they have stocks temporarily underwater.

Archanfel, I am just trying to help fellow investors challenge the 4% myth, and not claim to be perfect.

If you disagree, and are content with your 4% sustainable rate return, good for you, but why get testy about it ?


Appears that I can charm CEO secretaries more than I can charm you ?


Bob Novoselac B.Admin., C.A.
www.cfrca.com


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## Sampson

I think this discussion has reached a 'matured' state.

"The number" can be debated for endless pages (as is evident), but an EQUAL, well actually, MORE IMPORTANT factor should be portfolio management.

Modern portfolio management research suggests that asset allocation is THE single most important factor in determining not only portfolio returns, but also downside potential.

So maybe the discussion should not be focused on what 'great' returns we can achieve (since the S&P 500 averages 11.5% gross anyway - better than any of the returns we have been discussing)

So...

What is the downside potential of your portfolio - have you minimized the beta of your portfolio while still having access to sufficient returns to meet your needs AND not deplete your asset base (if desired).


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## steve41

*How much????*

It is really a simple calculation....

-What assets (RRSP, non reg, equity) have you currently?
-What is your "salary asset"? (measured as pay&pension checks coming at you over time)
-What is your most optimistic expectation of your age at death... (then add 10 yrs)?
-What is a reasonable expectation of market growth?... (then subtract 2%)
-Do you expect your post retirement lifestyle will be less than pre retirement and by how much?
-Any future windfalls? (how much and when)

10 or 15 items of data at most. (a hell of a lot less than the Quicktax data entry you just suffered through)

Click, whirr... three seconds later you have a plan which outlines how much you can look forward to pre and post retirement in terms of spending (after tax & after inflation) as well as the size your nest egg will grow to.

Now futz around with (what-if) an earlier retirement age and a higher&lower rate. Or montecarlo the rates and get a hi-lo-med result.

This is not rocket science.


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## Jon Chevreau

I just blogged on a reader whose Dad wanted to retire at 55 long before London Life ever came up with the Freedom 55 slogan. He ended up overshooting but his son -- my reader/correspondent -- emulated his frugality and more importantly the need to set a figure, however outlandishly high it seemed at the time.

Turns out his figure was $2.2 million; quite close to the $2 million I mentioned earlier and in the column in the paper A figure, I remind people, that is for those WITHOUT the juicy inflation-indexed pensions that teachers and most government workers enjoy, and some executives.

Here's the blog, which I also linked from a few minutes ago on Twitter:

http://bit.ly/FgwPc


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## George

2.2 Million is a ridiculously high number IMHO - it's enough to generate $88000 a year in today's dollars. Sure, that's a sweet income, but it's also far more than what most working-age people earn each year.


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## steve41

OK.... once more.

If indeed our guy's father found that the $2.2M was just sufficient for his retirement lifestyle, (it amounts to around 73K net after tax assuming 5% growth and 2% inflation with full cpp/oas) then for his son (30 years younger say), he will need a savings nest egg of $3.8M to acheive exactly the same lifestyle at 55.

Age and inflation make a major difference in these "how much do I need" computations.


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## steve41

A freedom55-er can look forward to a $1800 a month after tax income with a $250K nest egg, including full cpp/oas. Certainly works for me (as long as you own your own place)


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## George

steve41 said:


> A freedom55-er can look forward to a $1800 a month after tax income with a $250K nest egg, including full cpp/oas. Certainly works for me (as long as you own your own place)


You can't claim for CPP until age 60 (at the earliest) and OAS doesn't kick in until age 65.

Also, keep in mind that CPP benefits are based on how much you've paid into the program. If you stop work at 55 and don't pay anything in from age 55 onward, the CPP benefits will be reduced accordingly.


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## steve41

> You can't claim for CPP until age 60 (at the earliest) and OAS doesn't kick in until age 65.


Yes. I accounted for that. The RRSP draws down heavier in order to bridge the gap between 55-65, then relaxes.


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## ubiquitous

ceejay77 said:


> the minimium amount I think is 250,000 in the bank placed in a term deposite at best interest term,a basic lifestyle required but still comfortable existance.


We "retired" at age 50 with around $200k in the bank and no debts. I put "retired" in quotes because we didn't actually retire completely - we basically just traded in a high-stress urban lifestyle for a completely laid back rural way of life. Anyway, we farted around for a couple of years then got low-stress part-time jobs doing stuff that is kinda fun. We currently live off our employment income. We'll take early CPP, but probably work to 65 if we are still happy working.

I think the important thing is to not be in that mindset where you need to golf, go on fancy vacations, and own the latest electronic toys. We are very frugal and have simple tastes.

I expect that the rest of my retirement will be comfortable, but not luxurious. If you want luxurious, go ahead and work your *** off for 40 years then die of a stroke at age 66.


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## ethos1

ubiquitous said:


> We "retired" at age 50 with around $200k in the bank and no debts. I put "retired" in quotes because we didn't actually retire completely - .


that was us back in 1991 when we were 44 years old



> we basically just traded in a high-stress urban lifestyle for a completely laid back rural way of life. Anyway, we farted around for a couple of years then got low-stress part-time jobs doing stuff that is kinda fun. We currently live off our employment income. We'll take early CPP, but probably work to 65 if we are still happy working..


that is the key thing & its not about dropping out totally.

After just over 3-years of doing what was necessary in life with my wife & family during that period we began living off life savings & RRSP's, I also worked PT for grocery money. In late 1994 I went back to working for _the man_ in what I consider to now be a dream job. At 62, I am still working & its not for money or wealth accumulation - I just love my totally flexible 5-days per week 9-5 job.

We started collecting CPP at 60 which today for the both of us at this time is just over $1000/mth combined.

My wife has not been in the active workforce (working for an employer) since 1978 when our first child was born. She has her own private small income (not from an inheritance, gift or the lottery) that is generated from investments mainly as a result from melted down spousal RRSP's over the past 20-years

We have other passive income from realestate which today is around $1200/mth net from a 100% fully leveraged income property

We also have my salary income + other traditional investment income & cash savings



> I think the important thing is to not be in that mindset where you need to golf, go on fancy vacations, and own the latest electronic toys. We are very frugal and have simple tastes..


So accumulating zillions of dollars to retire is not really necessary - each to their own

cash flow is key, not the tens or hundreads of thousands stashed in banks, term deposits, TFSA's or RRSP's


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## bpither

_If you want luxurious, go ahead and work your *** off for 40 years then die of a stroke at age 66.
_
This is a true story but one you have heard before. My neighbors in the next door condo were planning all kinds of retirement activities. Husband retired in May of last year at age 65. A couple of months later he was diagnosed with ALS and is slowly and cruelly descending into hell.

Every day I am happy for having lived a full life, ever cognizant of my own fragility. I've never worked hard or been "busy", as most would define their lives as some kind of attribute, in my life. If you want a picture of where you are going with all that noise take a walk through your local graveyard and THINK.

As some wise person wrote once, "I've never seen a U-haul behind a hearse"


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## steve41

He couldn't have been all that wise. He spelled it wrong... hearse not hearst.


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## DrStan

CFR said:


> I always have fun asking financial pedlars (ie those who are compensated on commission/wrap fees) to consider the example of an 80 year old man, and what advice they would give this 80 year old. According to their pedlar guidelines, the person should have their age percentage, ie 80% in fixed income products, with only 20% in stocks.
> Then, I tell the financial pedlar that I know of an 80 year old man who has 100% of his net worth in the stock market. To make matters even "worse", the 80 year old man has all of his stock market investment in only one company. At this point, the financial pedlars tell me that this 80 year old man must be risk crazy, and beg me for his name so that they can "straighten out" this person.
> I then tell the financial pedlar that they could contact Warren Buffett.
> 
> www.cfrca.com



Uh, by the way, it's not only "one stock". Berkshire Hathaway is a vastly diversified conglomerate with investments in consumer products, insurance, etc., etc. The company holds about 40 stocks. So you could say he has a 40-stock portfolio. 

An argument putting Warren Buffett, a multi-billionaire who has built his fortune on savvy investments, in the same mold as a typical 80-year old man is corny at best. That's the kind of argument that could get one laughed out of a room.


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## Rickson9

My wife and I have our entire stock portfolio invested in 6 stocks; accumulating approximately 1 stock every 2 years for the last decade. 

We copied the investment strategy laid out by Benjamin Graham replacing cigar butts with the unsmoked variety. It is mind boggling how fast an undiversified group of tiny companies can compound so quickly.


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## ethos1

DrStan said:


> An argument putting Warren Buffett, a multi-billionaire who has built his fortune on savvy investments, in the same mold as a typical 80-year old man is corny at best. That's the kind of argument that could get one laughed out of a room.


Buffett is that 80 year old guy (well 79) who is not getting too many cheers as he approaches 80


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## Spidey

Jon,

I'm a big fan and have been reading your columns for years. I guess its very individual but my wife and I wouldn't need anywhere near $100,000 to have a comfortable retirement and that would even include travel. We took some time off work and found many expenses were lower - auto and fuel, clothing, insurance, less convenience foods, etc. On top of that once I'm retired my 3 kids will be on their own we will save even more - no hockey payments, food and hot water savings, etc. 

Like I said, it's all very individual but assuming a paid for house and no debts, I would say my wife and I could be very comfortable on $50,000 per year.


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## steve41

A household $50K net income, if you were retiring now at age 60, would require a $686K RRSP nest egg split evenly between you and wife. (assuming 4% growth, 2% inflation, living in BC, full cpp/oas, no pension, and dying broke at age 95)

This seems a bit more sensible than the 2.2M.


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## Dividend Growth Investor

To me in order to determine how much you need to save to retire you should first estimate your annual expenses. If you spend $1000/month, that's about $12,000/year. If you have a $200,000 nest egg, you need to buy dividend stocks that would yield 6% in order to generate the $12,000 dividend income.
However you should also make sure that your dividend income increases at least by the annual rate of inflation.
In addition to that, if you would like to increase the longevity of your portfolio in retirement, I wouldn't spend more than 3.5-4% annually off the total value of my portfolio. Thus even if you find a Can Roy with a sexy dividend yield of 12%, you should still only spend no more than 3.5-4% of your portfolio. Otherwise if you get a dividend cut, your lifestyle won't be affected as much.

In this scenario, if you need $24K/year but only have a $200K nest egg to invest then even if you find that canroy with a 12% yield, you are not ready to retire. For a $24K/year income I wouldn't stop working untill I have at least a $600K balance in my retirement accounts.


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## Maltese

A few years ago our local newspaper had an article about how much money is needed in retirement. The author referred to a formula devised by Manulife that makes a lot of sense to me. Here it is:

Gross income while working - income tax paid - $ saving for retirement X 60% to 69% = net amount needed for moderate lifestyle,

70% to 84% = net needed for comfortable lifestyle
85% to 100% = net needed for very well off lifestyle

The amount I got when I did the Math was very close to how much I thought I'd need.


