Retiree to something not from something

I came across a quote from a retirement specialist that got me thinking about my own retirement. The quote was: If you retire from something and not to something, there is a good chance you’ll return to work. 40% of retirees end up returning to work. Interesting thought, but not necessarily true for those who return to work. This statistic is also misleading as currently, (2023) only 16% of those retired are thinking of returning to work.

There are many reasons to return to work. Some retirees go back because they need the money or in the United States, they need health benefits. A friend of mine worked until he had the money for his next holiday and then stopped, another worked to support his antique car hobby. I am sure my friends are not alone in working for holidays or hobbies.

These examples show that many retirees work for the sake of pursuing their passions or feeling a sense of value and purpose in their lives. It's not uncommon for individuals to have built their entire lives around their work, making it difficult to transition into retirement.

A 2020 Edward Jones/Age Wave study found that one in three new retirees struggle with finding purpose after they leave their jobs. I struggled with finding a purpose. It was an interesting journey, and I started this blog to help me find that purpose.

Purpose isn't something that simply reveals itself; it requires a proactive choice to seek it out. The journey took seven years, and once I found my purpose, I quit work. Having a purpose is crucial, as it gives us a reason to wake up each morning with enthusiasm and drive.

 Purpose is important, we all need a reason to get out of bed in the morning. There have been some interesting studies on the benefits of having a purpose in retirement. The studies

·    At Washington University in St. Louis, Missouri, found that rating a person’s sense of purpose even one point higher on a seven-point scale decreased the risk of death by 12 percent over 14 years.

•    Plus, the benefits were seen across people in their 20s to 70s, suggesting it’s never too late to find your passion.

·    By Rush University Medical Center found that people who have a lower sense of purpose in their lives could be more likely to develop Alzheimer’s disease compared to people who have a greater understanding of purpose.

·    By Researchers for the American Heart Association, after analysis, found that over an average follow-up of 8.5 years, having a high sense of purpose in life was associated with a 23 percent reduction in death from all causes and a 19 percent reduced risk of cardiovascular events, including heart attacks and strokes.

·   The University of Michigan found that those who reported having greater life purpose were more likely to make better use of preventative healthcare and spend less time in the hospital than those with a lower sense of purpose.

 We don’t have to have a single purpose, what we need is a sense of purpose and things to hope for that give meaning to our lives, Meaning comes from caring about something beyond ourselves. This could be a social cause, family, faith, a hobby; or whatever energizes you. So, I hope it does not take you seven years, like me, to find your purpose.

The Perfect Storm

The following is a summary of the research on  Factors Contributing to Lower  Retirement Confidence Among Women Who Are Not Married written by Craig Copeland, Ph.D. of the Employee Benefit Research Institute (pdf file)

The Retirement Confidence Survey (RCS) was conducted for its 32nd year in 2022 to measure attitudes toward, preparations for, and understanding of the various issues surrounding retirement by American workers and retirees. In 2022, the RCS found that Americans have near-record-high confidence in having enough money to live comfortably throughout retirement. However, unmarried women workers and retirees have lower retirement confidence than their married counterparts and are more likely to have lower incomes and assets. Unmarried retirees are also more likely to say that their expenses were higher than they expected and are more likely to have retired earlier than planned.

In this Issue Brief, the attitudes, considerations, and behaviours surrounding the retirement of women workers and retirees of different marital statuses are examined to provide greater insight into what can help improve women's retirement outcomes. Key findings are:

• Divorced and single, never-married women workers are more likely to have lower levels of financial assets than married women workers. Just 27 percent of married women workers have assets of less than $25,000 compared with just over half for divorced women workers (58 percent) and single, never-married women workers (56 percent). Married women retirees are also less likely to have lower levels of assets than divorced and widowed retirees.

• Married women workers are more likely to say that they are confident they will have enough money to live comfortably throughout their retirement years than both divorced and single, never-married women workers. Among retirees, married women are also more likely to be confident that they will have enough money in retirement than divorced or widowed women.

