We’ve all read the articles about how so many baby boomers in the U.S. feel unprepared for retirement. A lot of the feelings of being unprepared are based in reality: They just don’t have enough money put away to comfortably live on in retirement. It seems that Canadian baby boomers are in a similar state of mind about their retirement.
In other cases, feelings of being unprepared can be based on overestimating how much you will really spend when you retire. Many retirement planning models are based on flawed retirement income calculations.
So I was interested to read the results of recent polls of Canadian workers who were asked questions about their retirement preparedness.
I loved the lead-in to the article: one in five Canadians are counting on a lottery win, inheritance, or the CPP to make up for their failure to save for retirement. (The CPP is Canada’s version of Social Security.)
It also seems that despite being financially unprepared, many Canadians have no intention of delaying their plans for retirement:
Scotiabank found 73% say the age they plan to retire has not changed despite the uncertain economic environment. Among the 22% postponing their retirement date, more than half are between 45 and 64. The study found the average Canadian plans to retire at 61, while almost half plan to retire before 65.
That’s optimism, which is not a bad thing when accompanied by planning. Thinking about a lottery win or inheritance is not planning.
The article closes with some comments about six common retirement “theories” that do not apply to everyone. These are the theories, which most of us in the States have heard or read about, followed by my comments:
1. “I’ve heard I need to save $1 million.”
What you have heard may be correct, but you need to run the numbers yourself. The important number is guaranteed retirement income, not gross savings.
2. “I am fine. I have a company pension plan.”
First, fewer of us have a pension. Second, is it inflation-protected?
3. “I need 70% to 80% of my pre-retirement income.”
A rule of thumb that is too often a rule of “dumb.” Create a hypothetical retirement spending plan (in today’s dollars) and look for yourself.
4. “I will have enough with the CPP/QPP and Old Age Security payments from the government.”
If you can live on what Social Security will send, you are frugal indeed.
5. “I will be fine if I only withdraw 4% or 5% a year from my savings once I retire.”
That used to be the rule but with investment returns having radically declined and with substantial inflation on the horizon, the old rules may not apply.
6. “Delaying my retirement a few years will not make that much of a difference.”
This statement is silly on its face. The combination of increased retirement savings and possible increase in Social Security benefits from delaying a few years can be huge.
I don’t know if it should make us feel any better that our Canadian friends are equally concerned about retirement. Maybe we can learn from each other.