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## Dividend Growth Investor

Of course needing a percentage of your salary income in retirement is a silly exercise without acknowledging what your major expense items are going to be.
For example, most people with a mortgage would have it all paid up when they retire. This throws out a huge chunk of income that the "experts" might tell you you needed. If you save too much, you end up working too much or taking up more risk than you could afford.

Of course everyone has a head on their shoulders, so I guess unless you fail at something you wont learn ;-)


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## ethos1

Dividend Growth Investor said:


> Of course needing a percentage of your salary income in retirement is a silly exercise without acknowledging what your major expense items are going to be.
> For example, most people with a mortgage would have it all paid up when they retire. This throws out a huge chunk of income that the "experts" might tell you you needed. If you save too much, you end up working too much or taking up more risk than you could afford.
> 
> Of course everyone has a head on their shoulders, so I guess unless you fail at something you wont learn ;-)


depends on the time of life, your health, your status (single or cohabiting) & I plan to go right to 65 and beyond (not needing the employment income)

For me and my wife both 62 years old (no debt & home paid for) we figure we can live OK & do it on the Canadian government OAS, CPP & GIS without drawing down any capital, which reminds me we should start spending it before the kids rub their hands together


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## steve41

200,000 in what? inside or outside your rrsp? Also, define retirement..55/60/65?  These make a big difference in determining what that final lifestyle in retirement is. And, of course, are we talking about a current retiree's nest egg, or the size of that nest egg 10/20/30 years out?


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## martinv

Just read all 16 pages, whew!
No one mentioned the cost of "working" which can be quite substantial.
eg. transportation, clothes, grooming etc.
I would suggest a monthly minimum of $500 after tax dollars and could easily be $1000.
It should certainly be in any retirement calculation but I have seldom seen it mentioned by the "planners".
m


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## canadianbanks

I'll need about 50% of my current income to retire comfortably, adjusted for inflation of course.


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## steve41

martinv said:


> Just read all 16 pages, whew!
> No one mentioned the cost of "working" which can be quite substantial.
> eg. transportation, clothes, grooming etc.
> I would suggest a monthly minimum of $500 after tax dollars and could easily be $1000.
> It should certainly be in any retirement calculation but I have seldom seen it mentioned by the "planners".
> m


I think it is like most planning parameters... everyone has a different situation depending on the nature of their work. What about the expense burden associated with raising/supporting children? Or, on the other hand, what about increased health care expenses in retirement.

Planners have rules of thumb 75%, 80%, etc which reduce the living costs pre/post retirement. Heck you could even increase that percentage past 100% in anticipation of an active, travel-filled retirement... or increased medical needs. It's a crap shoot.


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## martinv

> It's a crap shoot


You are right! An infinite number of variables, so there is no one "correct answer".
A friend, who was a banker (anectdotal info) says every customer he had dealings with was concerned about not having enough savings/income for retirement. Yet, once retired, not one of them reported spending more than they had budgeted for. They all found they spent far less. Perhaps people are just more conscious of their spending habits once retired.
m


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## George

I think part of it has to do with planning, but another large part of it has to do with lifestyle. When people are working they often feel compelled to spend money to "take a break" - travelling, vacations, buying electronic gizmos, etc.

When you're retired, you have the luxury of time. Time to relax, time to think about things, and time to enjoy life, often at a slower pace. Spending money isn't as important or necessary to maintain a happy lifestyle, so your spending naturally goes down. This isn't always the case, but it is common for many retirees.

Also, many of the large expenses that exist for working folk disappear after retirement - once retired most people have their house paid off, the kids are grown and out of the house, and they no longer need to commute to work daily. The reductions in housing, food, utilities, and transportation costs can be huge...


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## apples

... not to mention 20-50% of the retirement income is almost a given for most of people, in the form of government pension - cpp and osa benefits, assuming an average working life in Canada. the higher the working income, the lower the percentage of income is needed to cover post-retirement expenses.


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## FeeOnly.ca

May I suggest a better way to approach the issue. 

Just do the math:

1. Do a budget of your expected expenses in retirement (cost of lifestyle)

3. To get your gross income add an income tax amount.

Example: Retirement Lifestyle $30,000 + $10,000 in income tax = to get your very own *personalized estimate of actual need*.

In this case *the need is for $40,000 gross income *

Now deduct sources of retirement income:

Example: $10,000 CPP + $4,000 OAS + $10,000 pension = $24,000

*The income is $24,000*

*All focus should be on solving your personal shortfall of of $16,000*

The other thing to consider is, now you can try and reduce the $10,000 income tax factor. If you are sucessful your Lifestyle goes up and your gross income needs go down.


The rule of thumb such as 50, or 70% of preretirement income approach ignores all the very real and personal data we each have to draw from. 

Why guess when you can do the math on the back of a napkin?


Graham


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## CanadianCapitalist

FeeOnly.ca said:


> Why guess when you can do the math on the back of a napkin?


Only thing I'll add is to build a bit of a buffer and have something to tap into if more money is needed. Say a fully paid off home that can be sold if more money is needed for whatever purposes.

Unfortunately, most people don't track expenses, so have no idea how much they need to live on. That's why these percentage-of-income thumb rules will continue to be popular (and debated).


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## steve41

Let's think about this for a minute...

We (generally) know...
- how much we have in savings (inside&outside our RRSP)
- our current gross salary and its expected behaviour over time, including a retirement date
- the pension parameters associated with it
- the CPP and OAS rules
- the scale and timing of any future 'windfalls' such as downsizing the house or selling the cottage
- a best/worst guesstimate of rates and inflation going forward.
- the formulation of the fed&prov taxation rules

Cripes... don't you think, that with all the brains and computer power kicking around, that someone might just have made such a tool available?

A minute or two of data entry folks! Less time than it takes to post a response in this forum.


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## FeeOnly.ca

CanadianCapitalist said:


> Unfortunately, most people don't track expenses, so have no idea how much they need to live on. That's why these percentage-of-income thumb rules will continue to be popular (and debated).


That's why people don't and won't get it right on a personal level.

I say "Thumbs Down" on using rules of thumb for something so important.

It is dead easy to do a budget, much easier than the "calculus" of retirement.

Home value can be converted to a legacy or become a source for of late-in-life special needs.

Regards

Graham Cook


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## steve41

> It is dead easy to do a budget, much easier than the "calculus" of retirement.


I don't think so. Tracking/budgeting your day to day spending habits and/or forecasting them is a tedious, thankless exercise... going over your bills, checking account details, credit card purchases is a pain. Most people simply don't do it.

Plus... your spending habits change in quality and quantity over time. It's a mug's game... it is far easier to enter those above data elements in a black box than to methodically itemize your weekly/monthly/yearly spending details, IMHO.

(for what it is worth.... some of you may do this chore, so don't be offended.)


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## MoneyGal

Hee. I don't think budgeting is a "thankless" task. 

Tracking spending, on the other hand, is painful to me, and I don't do it (because I have my spending plans worked out so I don't need to. I have all my bill payments automated, and so long as I hit my debt reduction and savings goals, I don't track what I spend on gas or entertainment or anything). 

Seems to me the people who would find budgeting and tracking spending (i.e., tracking and implementing your budget, as opposed to just *making* it) the most painful are always the people who would see the most gain from it. 

I'm always kind of astounded at the bad rap that budgeting gets. It's an incredibly powerful and liberating thing to do - gives you direct access to the levers and knobs of your personal spending and your wealth-building. Where else in life can you get such direct control of your outcomes?


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## steve41

I don't want to give the wrong impression... running your cash flow projection is something you might do a couple of times a year, or whenever an extreme event occurs.. (market drops, job is in jeopardy, thinking of early retirement, etc)

Budgeting can be an almost daily exercise. They don't compare. Ideally, you use the cash flow projection to determine the broad strokes... are you saving enough/too much?... what your annual lifestyle (spending) levels should be near term/long term?

The budget/tracking exercise is useful when you combine the two activities.... "my plan suggests I should be saving $X in my RRSP and spending $Y on living costs.... is my daily/weekly budget in sync with the plan"

It's as simple as that. 

Now... picking investments which will provide the optimum growth/risk outcome is a whole different ball game.


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## FeeOnly.ca

Easy way to budget:

Last years gross income - tax paid - savings - pre-retirement expenses = Retirement Lifestyle

An estimate of your Retirement Lifestyle is easy. 

No messing around with the breakdown, just work with totals in real dollars.


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## Assetologist

I agree with you FeeOnly.
This seems to an overly simplistic method but unless you plan to pursue more expensive hobbies, travel, etc after you retire than this calculation should provide a great estimate. 

What is your retirement goal? Be Rich or Don't be Poor? Each of these requires a different and approach to living for today while investing for tomorrow.


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## steve41

How about a goal which doesn't leave your rotten kids a gazillion dollars, and yet doesn't leave you sucking air at age 75? Somewhere between those two extremes would be good. You have to determine what that level that might be. Anyone argue with that?


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## George

FeeOnly.ca said:


> Easy way to budget:
> 
> Last years gross income - tax paid - savings - pre-retirement expenses = Retirement Lifestyle
> 
> An estimate of your Retirement Lifestyle is easy.
> 
> No messing around with the breakdown, just work with totals in real dollars.


I think it's a tad more complicated than you make it seem. I'm only 32, have a mortgage and two young children. Would your formula accurately predict my "retirement lifestyle" for when I retire? Somehow I don't think it'd be as accurate as a prediction made when I'm 50, no longer have kids in the house, and have eliminated the mortgage...

The other factor to consider is that most people can adapt their retirement lifestyle to their retirement income. Many seniors I've spoken to thought they'd be jet-setting world travelers when they retired. In reality they spent six months traveling and got it out of their system, and didn't travel too much after that, other than to visit family.


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## Assetologist

George said:


> Somehow I don't think it'd be as accurate as a prediction made when I'm 50, no longer have kids in the house, and have eliminated the mortgage...


I'm pretty sure that the pre-retirement expenses' part of the formula accounts for the absence of the expenses you describe. If you can determine how much you spend on mortgage, kids, retirement savings, costs related to your job, etc then subtract them.


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## George

Assetologist said:


> I'm pretty sure that the pre-retirement expenses' part of the formula accounts for the absence of the expenses you describe. If you can determine how much you spend on mortgage, kids, retirement savings, costs related to your job, etc then subtract them.


I agree, but my point stands - it's hard to come up with an accurate estimate for a retirement "lifestyle" 20 or 30 years in advance. You can figure out a rough estimate, but it won't be very accurate until you get closer to a retirement date.


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## FeeOnly.ca

George said:


> I agree, but my point stands - it's hard to come up with an accurate estimate for a retirement "lifestyle" 20 or 30 years in advance. You can figure out a rough estimate, but it won't be very accurate until you get closer to a retirement date.


Something can be difficult if you perceive it to be that way. As a planner I work to make this stuff as simple as possible, without being too simplistic. 

Once annually, just update your data and assumptions, then recalculate to solve for the: retirement income shortfall


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## Steve19

My parents have a very unique retirement strategy which I think is quite remarkable. Their lifestyle is simple and that is the key to their strategy. I believe everyone could live off ALOT less than 70% of their income and my parents will prove this point well. However, it all depends on what you plan to do.