• Married women workers are more likely to agree that they feel knowledgeable about managing their day-to-day finances than single, never-married women workers. The share of divorced women workers who feel knowledgeable about managing finances is not significantly different from the share of married or single, never-married women workers.

• Both divorced and single, never-married women workers are more likely to agree that retirement savings are not a priority relative to the current needs of their family than married women workers. When asked about priorities aside from managing day-to-day finances, single, never-married women workers are more likely to choose purchasing a home or starting a business as the top-three longer-term financial planning priorities. Married and divorced women workers are most likely to say that saving and investing for retirement is among their top three longer-term financial planning priorities.

• When asked if individuals even know where to go to find good financial or retirement planning advice, one-third of women either strongly or somewhat agree with the statement that they do not know where to go for good financial or retirement planning advice. This is substantially higher for single, never married women, as 45 percent report that they do not know where to go for financial advice.

• Married women workers are the most likely to feel they have enough money to cover an emergency expense, while divorced women workers are the least likely to feel they can cover an emergency expense. Furthermore, married women workers are more likely to say they have done a retirement needs calculation than divorced or single, never-married women workers—49 percent compared with 35 percent each says they have done so.

• Women of each marital status who are offered a workplace retirement plan cite better explanations for how much income their savings will produce in retirement in their top four most valuable improvements to their workplace plan. However, divorced women are most likely to say that none of the possible improvements are the most valuable, whereas married and single, never-married women have three of the same four in their top improvements.

• Both divorced and widowed women retirees were more likely to have retired earlier than planned than married women retirees — 51 percent vs.42 percent. Women retirees of each marital status have equal likelihoods of retiring later than planned at just less than 1 in 10.

• When asked how their overall lifestyle in retirement now compares to how they expected it to be before they retired, a majority of women retirees say their lifestyle is about the same as they expected. However, married women retirees are more likely to say their lifestyle is better than expected, while divorced and widowed women retirees are more likely to say their lifestyle is worse than expected.

Keeping on Track

Women getting back on track with retirement planning A new survey of employer sponsored retirement plan participants by the Nationwide Retirement Institute® found that COVID-19 has negatively impacted the retirement confidence of women more than men.

But women are taking steps to get back on track, including trusting the guidance of financial professionals and shifting their retirement savings approach.

Women are missing key retirement planning milestones. Women are less likely than men to have started retirement plan contributions, saved enough in an emergency fund or increased contributions to their workplace retirement plans.

Many women say they’re on the wrong track for retirement, and COVID-19 has made it worse. About 1 in 5 women (18%) expect to retire later than planned due to the pandemic.

On the positive side, many women are acting now to improve their retirement outcomes. Since the start of the pandemic, two-thirds of plan sponsors say women are more likely than men to have made changes to their retirement plans.

Among women participating in workplace retirement plans, around half (48%) showed interest in guaranteed lifetime income investment options.

Women are more likely than men to trust financial professionals when it comes to many aspects of retirement planning.

Women are experiencing more negative emotions about retirement. Stress from the pandemic has affected people’s financial lives. Women feel less confident and more worried than men about their current retirement plan status – in fact, one in 10 women feel panicked. There is hope, the average American hopes to retire by age 62 but in reality, they retire closer to 65 and work part time or on a contract until 70. Retirement is not an age, it is a financial number, and in todays economy people reach that number by about age 70. 

Retirement planning, however, is not one-size-fits-all for men or for women. To plan for retirement, it is recommended to sit down with a financial planner. One of the first things you should do is determine exactly how much money you need per year to fund your dream retirement. Once you have that yearly total, you and your advisor can work your way backward to figure out what size nest egg you need and you  will get some help on how to build the nest egg you need.

