When Life Bites You in the Wallet, published earlier this year, is an excellent personal finance primer on banking, credit, debt and insolvency, written by a former banker and a bankruptcy trustee.
The bankruptcy trustee, based in British Columbia, is Blair Mantin. The other coauthor is Lee Anne Davies, who I got to know a bit when she worked in Toronto at the senior levels of a major Canadian bank. Lee Anne now lives in British Columbia.
However, in her new career as a health, aging and financial guru, Lee Anne pulls no punches about the wily ways of the industry that once employed her. Continue Reading…
Here’s my latest MoneySense blog, based on a Fidelity media briefing on Monday. Click on the red type to go directly to the piece at MoneySense.
For one-stop shopping and archival purposes, here it is again below, with different photos and subheads.
Peter Drake, Fidelity Canada
By Jonathan Chevreau
You’re probably going to live longer than you think but it if you’re worried about outliving your money, planning to work in retirement is not a panacea, warns Toronto-based Fidelity Investments Canada ULC.
At a media briefing on Monday, Fidelity Canada’s Peter Drake, vice president, Retirement & Economics Research urged those still saving for retirement that they have to take more individual responsibility for their future after work. “You’re going to live longer than you think,” he said, citing steadily rising Life Expectancy statistics going back to 1921. Someone born in 1921 would have a Life Expectancy of about 58, a figure that passed 70 for someone born in the mid 1950s and which passed 80 shortly after the new millennium.
Can an “Encore Career” bridge the gap?
Certainly, the latest data from the 2014 Fidelity Retirement Survey released at the event suggests those falling short of their retirement savings goals are counting on some kind of paying “encore career” to make up the difference. While only 20% of those already retired plan to rely on income from a full-time or part-time job, fully 47% of those still in the workforce expect to have some form of a paying “encore career,” said Drake.
Many will rely on Savings and Housing
Non-retirees also put their hopes into Savings and Housing as a way to make ends meet in Retirement. While only 58% of current retirees say they will rely on income generated from savings in an RRSP or RRIF, fully two thirds of non-retirees (66%) plan to do so. Similarly, while only 36% of retirees believe their home equity will help boost their retirement income, half of non-retirees are counting on it.
Clearly, something has to give and that something appears to be the fond notion that people can just keep working past the traditional retirement age of 65. “Planning to work in retirement is not a retirement plan,” Drake cautioned.
Saying you’ll “just keep working” is of course easily said. Indeed, I’ve given that advice to anyone who’s not quite sure whether they have enough money to retire or not. As I quipped on the radio the other day, it’s better to arrive at the train station five minutes early than five minutes late: similarly, when it comes to saving for retirement, it’s better to oversave than undersave. Your children and the government will thank you for over-saving.
“Just Keep Working” not always possible
Unfortunately, Fidelity’s research shows you can’t count on working in retirement. The poll of some 1,400 Canadians found that of those not working, fully one in five retirees would like to work if they could. However, 15% can’t find a job and 23% say employers aren’t interested in employing retirees.
Then there are health and health care issues. Drake says 38% of retirees not working have health issues that prevent them from doing so. And even for those who are themselves healthy, 12% have to care for another family member. Out-of-pocket health care costs are an important consideration for retirees, Drake said. Even though this is Canada, 30% of health costs are not funded publicly, putting more pressure on finances the older you get. Citing per capital public health care expenditures, the big blips are right after birth and then after 65. The per capita annual expenditure is well under $5,000 from age one to age 64 but hits $5,828 between 65 and 69, passes $10,000 between 75 and 79 and really starts to spike after age 85 – past $20,000 –hitting a peak of more than $24,000 after age 90.
Drake noted that generally speaking, women can expect to outlive men, but the longer they do, the more the problems of dementia – especially Alzheimer’s – can arise.
Challenges of Longevity
Another byproduct of extended longevity is that inflation really starts to bite into the purchasing power of a typical retirement nest egg. While inflation has been low and consistent since the early 1990s, it could rise in the future, Drake warned. And even low inflation can reduce purchasing power. A nest egg of $50,000 today would have the purchasing power of just $30,479 25 years from now even with relatively benign inflation of 2%. If inflation were 3%, the purchasing power of that $50,000 would fall to less than half 25 years later: $23,882. And at 4% inflation, it would have the spending punch of just $18,757.
He learned he had non-Hodgkin’s lymphoma, in 2008. (He is now 62).
Mr. Patrick struggled first with the decision about whether or not he should share the knowledge of his cancer with clients. He did and despite his fears to the contrary, none of his clients left as a result of this disclosure. One client even pre-paid, although Mr. Patrick still had to downsize his operation. He had a few employees: one of whom volunteered to leave while another agreed there would be no raise for a year.
Importance of providing clear instructions to spouse
Once it was clear he would be undergoing a (dangerous) stem-cell transplant, he made sure his wife had the paperwork on the life insurance, names of clients and where they could go for alternative service, and how to wind down the business if it came to that. All business owners should have a such letter for their spouse, he says.
After the nine months of treatment, he realized his hopes to immediately resume operating the business at full speed were a tad optimistic. Suddenly, health had become a priority over the business and he realized it would take a few years before his energy levels returned to the point he could work as hard on the business as he had before the cancer revealed itself.
Not coincidentally (given the wide publicity that comes with a story in the Times), his business — Stage 2 Planning Partners — focuses on retirement planning for business owners. I dare say he’s now busier than ever.
Savers almost everywhere have nearly been beaten into submission by seemingly perpetual Zero Interest Rate Policies (ZIRP) imposed by central banks around the world.
The simple connection is that when interest rates are low, there is no incentive to save money. The flip side is that low interest rates make borrowing cheap, so people raise their debt load. So, is it still worthwhile to save when interest rates are low?
As recounted in his own book, and columns in MoneySense and elsewhere, Hallam used to buy individual stocks until he realized the error of his ways and switched to indexing: and not just “core and explore” but 100% indexing. If you feel like following suit but don’t want to pick your own ETFs at a discount brokerage, check out Sandi Martin’s excellent piece on how to choose a robo-adviser, right here at the Hub. Continue Reading…
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When Life Bites You in the Wallet, published earlier this year, is an excellent personal finance primer on banking, credit, debt and insolvency, written by a former banker and a bankruptcy trustee.