My father will retire at age 55 and my mother at 53. Father will have a pension of 20k/year, while my mother will have no pension. Roughly 175K in RRSP combined. Home value of 250-275k. Cottage value of 75k. One vehicle.

Their plan:
-Sell their home and rent an apartment out west. Take the 250k home value and invest it into a 4% annual yielding stock/gic to pay for rent (no principal every touched). 
-Both will work part-time at a grocery store or something similar
-For the first 3-5 years of retirement they plan to live at their cottage in Ontario during summer and falls months and fly/drive out west to their apartment during winter months. As they get older, less time will be spent at the cottage and more in their apartment. The reason why the cottage is because they enjoy the peace and quiet and it costs them nearly nothing to live their.
-Collect early CPP at age 60
-Collect OAS
-Live off of less than 40k/year combined (20k from pension, some $ from working part-time, and RRSP withdrawl)

Now, I think their strategy is a great idea because it works for them. 
What are your thoughts/concerns?


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## steve41

Assuming a modest 4% return, 2% inflation, both living to Dad's age 95, taxed in Ontario and assuming Mom collects just half the CPP max... they will attain a $42,124 combined lifestyle. They seem to be OK.

(Oh, and this doesn't require them to do any part-time work)


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## cypek57

I read all 19 pages of " How much do you need to save to retire?"
It,s very interesting thread .


Article below is also very interesting: 


*Who's broke in Canada?* Look in the mirror. It might be you.
By Malcom Hamilton | October 1999

http://www.cyberclass.net/hardworking.htm


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## MoneyGal

Cypek - that is a non-functioning link, and I can't bring it up on the MoneySense site. Can you post a working link?


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## cypek57

The link should be working now:

http://www.cyberclass.net/hardworking.htm


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## Canadian Finance

Here are a couple general calculations used to determine how much you need for retirement.

*How Much Do You Need To Retire? The 4% Rule*

*How Much Do You Need To Retire? The Rule Of 20*


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## TheMoneyGuide

CanadianCapitalist said:


> The other school, the most prominent of which is Malcolm Hamilton, argues that there is little data to support the notion that most Canadians need nest eggs of $1 million or more to retire at the traditional age of 65.
> 
> I think the latter school has a sounder argument. Most Canadians retiring at the traditional age of 65 will probably find OAS and CPP will provide most of their required income. A modest nest egg of a few hundred thousand dollars should suffice for the rest. Whether most Canadians of working age who don't have traditional pensions are on track to save up even modest nest eggs is a different story.


I would agree with this approach. $1,000,000 seems to be the sweet spot for a Canadian retired couple living a modest retirement with some annual vacation spending. 

That being said, individuals are living much longer these days and $1,000,000 may not be enough if you both live into your 90s. Depending of course on how well managed the capital is during retirement.

John


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## fraser

How much you need in retirement varies so much with individual circumstances, lifestyles, and even health.

Clearly, the 70 percent rule is not such a good yardstick. Well, it certainly was for the banks, insurance companies, and financial management firms who were very anxious for people to use high MER and high fee investment vehicles and save as much as possible. Where else can you use 2.5 percent of someone else's money with a guaranteed return to you-whether the investment is increasing or decreasing in value? 

One real issue that I see is that is becoming more and more common for people to retire with debt-consumer debt or mortgage debt. Apart from the monthly repayment amounts, it leaves some of these people very much at risk to changes in the interest rates or fluctuations in the value of homes at mortgage renewal time. I come from an environment where people owned their own homes and they were always paid off well before retirement but this appears to be a thing of the past.


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## Jon_Snow

Then there are those of us who have won the genetic lottery and will inherit $1,000,000+ amounts. How to plan for retirement when you know that in your 60's you are likely to receive such a windfall? Talking about inheritance seems to be a bit of a taboo - but it is a HUGE factor for many, myself included.


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## Daniel A.

I don't think its taboo wish I had one. 

There are billions of dollars that will make life easier for many, funny you mention the subject I had a conversation last week with someone with that very plan in mind.


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## Jon_Snow

Now understand that I am not sitting on my ***, idlying away the days until "the estate" is bequeathed to me. I work and save my *** off as though I am not going to inherit one red penny.


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## FrugalTrader

If it was me, I like the idea of using the inheritance to create a legacy. Perhaps investing the proceeds in a trust, and using the distribution proceeds for scholarships. When you pass, have someone manage the fund, but only allow the distributions to be used keeping the principal in tact.


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## Jon_Snow

I like the idea FT.


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## Itchy54

lucky you Jon snow!
Hubby and I both come from 5 children families with modest means so we do not even consider an inheritance. If it happens it will be very nice. Our son is an only child and is our only heir so he should be ok, but I know he does not think of it....hmm, better check my brakes 
It is sort of creepy to think about it.


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## pwm

How much do you need to save? Two civil servants with indexed pensions, would be fine with *zero savings.* Two government pensions, CPP and OAS probably have a commuted value of about $2 million.

It's singles with no pension plan who need lots of personal savings.


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## cheech10

The government pensions are probably integrated with CPP/OAS, but your point stands that they probably have little if any need for other savings (unless they really want to spend in retirement).


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## MoreMiles

cheech10 said:


> The government pensions are probably integrated with CPP/OAS, but your point stands that they probably have little if any need for other savings (unless they really want to spend in retirement).


Why didn't they teach this in high school? Don't be a doctor or lawyer... just go get hired by a government. Many positions require only a high school diploma and you are set for life. You can spend every penny you earn.

And you can claim travel expenses too! :neglected:


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## Daniel A.

I have a private sector DB pension my wife has a civil service pension.
Between us there is no need for additional savings for retirement but we do have some.

I expect that in our lives we stand to collect around two million.


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## nathan79

I could probably make do with very modest savings, but my goal is $500K in addition to a fully paid off house and no debts (500K in today's dollars, so whatever that adjusts to with inflation). I figured that on top of CPP and OAS, I could withdraw an additional 20K a year until I was 90 (best case scenario I think). Not worried about depleting capital since I have no heirs anyway.

Edit: I didn't really factor in inheritance (I always forget about that), so I probably needn't save anywhere near 500K in reality. I probably don't have to save much of anything, but 500K will give a good lifestyle on top of everything else.


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## Daniel A.

I've found that my lifestyle in retirement is full and cost are minimum.

If one wants to be a snowbird in Mexico for several months each winter the cost well under 2000.00 per month, condo can be had for 700.00 a month food is cheap.
In May/June and Sept/Oct I rent a pad for my trailer including internet & hydro 500.00 per month.
I spend the balance of my time in the Lowermainland.

If one is content and just happy to not work and wake up when when they feel like it knowing the bills are covered life is good.
Rush hour no worries, stay up late watch a movie do it, everything is on my schedule.
I have food and shelter and no interest in shopping for things.


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## Jon_Snow

I am probably saving more than I need to. Like Daniel, a lot my retirement will be spent in Mexico, where I am fortunate to have a home base - if you choose to eat and shop where the locals do, and NOT the tourists, costs are almost half what they are in Canada. Once retired, I have every intention of catching and growing much of my own food. Of course, I want to retire young enough so that I am still robust enough to do all this... soon, soon....


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## pwm

I retired 8 years ago at age 55. I was a saver all my life by nature. Now my after tax income is about $85k, and we spend about $35k to live on. I re-invest the surplus. We have a large new house in a semi-rural setting, 2 almost new cars, and lots of other stuff. My children will get a large inheritance because I've got everything I need. 

The idea that one needs to save millions to retire is a myth concocted by the financial institutions to get your money. What they don't consider is the commuted value of pensions.


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## HaroldCrump

pwm said:


> The idea that one needs to save millions to retire is a myth concocted by the financial institutions to get your money. What they don't consider is the commuted value of pensions.


Pensions? What pensions?
The vast majority of workers do not have the kind of tax-payer guaranteed, indexed pensions you are talking about.
We live under _Pension Apartheid_.

We can discuss whether $1M is the right number based on mathematical models and actuarial projections, but it is certainly not an outrageously high number.
If anything, it is probably quite low.
$1M doesn't buy much monthly annuity payments these days.

It is ok for early retired civil servants to have $2M commuted value pensions, but non pensioned workers shouldn't be allowed to save even $1M?
Well, in reality, most can't save that $1M anyway because _they _are paying for that $2M commuted pensions for the govt. workers.


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## uptoolate

Agree on both counts. Only pension most will have is CPP and that's pretty modest. And 1 million dollars is not all that much for a potential 30 year retirement.


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## fraser

We retired three years ago.

We used FeeOnly.ca's method based on after tax spending over the previous several years adjusted for an increase to reflect additional travel. Three years have passed. Surprise, surprise, our expenditures over the past three years are tracking to our estimates. The only difference is period adjustments-one year we had a surplus but it was swallowed up in year two. It may have worked for us because we are careful, have always been savers, and I started out my working life as a bean counter. We did not bother to break down all of the expenses. All it took was our bank statements. Monies in, monies out, adjusted for non income and non expense items such as investments and one or two non recurring items. This is all we really cared about...the rest was noise level for us.

We now have to make an adjustment to the budget because of a lifestyle change. We sold our house. Our after cash tax housing costs have increased, as has our investment income from the sale proceeds.

So for us, the process was very simple, very straightforward.


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## pwm

CPP & OAS could pay a couple about $36k per year. The present value of that payment, if it were an annuity at age 65 would be over $500k, so in effect the government is providing over $1/2 million per couple in retirement benefits. 

It doesn't take much personal pensions or savings to make for a very comfortable retirement when you consider the government benefits. 
The catch here is that applies for 2 people living together. Singles have more of a challenge.


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## fraser

The reality is that there are very few individuals who actually receive the maximum CPP. 

The last number that I saw was an average CPP payout of something like $600 month though I stand to be corrected on that number.


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## kcowan

Yes I would think the average is more like $12k to $15k for most current retirees. For DW and I, it is $25k. Still a nice contribution but not enough to live on. Of course we live in Vancouver not Regina.


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## Daniel A.

The average monthly CPP benefit as of October 2012 was $528.49.


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## GoldStone

$596.66 average as of March 2013.
http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/rates.shtml


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## fraser

I think a better view to it might be what percentage of CPP, OAS recipients, married or single, are in receipt of the Guaranteed Income Supplement.


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## MoreMiles

You guys are assuming those government socialist programs will continue to exist forever, until you retire, right?! Some people believe CPP will collapse due to baby boomers, just like OHIP / provincial healthcare. Let's face it, if you double or triple the number of recipients from baby boomer without adding young working population, where is the money going to come from? Should the Canadian government just print it just like US feds did? The catch is... Canadian currency is not accepted by the entire world as exchange currency. Only USA can get away of printing more money without worrying its acceptance.... no one else has that ability.

I would not count on CPP or OHIP to last forever if I were you.


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## Daniel A.