 

I am 75 and can't afford to quit work

Saving for retirement is not an option, but it is an opportunity that fewer and fewer are taking advantage of in the US and in Canada. Government pensions in Canada are designed to replace between 35 and 40 percent of pre-retirement income. That is if you have worked and get Canada Pension plus Old Age Security. In the US their system is designed to replace between 38 and 45% of pre-retirement income. In the last decades, companies have moved away from offering any type of pension plan and are turning the responsibility of saving for retirement over to the individual. That is not working well for the individual but is working well for companies.

An average of 65 million Americans receive a monthly social security benefit, with the majority of payments going to retired workers and their dependents. When Covid-19 hit the US, millions of workers in the US and Canada had to rely on food banks to have enough food to eat, and in the US where health insurance is tied to a job, many lost health care and had to pay out hundreds of dollars out of pocket for treatments.

The Media reports of older workers have often been framed as feel-good stories, such as a viral news report of an 89-year-old pizza delivery man who received a $12,000 tip raised by a customer out of remorse, as he works 30 hours a week because he can’t afford to retire on social security benefits alone. Or an 84-year-old woman who started a new job as a motel housekeeper in Maine in July 2020. Or an 81-year-old woman in Ohio who volunteered to start working at her favourite restaurant in November 2021 because it shut down temporarily due to an inability to hire and retain enough staff.

The good news stories hide the grim reality that millions of Americans are working into their senior years because they can’t afford to have a job.

Over the next decade, the number of workers ages 75 and older is expected to increase in the US by 96.5%, according to the Bureau of Labor Statistics, with their labour force participation rate projected to rise from 8.9% in 2020 to 11.7% by 2030, a rate that has steadily increased from 4.7% in 1996.

The number of workers who retired during the pandemic was about 2 million more than expected. 50.3% of US adults ages 55 and older said they were out of the labour force due to retirement in the third quarter of 2021, compared to 48.1% in the third quarter of 2019, according to an analysis by Pew Research Center. Though in recent months, the unretirement rate of US workers has gradually increased toward pre-pandemic levels.

As the ageing US population grows, participation in retirement plans has declined since 2000. Nearly half of all families in the US have no retirement savings at all and inequality among Americans based on retirement savings is greater than income inequality. Over 15 million adults ages 65 and older are economically insecure, with incomes below 200% of the federal poverty line, with Black, Hispanic and women ages 65 and older more likely to live in poverty.

With the average estimated social security retirement benefit in 2021 at $1,543 a month, even with a 5.9% cost of living adjusted increase for 2022, millions of Americans who rely on social security benefits are forced to continue working past retirement age in order to make ends meet.

As the US population ages, with millions of Americans having no retirement savings, the number of older Americans with student debt, either for themselves or for children, is on the rise.

Nearly 9 million Americans ages 50 and older still have student debt, and the amount owed by this demographic is growing faster than any other age group. In 2015, 40,000 Americans had their social security retirement benefits garnished for student loans.

If you are still working pay attention and start saving for retirement, do not follow the lesson of your elders.

 

Lend a helping hand or not?

 CIBC’s Deputy Chief Economist Benjamin Tal raised eyebrows this week when he said that one in five first-time homebuyers is getting help from their parents with a gift, on average, of $150,000. Not only are more first-time buyers getting financial aid from the bank of mom and dad (up from 15.5% in 2015) but the dollar amount has more than doubled (up from $71,000 in 2015).

This is one of the reasons that older Canadians are working much longer than most experts had predicted. Due to a combination of factors, including the growing number of women in the workforce and a decline in the percentage of dependent children, even by 2030 when boomers are all over 65, the ratio of people being supported by the working population will be similar to that in the 1950s and 1960s. Not only that but in the years since COVID our labour force is being transformed and we are not yet sure of what it will look like in the future.

Twenty years ago, or so, many of the experts were talking about the transfer of wealth from the silent generation to the Boomers, that really did not happen as expected, Now according to a J.D. Power study, as much as $700-billion in financial assets is set to be transferred to the next generation in Canada by 2026.