Socialist programs ????

Guess this means most of the world is socialist UK,EU, Australia , and many more. 

The CPP is in sound shape and will be around for many generations, various provincial health care plans will also be around just more expensive.
The impact of retiring baby boomers has already been mapped out.
Remember that as the boomers die the wealth is left behind billions and billions of dollars.


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## GoldStone

MoreMiles said:


> Some people believe CPP will collapse due to baby boomers


Ignorant people can believe whatever they want. Rather than spread FUD (Fear, Uncertainty & Doubt), spend some quality time reading CPP Actuarial Reports.

http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=498

Conclusion of the most recent report:



> Under the 9.9% legislated contribution rate, the assets are projected to grow rapidly over the next 11 years as contribution revenue is expected to exceed expenditures over that period. Assets will continue to grow thereafter until the end of the projection period, but at a slower pace, with the ratio of assets to the following year’s expenditures expected to reach a level of 5.2 by 2050. These are indicators that, despite the projected higher benefit expenditures due to an aging population, the Plan is expected to be able to meet its obligations and remain financially sustainable over the long term.


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## My Own Advisor

Thanks for sharing link GoldStone.


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## FrugalTrader

I don't think its CPP that you need to worry about, its OAS that will feel the pinch because its paid out of our tax base.


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## MoreMiles

Did these "experts" predict the 2008-2009 financial tsunami? Are these assets currently sitting in cash and immune to market fluctuation? Those "calculations" are based on ideal 10% annual market returns. No actuary will do calculation on a 50% haircut on the principal monies. They will say those are exceptional situations, right? But they happened in 2000 from dot.com then again 8 years later, then again... you get the point.

Now if our markets did not recover their 50% loss from US QE money printing... our CPP would have a lot less money in it and therefore not enough to payout our next generation.

It's not just CPP. It's like teacher's pension... buying volatile investments like hockey teams?

It's the same with our provincial healthcare. People just enjoy it and say it will never go away. Sure, you believe what you want to believe. 
http://thechronicleherald.ca/business/1130802-study-a-third-of-canadians-have-no-savings One third of Canadians are counting on food stamps and public hand-me-down to survive. We just hope these people don't live too long, right? Life expectancy has gone from 70's to 80's, or even 90's... there are a lot more mouths to be fed by the government soon.

I would rather save on my own for a raining day. I don't count CPP in my retirement plan at all. If it is there, great it's an extra bonus perhaps for my extra trip each year.


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## MoneyGal

MoreMiles said:


> Did these "experts" predict the 2008-2009 financial tsunami? Are these assets currently sitting in cash and immune to market fluctuation? Those "calculations" are based on ideal 10% annual market returns. No actuary will do calculation on a 50% haircut on the principal monies. They will say those are exceptional situations, right? But they happened in 2000 from dot.com then again 8 years later, then again... you get the point.
> 
> Now if our markets did not recover their 50% loss from US QE money printing... our CPP would have a lot less money in it and therefore not enough to payout our next generation.
> 
> It's not just CPP. It's like teacher's pension... buying volatile investments like hockey teams?
> 
> It's the same with our provincial healthcare. People just enjoy it and say it will never go away. Sure, you believe what you want to believe.
> http://thechronicleherald.ca/business/1130802-study-a-third-of-canadians-have-no-savings One third of Canadians are counting on food stamps and public hand-me-down to survive. We just hope these people don't live too long, right? Life expectancy has gone from 70's to 80's, or even 90's... there are a lot more mouths to be fed by the government soon.
> 
> I would rather save on my own for a raining day. I don't count CPP in my retirement plan at all. If it is there, great it's an extra bonus perhaps for my extra trip each year.


I don't care whether anyone includes or excludes CPP from their retirement income planning. However, it is not true that CPP bases its solvency assumptions on 10% equity market returns. Nor are the CPP funds exclusively invested in equities.


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## GoldStone

MoreMiles said:


> Did these "experts" predict the 2008-2009 financial tsunami?


CPP lost 14% in 2008. Not too bad for a once in a lifetime crash. That was the only negative year in the history of the plan, going all the way back to 1966.



MoreMiles said:


> Those "calculations" are based on ideal 10% annual market returns.


No. Not even close. Here are the assumptions from the last actuarial report. Look at the last column.



The more FUD you post, the deeper you dig the hole.


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## My Own Advisor

If I get CPP and OAS in retirement, it's a bonus. I don't put that into my savings plans today, rightly or wrongly. That way, I don't have to worry if it's around or not.


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## sags

The worker to pensioner ratio often quoted, is a bit of a red herring as well.

There will be fewer workers to support the number of retirees............but it also means the assumptions of the CPP or other pension plans, will include fewer "future" retirees, and current/near future retirees will be gone lwell within the 50 - 75 year time frame the assumptions are based on.

The Ontario Teachers Pension Plan has a prudent 3% ROI.

GM got themselves into trouble with a 9% ROI.

The difference was, for GM estimating a high ROI provided the cover for lower company pension contributions, which inflated the bottom line and made the stock look more attractive to investors. Executive bonuses were also based on the higher profits. The financial health of the pension plan wasn't a priority for GM executives.

The OTTP or CPP have only one mission...........to preserve, protect and enhance the pension fund, so inflating the possible ROI numbers would serve them no useful purpose.

They would, I am quite confident, much prefer to "surprise on the up side".


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## AltaRed

My Own Advisor said:


> If I get CPP and OAS in retirement, it's a bonus. I don't put that into my savings plans today, rightly or wrongly. That way, I don't have to worry if it's around or not.


CPP is more sound than company pension plans. It is foolish not to include it in retirement projections. 

OAS is another story as discussed upthread. It is also subject to clawback at incomes over about $78k (or thereabouts). It really should be nothing more than a social net for the impoverished (like GIS) but gov'ts are loathe to do much with it. Look at all the grief Harper got for increasing the threshold age to 67 from 65 and the effective date is far into the future.


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## sags

In theory, the OAS/GIS could be reduced or eliminated, but I don't think the political will would ever be there to implement those kinds of changes.

Until the Harper government was elected, Canada ran successive deficits and there was no discussion needed on cutting such social programs. 

A new government and some fiscal changes, will put Canada back on track.

Restore the GST............restore corporate tax levels..........legalize and tax marijuana.

There............done.............nothing to worry about.


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## Islenska

We are just basically "lucky " to be in a stable country like Canada.

CPP and OAS are gravy for us, you don't have to travel too far to realize this.

Once that is clear not too much to really worry about!


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## HaroldCrump

sags said:


> In theory, the OAS/GIS could be reduced or eliminated, but I don't think the political will would ever be there to implement those kinds of changes.


But, sags, such changes *are* being implemented.
OAS eligibility age has been raised to 67 by this very government, early CPP penalties increased, late CPP rewards increased, etc.
I disagree that the political will is not there.

OAS is nothing more than a welfare program for the rich (above certain income levels) designed primarily for the senior vote bank.
At least this govt. has done something about it (albeit not enough).



> Restore the GST............restore corporate tax levels..........


How about we reduce the outrageous compensation and pensions of the govt. workers to being with, and _then_ we can talk about raising the GST back.

I will trade you 1 bps increase in the GST for every 100 bps cut to tax-payer contribution into govt. workers pension plans.
20% cut in tax payer contribution for 2% increase to the GST and you have a deal, my friend.


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## George

"Until the Harper government was elected, Canada ran successive deficits and there was no discussion needed on cutting such social programs. "

I think what you meant to say was that until the Harper government was elected, Canada ran successive *surpluses* and there was no discussion needed on cutting social programs. Certainly it's difficult politically to cut social programs when you're in a period of surplus (why cut programs if you have the money to fund them?). The largest single drop in government revenue in recent years came from the reduction of the GST to 5%.

The CBC has a good overview here: http://www.cbc.ca/news/interactives/canada-deficit/index.html


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## My Own Advisor

All I'm saying is, CPP and OAS are cherries on the cake for me. Also, if I retire early, I cannot count on these payments for my expenses.


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## George

HaroldCrump said:


> But, sags, such changes *are* being implemented.
> How about we reduce the outrageous compensation and pensions of the govt. workers to being with, and _then_ we can talk about raising the GST back.
> 
> I will trade you 1 bps increase in the GST for every 100 bps cut to tax-payer contribution into govt. workers pension plans.
> 20% cut in tax payer contribution for 2% increase to the GST and you have a deal, my friend.


Your wish has already been granted, because employee contributions to the federal government pension plans have been increasing consistently since 2006, and will continue to do so until at least 2015. There are two levels of contribution rates - a lower rate for contributions below the Yearly Maximum Pensionable Earnings under CPP, and a higher rate for contributions made for salary that exceeds YMPE. The two rates are in place because the plan is coordinated with CPP and plan members see a reduction in their pension at age 65 to factor for the receipt of CPP.

In 2006 the contribution rates were 4.3% below YMPE and 7.8% above YMPE. In 2013 the contributions are 6.85% below YMPE & 9.2% above YMPE. In 2015 those numbers will rise to 8.15% below YMPE & 10.4% above YMPE.


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## fraser

Yes, there we did run surplus budgets prior to Harper being elected. When the CPP was revamped and placed on a firm footing by then Finance Minister Paul Martin there was a huge amount of opposition from the Conservative/Reform opposition. It is quite revealing to look at the deficits during the Mulroney and Harper terms....the numbers are a little counter intuitive.

One small detail about MP's pension. Do you remember when, year ago, the Reform Party MP, some of whom are still sitting, pledged NOT to take MP pensions???? 

Three years later they were all back at the trough with the exception of one person-Preston Manning.


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## fraser

The civil service pension numbers need to be considerably higher, in the 12-15 percent range at a minimum, adjusted over 5 years. And the benefits need to be adjusted to delay retirement for two to five years.

Take a look at the Ontario Teachers Pension. Extremely well run, something like 12 percent contribution rates, and they need to adjust benefits in order to meet long term funding challenges.


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## fraser

I think that Jonathon Chevreau's retirement number of $100K is a good one. Just reviewed our spending over 2 1/2 years. Budgeted for $6K month after tax. After 30 months we have an accumulated a surplus to budget of $3300. We live in the city-one that has a higher cost of housing. 

Our number includes travel-but we are frugal travellers.. Any slack in our number will disappear now that we have started to rent.

It simply boils down to your desired lifestyle and where you are in the retirement cycle.


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## HaroldCrump

George said:


> Your wish has already been granted


Nope, not even close.
It is not even 2015 - but 2017 - when the contribution sharing is finally _expected_ to be 50%.
As of the end of 2011, the tax payer is paying nearly double contributions into the pension plans than the govt. employee.

Even after the changes, the tax payer will still be on the hook for 50% of the contributions.
That is way too high, considering that employers contribute no more than 5% into an employee's CPP, and most private sector Group RRSP or DCPP contributions are in the 3% to 5% range as well.


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## sags

Harold..........I totally agree that everything should be on the table.

I also think the overall "cost" of the civil service is more affected by the huge increase in size during the Harper governance, and they are talking about increasing the number of MP members? 

Double and triple dipping in civil service pensions..........should also be constrained. I read that Finance Minister Flaherty and his wife are going to collect something like 6 different pensions from the system. Our ex-MP was collecting a full pension as a retired school principal and an MP pension. The current MP is collecting a full pension as a retired police chief and will be collecting an MP pension when he leaves.

Some adjustments may be required in the civil service.........but I would hope any changes wouldn't fall on the shoulders of the lowest paid among them........as usually happens.

When pensions are calculated by the highest earning years, it is those at the top of the pay scale who make out like bandits.


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## Eclectic12

HaroldCrump said:


> Nope, not even close ...
> 
> Even after the changes, the tax payer will still be on the hook for 50% of the contributions.
> 
> That is way too high, considering that employers contribute no more than 5% into an employee's CPP, and most private sector Group RRSP or DCPP contributions are in the 3% to 5% range as well.


While I can agree it may not be your wish, I can't help wondering if you aren't making an apples to oranges comparison.

As I recall when being erroneously offered the chance the transfer from a DB to DC pension, the slide presentation for the private DB plan indicated that the employer's contributions were something like 55% of the total amount contributed yearly.

As well, the total employer - employer DB contributions for my salary worked out to 5.8% whereas the "replacement" DC plan worked out for a total of 2.5% of salary as contributions (split evenly at 50%). I'm not sure a lot of people in the room caught there was an assumption of personal RRSP contributions to make up the difference in contributions being made.


Cheers


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## HaroldCrump

Eclectic12 said:


> While I can agree it may not be your wish, I can't help wondering if you aren't making an apples to oranges comparison.
> As I recall when being erroneously offered the chance the transfer from a DB to DC pension, the slide presentation for the private DB plan indicated that the employer's contributions were something like 55% of the total amount contributed yearly.
> As well, the total employer - employer DB contributions for my salary worked out to 5.8% whereas the "replacement" DC plan worked out for a total of 2.5% of salary as contributions (split evenly at 50%). I'm not sure a lot of people in the room caught there was an assumption of personal RRSP contributions to make up the difference in contributions being made.


We should view the contributions independently of the _type_ of plan.
DC vs. DB is what happens inside the plan after the contributions have already gone in.

The issue I am raising is with the input itself.
My concern would still be the same even if the plan were a DC one (i.e. the tax payer portion is too high).

What happens on the output side in terms of the amount of benefit promised, the duration of benefits, the implicit tax payer guarantees, the inflation indexation, and other "gold plated" features is another matter (albeit equally concerning).


----------



## George

HaroldCrump said:


> Even after the changes, the tax payer will still be on the hook for 50% of the contributions.
> That is way too high, considering that employers contribute no more than 5% into an employee's CPP, and most private sector Group RRSP or DCPP contributions are in the 3% to 5% range as well.


If I can paraphrase your argument, you're saying "that is way too high" because "most" other employers have poorer benefits for their employees. There was a time when the government attempted to be an "employer of choice" so that it could recruit top-notch staff. Take away the benefits, the job security, and add in the constant attacks from the media, public, and politicians - what possible reason would public servants have to not jump ship and go work in the private sector (where in many cases they would be paid more)?


----------



## George

HaroldCrump said:


> What happens on the output side in terms of the amount of benefit promised, the duration of benefits, the implicit tax payer guarantees, the inflation indexation, and other "gold plated" features is another matter (albeit equally concerning).


I agree fully, and this is already incorporated into the tax rules. Anybody with a pension plan (DB or DC) has their RRSP contribution limits reduced by a pension adjustment, which is calculated based on the 'value' of the plan. Participants in pension plans typically have extremely little ability to contribute to RRSPs.


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## Eclectic12

HaroldCrump said:


> We should view the contributions independently of the _type_ of plan.
> 
> DC vs. DB is what happens inside the plan after the contributions have already gone in.


Problem is as I recall the details of all three private DB plans I've been a member of, the employer contribution was always at least 50% or more. In addition, any of the posts I've seen here have said the employer contributions range from 50% to 100%.

I need to check more thoroughly but it would appear that to get a a lower employer input % means converting away from a DB plan. 

So while you'd like to ignore the type of plan - I'm not sure this is possible. 


Cheers


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## HaroldCrump

George said:


> If I can paraphrase your argument, you're saying "that is way too high" because "most" other employers have poorer benefits for their employees.


No, I am saying that this model is no longer affordable for the tax-payer (and it is arguable whether it should _ever_ have been affordable).

Just a few posts above, some were suggesting raising the GST back up 2% to reduce the deficit.
No, sorry, wrong choice.
Raising taxes should not be the default, automatic decision whenever faced with a deficit situation.



> There was a time when the government attempted to be an "employer of choice" so that it could recruit top-notch staff.


And have they done that i.e. recruited "top notch staff"?
Like, who?

Anyhow, the govt. does this simply because it can.
It has the right to continue increasing taxes, cutting other public services, investment in infrastructure, etc. too maintain these levels of compensation for the public sector (and of course for themselves as MPs, MPPs and Senators)



> (where in many cases they would be paid more)?


But they won't, would they?
That is what we have been discussing based on that article posted at the beginning of this thread.
Once you account for the _total_ lifetime compensation, incl. the pension contributions, guarantees, etc. these small set of selected few end up making far more in the public sector than in the private sector.

And gone are the days when lower base salaries in the public sector were supposed to be a trade off for the job security and the pensions.
You are thinking of the days when my parents generation entered the workforce in the 1960s.
Those days are gone with the wind...now, even base salaries in the public sector are at par with the private sector, leaving aside highly paid executives and CEOs in large multinational corporations like banks and oil companies.


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## MoneyGal

The Fraser Institute agrees with you, Harold: http://www.fraserinstitute.org/publicationdisplay.aspx?id=19525&terms=public+servant

Excerpt: 

_We have been involved with a number of studies examining the comparative wages and benefits of workers in the public and private sectors. After controlling for such factors as gender, age, marital status, education, tenure, size of firm, province, city, type of job, and industry, public sector workers in Canada (including federal, provincial, and local) enjoyed a 12.0 per cent wage premium, on average, over their private sector counterparts (data was for 2011).

Wages are just one component, however, of overall compensation. And as any business-owner or manager will tell you, it’s the total cost of compensation that matters rather than the individual components.

Data on the non-wage benefits available to public and private sector workers is less available than for wages. However, the data that is available indicates that public sector workers enjoy substantially more generous benefits than their private sector equivalents.

For example, 88.2 per cent of the public sector in Canada in 2011 was covered by a registered pension compared to 24.0 per cent of the private sector. Of those public sector workers covered by a pension, 94.0 percent were covered by a defined benefit pension, which means they were provided a guaranteed benefit (i.e. income) in retirement. Just 52.3 per cent of private sector workers who were covered by a pension enjoyed such a benefit.

The difference in generosity in pension benefits directly affects retirement. Private sector workers in Canada retire, on average, at age 62.4. Public sector workers, on the other hand, on average, retire at age 60, a full two-and-a-half years sooner.

Public sector workers also enjoy more job security than their private sector counterparts. In 2011, 3.8 per cent of those employed in the private sector lost their jobs. The comparable rate in the public sector was just 0.6 per cent, or less than one-sixth the rate of the private sector._


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## sags

I don't think "overall" studies are a very accurate assessment of the public service.

MPs, judges, hospital administrators, executives of public corporations, maybe be in the high wage and benefit category, but a corrections officer or court clerk.......not so much.

To be effective, every job category would have to be reviewed to determine if the pay and benefit scales were appropriate or not.

It also cannot be ignored, that the politically driven ideology of the Harper government created the shortfalls in revenue which have lead to the current deficit budgets and growing national debt.


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## HaroldCrump

sags said:


> To be effective, every job category would have to be reviewed to determine if the pay and benefit scales were appropriate or not.


Ha, trust me, the public sector unions _do not_ want that kind of scrutiny.
Oh the horror - the compensation of TTC drivers, junior cops, administrative paper pushers - all under the spot light and being analyzed for "appropriateness" !

I agree with you, of course, when you say that _every job category would have to be reviewed to determine if the pay and benefit scales were appropriate or not_.
But the public sector unions and lobby groups like the CUPE and the CLC will say _over our cold, dead bodies_.


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## sags

You are right Harold. The unions are not in favor of anything that will negatively affect their members. That is the main purpose of union membership.

But at the end of the day, job assessments are performed all the time in unionized settings, and the union must await the results and then try to defend their members as they best can, using the few tools they have at their disposal. Those being.........member awareness, public information campaigns, work action, legal action, and ultimately the withdrawal of their labor from the workplace.

It is management's job to manage the workplace, so any failure to do so shouldn't be blamed on unions. 

It simply isn't their job to cooperate and assist in their own demise.


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## sags

Generally speaking,

Management are more successful when they work with the unions, and ultimately leave the status quo of wages and benefits alone, and direct their resources towards the "future" costs of operation. By this method, unions have fulfilled their obligations to current members and can agree with management that changes have to be made in future operations, in order to keep the business profitable and therefore ongoing. 

The auto industry is a good example of this tactic.

Current employees remained at their current rate of pay and pensions, with some shaving of benefit expenses..........but new hires receive much less pay and future benefits.

It isn't great from a new hire perspective...........but it does successfully transition the operation to a more sustainable financial footing.........which is also a benefit to new hires, who may not even have a job opportunity without the transition taking place.


----------



## HaroldCrump

sags said:


> Harold..........I totally agree that everything should be on the table.
> I also think the overall "cost" of the civil service is more affected by the huge increase in size during the Harper governance, and they are talking about increasing the number of MP members?


Yes, it is shameful, esp. from a govt. that talks about fiscal prudence, balancing the budget, and panders to the fiscal conservative side of society.
The net result is that in order to reduce costs (or at least show the perception of reducing costs), front-line service workers have been laid off or reduced via attrition.
Such as Parks Canada officers, Service Canada call center, Service Ontario, MTO front-desk staff, etc.

I dunno...maybe this is where the unions are really deforming the market.
In this case, it is the compensation that needs to be reduced, not the service level and quality.
If the labor agreements were more flexible, there need not be lay offs and hiring freezes.


----------



## sags

Sorry Harold, the nature of the forum means we are posting past each other.

You are absolutely correct that less senior employees always take the brunt of any "savings", and that often means cuts to services at the point the public interacts with the public service.

I don't disagree with your overall philosophy that public service spending is out of whack with what apparently is the new "lower wage economy" that has been forced on us all.

Perhaps we differ on how we get from here to there, hopefully with the reluctant support of the unions..........but not necessarily with the support needed.

A "good" plan, developed by management (the government in the case of public workers) that appeared as a fair and just plan to the public, would make it easier to implement any changes.

At this point...........I don't see any plan. All I see in the news media is a bunch of right wing harping on rising costs and left wing defense of the status quo.

The government needs to develop a long term "plan", present it to the public for scrutiny, modify it as needed............and then implement it.


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## fraser

There are certain jobs within the civil service that actually pay below private sector rates for similar job levels/skills. Typically people stay in those positions because of the benefits and the pension.

These tend to be at the higher end of the scale. The public sector has had challenges in hiring certain types of professionals. My experience was in IT. Public sector jobs paid less and as a result they got less qualified applicants (hospitals and municipalities in particular) and those at the top of their game left the public service for more lucrative positions in the private sector. We used to hire some of them.


----------



## MoneyGal

sags said:


> *I don't think "overall" studies are a very accurate assessment of the public service*.


Which is why the study controlled for "such factors as gender, age, marital status, education, tenure, size of firm, province, city, type of job, and industry."


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## marina628

Not 100% on topic but since there are few thoughts on unions here and new guys vs more senior employees.
I hired a new webmaster recently for $41,400 which is middle of the road for a start position in our area.The guy who has worked for me about 4 years now makes about $61,000 a year.Typical day at the office is he comes in 20 minutes late but brings in donuts which he knows I cannot have anyway.He is constantly texting between tasks ,making sloppy mistakes and his girlfriend calls him from her job to talk to him 3-4 times a day.
The new guy comes in about 15 minutes early and makes a coffee here at his desk while being social on his time.Once the clock hits 8:58am he puts his head down and unless he has a question he is working non stop.
Within the next 60-90 days I expect I am going to fire the guy who is making $61,000 and give the new guy about 15-20% raise .In the unionized world you have to put up with the useless assholes but thank god in real world we don't have to.Since Jan 21st I have given him 11 written notices on advise of labour board , if it were not for fact I have many things going on this year with my brother I would have fired him many months ago.


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## fraser

Here is the other side of the story (and my background is senior management). Your company works with a large HR firm such as Towers. They run the 'age disability' program and it indicates that certain workers cost more because of their age and benefit claims. You let them go on a pretense.

Or the boss does not like some group and decides to fire someone because of this rather than performance.

Or you intimidate your workers into regularly working overtime but not claiming it because they are afraid to loose their jobs.

Or some of your employees are working in unsafe work conditions, perhaps even dangerous, but they know from past experience that if they complain they will be immediately fired.

It can work both ways.


----------



## sags

Good points Fraser, especially about the improvement of worker safety in unionized settings.

Workplace safety is a huge issue for unions........and seldom talked about as something unions have greatly improved.

I wonder if those who are adamantly opposed to unions would prefer to have their son or daughter work their first summer job in a unionized or non unionized environment.

In a non union environment, they might be shocked at what their kids are expected to do by the employers.

My son enters both union and non union work sites as part of his job. He complains about all the regulations and personal safety gear he has to wear when going to a unionized workplace, as opposed to the no safety rules environment of non union shops.

He recently had to enter a unionized brewery building.........and had to read a comprehensive safety booklet, pass a written test, and show his qualifications before he was allowed to enter their buildings.

Kind of a pain.........but necessary.


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## james4beach

marina628 said:


> I hired a new webmaster recently for $41,400 which is middle of the road for a start position in our area.The guy who has worked for me about 4 years now makes about $61,000 a year.Typical day at the office is he comes in 20 minutes late but brings in donuts which he knows I cannot have anyway.He is constantly texting between tasks ,making sloppy mistakes and his girlfriend calls him from her job to talk to him 3-4 times a day.
> The new guy comes in about 15 minutes early and makes a coffee here at his desk while being social on his time.Once the clock hits 8:58am he puts his head down and unless he has a question he is working non stop.
> Within the next 60-90 days I expect I am going to fire the guy who is making $61,000 and give the new guy about 15-20% raise .In the unionized world you have to put up with the useless assholes


I've got some other suggestions about dealing with those useless assholes, as you put it.

Why not just fire both of them and pay a guy to do the webmaster work from Thailand or wherever for about $10 an hour? Web work (like most computer work) is pretty mechanical and routine and I'm positive you can find someone to do it from southeast Asia for a fraction of the cost. I read case studies in Australia where they literally cut web guy costs from $100/hour down to near $10/hour.

Or if you really want to have a local presence...

Bring some guy in on a visa from India, Vietnam or wherever. Fire your domestic worker and replace them with the foreign worker. Now you've got some poor guy who moved halfway around the world and is literally desperate to keep his paycheque, because he absolutely needs to support his wife & kids back home, and you can treat him like a slave! Get him to work unpaid overtime because he knows that if he talks back to you, it's over. "Yes sir, right away sir" with no complaints and no attitude!

Ha ha! Not only will he not know his rights under the law, but there's the constant threat of being sent back to his low wage country hanging over his head! I bet guys like you love that kind of thing.


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## George

MoneyGal said:


> Which is why the study controlled for "such factors as gender, age, marital status, education, tenure, size of firm, province, city, type of job, and industry."


Isn't that 'study' from the same folks who said that children can be raised for less than $4000/year?


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## MoneyGal

Yes. I figure the Fraser Institute is fair game at CMF!


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## leoc2

Are we getting off topic?


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## MoneyGal

By my count we've been "off-topic" since post 194.


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## marina628

james4beach said:


> I've got some other suggestions about dealing with those useless assholes, as you put it.
> 
> Why not just fire both of them and pay a guy to do the webmaster work from Thailand or wherever for about $10 an hour? Web work (like most computer work) is pretty mechanical and routine and I'm positive you can find someone to do it from southeast Asia for a fraction of the cost. I read case studies in Australia where they literally cut web guy costs from $100/hour down to near $10/hour.
> 
> Or if you really want to have a local presence...
> 
> Bring some guy in on a visa from India, Vietnam or wherever. Fire your domestic worker and replace them with the foreign worker. Now you've got some poor guy who moved halfway around the world and is literally desperate to keep his paycheque, because he absolutely needs to support his wife & kids back home, and you can treat him like a slave! Get him to work unpaid overtime because he knows that if he talks back to you, it's over. "Yes sir, right away sir" with no complaints and no attitude!
> 
> Ha ha! Not only will he not know his rights under the law, but there's the constant threat of being sent back to his low wage country hanging over his head! I bet guys like you love that kind of thing.


Somebody piss in your cornflakes today?You obviously have no clue about bringing workers in the country and the paperwork involved .You have to first try to fill the job in Canada and if that is not possible you MUST pay what the government deems a fair wage and file all sorts of paperwork.I know this as we recently did a big conference and I needed somebody to come from my clients office for 5 months to assist with the planning.I have employees /contractors all over the world as my company covers eight languages and my guys in Moldova , Hungary ,Egypt and Poland are paid a very high wage ,some as high as $125 per hour USD.


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## jcgd

I work in construction with a non union company. We get paid less than the union guys by $5-7 per hour but the safety standards in my seven years on the job have increased dramatically. I've been told that the insurance premiums cost too much if we have claims and incidents so it's actually cheaper to have us all take extra time to take precautions in every little thing than it is to pay higher premiums.

You also have trouble getting contracts if you don't follow the safety precautions laid out by the general contractors. There isn't much tolerance these days, union or non union, where I have worked.

I've never worked in a union but I have heard both good things and bad things and seen good things and bad things. I have never been treated unfairly. We get paid more than I think we should, but I'm the only person with that opinion. We don't get a pension but we get RRSP and stock matching, which I prefer, rather than assuming my company will be around in 30 years. I've never been laid off, let alone before the lazy old guy next to me. Essentially, I have no problems being non union.


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## james4beach

marina628 said:


> Somebody piss in your cornflakes today?You obviously have no clue about bringing workers in the country and the paperwork involved .You have to first try to fill the job in Canada and if that is not possible you MUST pay what the government deems a fair wage and file all sorts of paperwork.


It could be that my cornflakes were off... I did actually have to return these Presidents Choice corn flakes to the store because the product was sub-par. True story.

What you describe there may be your experience but it's not what I saw at my old job, working under a large US corporation operating in Ontario. At my old office, _they did_ layoff several domestic workers. At the same time, they brought in a new guy (from India) on a visa. Now are you going to tell me they couldn't fill the job with a Canadian? Total bullshit ... of course they _could_ find a Canadian to do the job. The company just didn't want to pay Canadian wages ... they wanted to pay lower wages to an Indian guy who would either work for less wages, or be less demanding, or who would obediently work the unpaid overtime they demanded.

I don't believe for an instant this stuff about not being able to fill jobs with Canadian workers. marina628, it could be that you couldn't pull it off because you're a small business owner, but I assure you the larger corporations have the HR & legal trickery in place to unfairly undercut domestic workers with lower paid and more desperate foreign workers.

I saw it with my own eyes


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## fraser

I worked for a very large IT vendor. We sent thousands of jobs overseas...India, Costa Rica, Mexico China, Ukraine...you name it. Everthing from employee payables, EA's, outsourcing, support calls, programming, consulting, you name it. There was seldom a requirement to bring the jobs on shore.


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## janus10

Well as this is my first post in this thread it WILL be on topic.

I think $45k per year after tax will be plenty for my wife and I in a little more than a year. We will be almost a decade away from collecting CPP and about 15 years from OAS. We will downsize our home and should have about $400k in Registered and $550k in non registered accounts. No pensions and no debt.

What I hadn't thought of is that we will have about $50k combined in RRSP contribution room. Are we better to use that up ASAP while we are working even if it means cashing in some stocks in our non registered account?


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## Sammi

I would say spending the exact amount I spend now would be enough. Right now I spend about $3300/month. But this includes rent of $1550. So assume I still spend the same and use that $1550 for more thigns like hobbies and travelling and other house costs associated with owning, then $3300 would be my amount. This is with the expectation that I retire with no mortgage.

For now, I do have a defined benefit pension plan that when I do retire, should more than cover my expenses. But I am savings outside of my pension anyways, just in case.


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## skiwest

janus10 said:


> What I hadn't thought of is that we will have about $50k combined in RRSP contribution room. Are we better to use that up ASAP while we are working even if it means cashing in some stocks in our non registered account?


why not just put stock into SDRSP as contribution. That I what I do when I need to put into RRSP but don't ahve cash. Will have to pay capital gains.


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## skiwest

my calc says $1mil which doesn't include ~ about $100k of DC pension so really $1.1mil 
5% return, 
2% inflation 
-to support two people both who will get CCP ( one 90% one ~ 70%)
assumes CPP will stay same and nothing from OAS
ages at retirement 53/49 ( ok she retired a year ago so really 48 for her)
calculated to run out of assets at younger at 100

assumed withdraw $60K
bottom up budget $56K
Actual net worth at retirement ( Nov 29 2013) $1.3 so about a 30% margin

So I think I'm pretty much set, give notice today.


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## jcgd

skiwest said:


> So I think I'm pretty much set, give notice today.


Congratulations and nice work.


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## 1.5M

1.5m


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## steve41

OK..... so is this question being addressed to 'Larry Lunchbucket or Donald Trump? Just asking.


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## piano mom

skiwest said:


> So I think I'm pretty much set, give notice today.


That's awesome! Congrats! So how does it feel to hand in your notice today? My husband and I are not as lucky. We don't think we're quite ready to call it quits yet.


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## Sherlock

marina628 said:


> Not 100% on topic but since there are few thoughts on unions here and new guys vs more senior employees.
> I hired a new webmaster recently for $41,400 which is middle of the road for a start position in our area.The guy who has worked for me about 4 years now makes about $61,000 a year.Typical day at the office is he comes in 20 minutes late but brings in donuts which he knows I cannot have anyway.He is constantly texting between tasks ,making sloppy mistakes and his girlfriend calls him from her job to talk to him 3-4 times a day.


I've worked at several different companies as a software developer and this is the norm at all of them. I'm often late by up to an hour, I'll often stop working and spend half an hour just surfing the web or something. In fact my company has a games room with a ping pong table and darts and if people want they can go there and play a game to clear their heads. There's no such thing as designated break times, you take a break whenever you feel like it for as long as you feel is necessary. As long as you produce high quality work and get it done on time, management doesn't care.

Managing technology workers is a lot different than managing someone working on an assembly line or something. If Employee A comes in at 8 am and works non-stop till 6 pm but still can't get all his work done or produces low quality work, and Employee B is half an hour late, takes a 2 hour lunch, leaves at 5 on the dot, but gets all his work done on time, isn't B the more valuable employee? Results are all that matter.


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## PrairieGal

Skiwest, Congratulations! That must be a fantastic feeling.

I am planning to live on a frugal $30,000 per year. With no debt, full CPP and OAS and a $350,000 nest egg (not including my house) I think I will be OK. I can always sell the house in my later years and either rent or move to a retirement place if I want to (or need to). Current value of the house (paid off) is about $250,000.

Sherlock, just think how much you could get accomplished if you actually got to work on time!


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## Jon_Snow

All this early retirement talk is making me antsy.

I am in the last week of my Baja vacation. Its amazing how good you can feel when you can escape the stresses of work for just a little while. My wife and I have been running religiously in the morning, followed by an hour of tennis. Then its poolside or beachside with Kindle in hand to read in the glorious sun. Some days we take our Jeep to a nice snorkeling beach and spend the entire day there. We've had nary a drop of rain, mostly sun drenched 30 celsius, while I hear rumblings that Vancouver is under a deluge pretty much every day. I work outside, so I shudder to think about donning the (leaky) rain gear again.

The past 3 weeks I've been happier and more content than I can remember being in a long time. It has reinforced my desire to retire sooner than later... thoughts that my wife and I have been too frugal and not enjoyed our life to its potential are now gone. Our incoming dividends now largely replace my salary, so we simply don't need my income anymore. I will likely retire next year but my wife wants to work another 10 years. I suspect she may have different thoughts once she sees how happy and carefree her husand has become.  But then again, she has her dream job and doesn't deal with the stresses that are inherent in my occupation.

Anyway, my little Mexican holiday has provided a glimpse into what my life may feel like soon.

My biggest takeaway from holidays like this is that it makes you realize how insidious work related stress is. For those that love their jobs, you are indeed fortunate.


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## GoldStone

Hi Skiwest,

I'm targeting a similar lifestyle in retirement. ~$55-56K. I think I need to save quite a bit more than $1.1mil to fund it. The reason? I use a conservative 3% SWR in my retirement projections. SWR = safe withdrawal rate. So let me play devil's advocate for a moment.

You plan to withdraw 60K from a portfolio of 1.1M.

60K / 1.1M = 5.45% withdrawal rate.

The traditional SWR number is 4%. By withdrawing 5.45% each and every year, you run the risk of outliving your money. Why do you think that 5.45% is safe? Do you plan to reduce your withdrawals (and spending!!) when market returns are poor?

Furthermore, many in the retirement planning community think 4% SWR is not safe any more. 4% number is based on historic market returns in the US. Going forward, both equity and fixed income returns are expected to be lower than in the past. The reasons: slow growth environment, low interest rates, ageing demographics, etc. Low returns push down the SWR.



skiwest said:


> 5% return,
> 2% inflation


Is it 5% real (before inflation), or 5% nominal (including inflation)?

5% nominal is okay. You can do it with a balanced portfolio.

5% real is pushing it. Bonds are expected to return 0.25% - 0.5% real. To get 5% real, you have to run an all equity portfolio. That's a scary proposition in retirement. What are you going to do if markets crash and stay down in a long bear market?

Again, I'm just playing devil's advocate here. Curious to hear your thoughts.


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## Retired Peasant

skiwest said:


> -to support two people both who will get CCP ( one 90% one ~ 70%)
> assumes CPP will stay same and nothing from OAS
> ages at retirement 53/49 ( ok she retired a year ago so really 48 for her)


I don't see how you figure you'll get 70/90% of CPP with all those years of zero CPP earnings factored in, I'd think it might be a lot less - you remove 7 lowest years, but you'll have at least 7/11 years and that is taking CPP early at age 60. Also, why do you anticipate 0 from OAS?


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## peterk

Maybe he started working full time at age 18 or earlier?

53-18=35 years / 39 years = 89.7%


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## piano mom

PrairieGal said:


> I am planning to live on a frugal $30,000 per year. With no debt, full CPP and OAS and a $350,000 nest egg (not including my house) I think I will be OK. I can always sell the house in my later years and either rent or move to a retirement place if I want to (or need to). Current value of the house (paid off) is about $250,000.!


I think your plan is very doable. Take my parents-in-law for example. They also had about $350k nest egg and a paid off house (although their house was about $500k). They sold their house and bought a < $300k condo and banked the difference. My FIL retired @55 and my MIL retired some 10 years later @51. Over their lifetime, they went on overseas vacations at least 2 times a year, bought new cars every 5 years or so. Unfortunately my MIL had cancer (in remission now) and has now limited her travelling within Canada (travel insurance too expensive). Now, they say that there is more money coming in (from CPP, OAS and a very tiny DB pension) than they know how to spend it. I estimate their expenses to be about $2000 a month. They have dividends income that they just reinvest and not needing to withdraw at all causing their portfolio to start to grow.

Ironically, my husband and I can't seem to convince ourselves that we have enough to retire even though we have much more than them....


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## Eder

Grats Skiwest! You will wonder how you ever found time to hold a job before.
I retired at 53 as well and similar funds as you...4 years in so far so good, our nest egg has grown rapidly in that time...you can never replace your active years and we have found so much joy being free of jobs/business that I doubt I will regret having to live on Dr Ballards in my golden years should the need arise.


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## My Own Advisor

Congrats Skiwest! 

Uh, *sigh* jealous.... 

I hope at 55 (another 15 years) and I can call it quits. Figure I need $1 M portfolio not including the pension and a paid off home.


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## janus10

Skiwest - I'm curious as to how you calculated that you will end up getting about 90% & 70% of CPP for both of you when retiring so early (unless you intend to defer until well beyond 65 to get the bonuses).


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## janus10

skiwest said:


> why not just put stock into SDRSP as contribution. That I what I do when I need to put into RRSP but don't ahve cash. Will have to pay capital gains.


Interesting idea... had forgotten about that option. I've never done this and, based on our horrendous experience with Scotia iTrade's inability to do anything that involves forms, I'd wager I probably need to start now to have a realistic chance of being complete in late 2014!


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## kcowan

Jon_Snow said:


> My biggest takeaway from holidays like this is that it makes you realize how insidious work related stress is. For those that love their jobs, you are indeed fortunate.


Both DW and I loved our jobs. But when we retired, we soon realized how they did create stress in our lives. The key for us is to have lots of things we like to do.

One thing our vacationing friends don't realize is that we don't sit on the beach (and drink) every day. And we have many separate activities as well.


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## My Own Advisor

"But when we retired, we soon realized how they did create stress in our lives. The key for us is to have lots of things we like to do."

Great point kcowan.

I have lots of interests as well but can't get at them because of 9 hour days M > F. Such is life. I suppose everything is a choice and I made my choices for this career, as we all have.


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## Jon_Snow

True that, MOA.

I've always valued TIME over MONEY. Thing is, to get more time in our lives we need money, and lots of it... once my wife and I figured out we weren't having kids, we made the decision to try and become financially independent ASAP, but also having our share of fun in between. Getting so close now...


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## skiwest

GoldStone said:


> Hi Skiwest,
> 
> I'm targeting a similar lifestyle in retirement. ~$55-56K. I think I need to save quite a bit more than $1.1mil to fund it. The reason? I use a conservative 3% SWR in my retirement projections. SWR = safe withdrawal rate. So let me play devil's advocate for a moment.
> 
> Is it 5% real (before inflation), or 5% nominal (including inflation)?
> 
> 5% nominal is okay. You can do it with a balanced portfolio.
> 
> 5% real is pushing it. Bonds are expected to return 0.25% - 0.5% real. To get 5% real, you have to run an all equity portfolio. That's a scary proposition in retirement. What are you going to do if markets crash and stay down in a long bear market?
> 
> Again, I'm just playing devil's advocate here. Curious to hear your thoughts.


its nominal so 3% real, I'm all equity , div paying for the most part, have a bit in preferred which are paying 6%, 5% on par value


----------



## skiwest

Retired Peasant said:


> I don't see how you figure you'll get 70/90% of CPP with all those years of zero CPP earnings factored in, I'd think it might be a lot less - you remove 7 lowest years, but you'll have at least 7/11 years and that is taking CPP early at age 60. Also, why do you anticipate 0 from OAS?


I did go through the CPP calc which does give some misleading results , I figure I have 33 years contributions at max my wife less , so I get 90% of max , wife 70% of max. I start receiving at 65. You would have to see spread sheet as have calculated every year.

I haven't included OAS because.... well just because, as its more subject to change and just to add a conservative factor. Partly as i didn't want to look it up. Steve41 calculated that NPV was $170K for the two of us. Also if off on CPP not including OAS more than makes up for it.


----------



## skiwest

I started posting under Doug out west. Its funny to go back to the post

http://canadianmoneyforum.com/showthread.php/5957-Change-of-plan-Jan-2012-now-date-would-you

At that time was including cash value of wife's pension in calc but since then decided just to project the value as earnings. Dropped the rate from 5.5 to 5. Funny that I thought we could do it 2 years earlier. Though have spent the last 2 years saving very little. Built a barn, 69'x 54' , then a hay shed 24' by 36', horse fencing, all new cordless tools, new BBQ, couple pairs of skis , DSLR, . I think I have about 3 years of presents already bought and the kitchen cupboards look like we're on a submarine getting ready for a long patrol.


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## skiwest

Its interesting going back that the amount calculated hasn't changed that much , some thing up some things down. Just paid my Sept -Oct elec bill which was $126 so even now with two buildings that still works out.

Travel budget is low as will spend if extra $ available. May do some contract short term stuff. Don't need to travel for views as can see a snowy Rocky Mtn from pillow and this one from porch.


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## Ihatetaxes

Congrats Doug, looks like your plan is coming to fruition!


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## MoreMiles

I want to spend $10,000 per month for traveling and fine dining. I wish to retire at the age of 50 and live to 90... The retirement calculator tells me I need* $11 million* when I reach 50 :hopelessness::hopelessness::hopelessness:


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## marina628

MoreMiles said:


> I want to spend $10,000 per month for traveling and fine dining. I wish to retire at the age of 50 and live to 90... The retirement calculator tells me I need* $11 million* when I reach 50 :hopelessness::hopelessness::hopelessness:


you have to settle for $10,000 a year I guess lol


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## MoneyGal

MoreMiles said:


> I want to spend $10,000 per month for traveling and fine dining. I wish to retire at the age of 50 and live to 90... The retirement calculator tells me I need* $11 million* when I reach 50 :hopelessness::hopelessness::hopelessness:


I'm sure if you accept a little risk in that portfolio you can lever it down to $10 million!


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## uptoolate

MoreMiles said:


> I want to spend $10,000 per month for traveling and fine dining. I wish to retire at the age of 50 and live to 90... The retirement calculator tells me I need* $11 million* when I reach 50 :hopelessness::hopelessness::hopelessness:


FireCalc says you can do it with 6 million and that's without adding in CPP. Looks like you can retire a few years early!


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## GoldStone

My abacus says that 4 million is enough IF, IF, IF you are willing to settle for 10K pre-tax.

4M * 3% SWR = 120K


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## Ihatetaxes

We are on track (according to RRIFmetic) to have $10k net retirement income after taxes in todays dollars. This to age 92 (ends up being $25k/month after tax by that age). This is based on taking a salary or dividends out of the company until age 58 (me) and then some additional income out of the company to age 68 after sale of commercial property. Wife can retire at 49. Not requiring sale/downsizing of principal res or vacation property.

Will likely retire sooner as I don't see us needing that much income really. Only reason to keep working will be kids still in school so it will be tough to head south for long periods of time unless their grandparents want to move in and supervise!


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## uptoolate

GoldStone said:


> My abacus says that 4 million is enough IF, IF, IF you are willing to settle for 10K pre-tax.
> 
> 4M * 3% SWR = 120K


Yes, 6 million is for 10K after tax. And that is taxed as income so you could do it on less if you had already paid tax on a significant portion or if you were using tax advantaged sources of income.


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## Jon_Snow

Lol @ 10k monthly... caviar on your cornflakes in the morning?


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## uptoolate

Ick, Jon, ick! And yes 10k after tax is some serious coin. Especially for an octagenarian! Warren Buffet notwithstanding.


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## Jon_Snow

Don't get me wrong, I could easily spend 10k monthly in retirement... but for the retirement I envision, and at the early age I intend to do it, 3k monthly is PLENTY...


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## piano mom

Jon_Snow said:


> Don't get me wrong, I could easily spend 10k monthly in retirement... but for the retirement I envision, and at the early age I intend to do it, 3k monthly is PLENTY...


+1


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## MoreMiles

Jon_Snow said:


> Don't get me wrong, I could easily spend 10k monthly in retirement... but for the retirement I envision, and at the early age I intend to do it, 3k monthly is PLENTY...


Thanks for the replies. No. 10k in Toronto per month is not much when a fine dining meal is $150. So you have 10 of them is already $1500. You then need $500 for a Mercedes car lease. I would pick a small trip per month like niagara falls, which will be $1000 per trip. Then there is your housekeeper to clean your place, it's $3000 per month. There it goes $10k per month, not counting house, because the house is assumed paid up.


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## Ihatetaxes

MoreMiles said:


> Thanks for the replies. No. 10k in Toronto per month is not much when a fine dining meal is $150. So you have 10 of them is already $1500. You then need $500 for a Mercedes car lease. I would pick a small trip per month like niagara falls, which will be $1000 per trip. Then there is your housekeeper to clean your place, it's $3000 per month. There it goes $10k per month, not counting house, because the house is assumed paid up.


You are a cheap date at $150 in Toronto and $500 might get you into a basic B250.


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## Jon_Snow

MoreMiles, if that's what you want your retirement to be - high end dinners in Toronto, driving a Mercedes around, I suppose you should be shooting for 10k.

My retirement will be far different. Living on a west coast island, kayaking amongst the marine mammals, tending an orchard and large garden... I am much more likely to catch my own fish and cook it than have someone overcharge me for it in a restaurant...

For what I describe here, my 3k is more than enough... If I were to work until "normal" retirement age 10k monthly income is easily achievable... but I have chosen to retire SOONER and live with LESS. Time is more valuable to me than money.


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## My Own Advisor

$10k monthly? wow.

#highroller

I hope to have about $50k after taxes in retirement, not including OAS or CPP. That will do us just fine, in another 15 years.


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## Ihatetaxes

Jon_Snow said:


> MoreMiles, if that's what you want your retirement to be - high end dinners in Toronto, driving a Mercedes around, I suppose you should be shooting for 10k.
> 
> My retirement will be far different. Living on a west coast island, kayaking amongst the marine mammals, tending an orchard and large garden... I am much more likely to catch my own fish and cook it than have someone overcharge me for it in a restaurant...
> 
> For what I describe here, my 3k is more than enough... If I were to work until "normal" retirement age 10k monthly income is easily achievable... but I have chosen to retire SOONER and live with LESS. Time is more valuable to me than money.


You also hate your job which must be a huge motivator to leave the workforce as soon as possible which makes sense. Some of us enjoy what we do, myself included. Some of us are lucky to have great work-life balance and lots of time off, myself included. Some of us don't have a boss, myself included.

So while I could "retire" now and live a great simple life without many extravagances for the remainder of my days, I chose the balance I have. In your shoes with a great island property, passion for kayaking and no kids to feed I would likely do the same as you.


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## Jon_Snow

Well said, hater of taxes... 

There are as many types of retirement plans as there are stars in the sky. Okay, maybe not quite. :tongue-new:


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## steve41

OK...

I am X years old
my salary is X
I expect to retire in X
I have X$ in my RSP
x $ outside ($x in TFSA plus X in nonreg)
an $X loan
expect an $x inheritance at age X
expect to sell my home and/or re holding at age X
$X pension expectation
.....

Throw in an expected ror, inflation rate, etc and issues such as I want my kids to net $X when I die (where $x can be 0, or some greater number)

I am going with 'stars in the sky'


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## HaroldCrump

Recently I saw an TV an interview with Charles Hugh Smith, financial author and blogger.
He is speaking of the concept of _*Peak Retirement*_.

His position is that the Western, developed world has already had its fun with retirement.
The party is over.

We are increasingly moving towards a time when there will be no retirement, just like in the developing world.
Both Gen. X and Gen. Y are essentially Gen. Screwed


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## My Own Advisor

Harold, Charles Smith might be right 

Unless most Canadians can save $1 M+, for my cohort (age 40), lifestyles in retirement must drastically change.


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## Cal

Unfortutnately many have already spent their retirement funds, and have yet to realize it. And many retirement pensions and plans are underfunded for what they claim will be paid out.


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## Taraz

It depends on your standard of living and expected expenses. Do you live in an expensive area? Do you want to live in a $100,000 house or a $500,000 house? Do you want to travel the world, or are you going to stay at home and garden? Do you have health issues that will either shorten your life expectancy or cost you a lot of money? Are you going to have to support your deadbeat kids? Will you have a car, or live somewhere with good public transit? Do you smoke or drink? Do you have a Starbucks addiction?

I could probably retire right now (at 33) if I downsized to a tiny house or condo, got rid of the car, downgraded my cell plan, stopped eating out, and stayed at home with the kid (instead of going to work and paying a babysitter). Of course, I'd be miserable without a babysitter and a job, and I love making money, so that's not going to happen.


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## nathan79

It's interesting to look at the different lifestyles and expectations that people have. For me, it's hard to imagine spending even 3K a month... let alone 10K. I would assume that includes a pretty hefty rent payment or a lot of travel... most likely both, and a lot of fine dining, expensive cars, toys... etc.

I guess it's because I've always been forced to be frugal, so I don't really know what it's like to have an affluent lifestyles. I'm currently spending about $1400 a month and not exactly living like a pauper. I think I could be extremely satisfied spending about $2500/mo.


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## My Own Advisor

Hey nathan, $2,500 a month in 20+ years won't get you (or I) very far. Inflation kills.


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## nathan79

Right, but I always figure that inflation will just take care of itself. If I have $2500 today, that will be worth X amount in 20 years as long as returns match inflation.

I just find it waste of time to make guesses about inflation.


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## steve41

Taxes and inflation are about the only predictable elements in the equation IMHO.


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## wendi1

Disagree, steve41. Inflation is a very big unknown.

Just because we have had pretty low inflation in the last few decades doesn't mean it can't blow up. Even 1-3% in the long term eats away at income. And interest rates and dividend yields don't have to go up just because inflation does.

That's why owning real things, like real estate, is an important part of risk management.


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## OnlyMyOpinion

Interesting summary by Jonathan Chevreau of a recent C.D. Howe Institute study estimating future nominal returns, and a link to the report:
http://www.moneysense.ca/columns/financial-independence/lower-expected-returns-means-saving-more
The short answer: 6.9% from equities, 2.5% from long term bonds, 4.7% from a 50/50 mix, then subtract 2% inflation from each to get real returns of 4.8%, 0.5% and 2.7%.
Uugh


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## My Own Advisor

If I can get 4-5% real return, year after year going-forward, I'll be very happy. Mostly equities. Got rid of most bonds a couple years back.


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## fraser

I am the same. I want my returns to be somewhere between the irate of inflation and the S&P but closer to the latter.
These last few years have been very good. It is critical for retirement funds to move forward in the good times at a significantly higher rate than inflation.


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## Nemo2

My Own Advisor said:


> If I can get 4-5% real return, year after year going-forward, I'll be very happy. Mostly equities. Got rid of most bonds a couple years back.


:encouragement:


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## OnlyMyOpinion

Certainly makes the case for equities (etf's, etc.) especially when you're in the 'growing assets' phase. Otherwise you just won't get there. Also more do-able now that there are alternatives to high mer, return-sucking mutual funds of the past.
We've been using 3% real for our projections.
On a side note, don't know how many of you remember 1981. That year we bought CSB's that paid 19.5% and at that time they were still fixing them for the term, not adjusting them every year. Of course our 5yr mortgage was 14.5%... It was admittedly a real anomaly:
View attachment 355


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## GoldStone

OnlyMyOpinion said:


> The short answer: 6.9% from equities, 2.5% from long term bonds, 4.7% from a 50/50 mix, then subtract 2% inflation from each to get nominal returns of 4.8%, 0.5% and 2.7%.
> Uugh


You mean, subtract 2% inflation from each to get *real* returns of...



OnlyMyOpinion said:


> We've been using 3% nominal for our projections.


Subtract 2% inflation, you get 1% real. That's very conservative. If we assume 4% real for equities, 0% real for bonds, you can get 1% real with a very conservative allocation of 25% equities, 75% bonds.


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## OnlyMyOpinion

Yes, I'd just made those fixes. Thanks


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