Like it or not, many retirees have more than enough assets to live their desired lifestyle and leave a significant estate to their beneficiaries. The problem is many of my generation believe that it is not a good idea to save money for the younger generation, but it is a better idea to spend it now or save it for when you need it.

Assume you live a long and healthy life. That’s not as far-fetched as it sounds. FP Canada’s assumption guidelines suggest a 65-year-old male today has a 50% chance of living to age 89 and a 25% chance of living to age 94. A 65-year-old female has a 50% chance of living to 94 and a 25% chance of living to 96.

Many of my friends and my family are not willing to leave a large inheritance and neither am I. I would rather give them smaller and potentially more meaningful amounts at key milestones such as buying a first home, or filling up the grandkids’ RESPs?

My parents believed that if you worked to earn something it was valued more. They say the financial struggle is a rite of passage, and a way to build strong character.

The world is different today, a living wage in my area is about $25 an hour. Home prices are off the scale and prices just keep going up. The different world is where affordable housing and education, defined benefit pensions, and company benefits have all but disappeared. We’re living in a gig economy with temporary contracts, no benefits, and housing and other costs that are spiralling out of control.

If you want to help your children and grandchildren, make sure that your own retirement needs are met before making financial commitments to your kids to protect yourself.

What can a person who has Power of Attorney do?

 As we get older many of us may consider getting someone, we trust to help us look after our financial affairs. In BC this is done through an Enduring Power of Attorney, in other jurisdictions, there are other names and requirements.

When you give someone your Power of Attorney make sure it is someone you would trust to step in for you if you cannot manage your money down the road. They might be your spouse, adult child, grandchild, nephew or niece, a long-time friend, or someone else you really trust.

An Enduring power of attorney is a document in which an adult authorizes another person (called their attorney) to make decisions in relation to your financial affairs, business, and property. The person (attorney) is authorized to act when you become incapable, or to continue to act while you remain incapable. Attorneys may not make health care treatment decisions. A Power of Attorney is drawn up by a lawyer, both to protect your rights and to protect the attorney’s rights.

A person who has your Power of attorney can act on your behalf in the following four areas. These areas are the most common, but the attorney can act in any other financial areas that you define in the legal agreement. If you are considering giving someone the Power of Attorney over you, check with a lawyer before you do this.

1. Manage daily finances

2. Manage investments and sources of retirement income

3. Manage your home and other property

Let’s go over these categories in more detail.

1 MANAGE DAILY FINANCES

•        Make sure your bills are paid on time. This includes mortgage, rent, credit cards, insurance premiums, and basic services such as utilities and subscriptions (cell phone, TV, newspapers, etc.). They can also set up automated bill payments.

•        Monitor your checking and credit card accounts, including making sure automatic payments are appropriate.

•        Look for unusual purchases, donations to charity, and payments that may signal that someone is stealing money from your account or that you are being targeted by a scam.

•        Make sure your tax forms are filed correctly and on time, such as income taxes and property taxes.

•        Hire and monitor professionals like tax preparers, financial advisers, and attorneys.

•        Securely store your passwords, financial records, bills, checkbooks, credit cards, tax returns, and other important documents.

•        If needed, pay home health aides and other care providers.

The goal here is to make sure all your expenses are accounted for and that your bills are paid on time, thereby avoiding late fees, penalties, and loss of service or coverage due to missed payments. This helpful monitoring will also protect you from inappropriate purchases and repairs, overzealous solicitors for charitable causes, and many forms of scams, fraud, and identity theft.

2. MANAGE INVESTMENTS AND SOURCES OF RETIREMENT INCOME

To keep you financially secure, your attorney might help with the following tasks:

•        Determine if you’re eligible for financial support or other government programs.

•        Initiate pension payments and appropriate withdrawals from retirement accounts

•        Periodically monitor and evaluate your investments and insurance to make sure they are still appropriate for your situation and meet your goals.

•        Review that your income from retirement accounts is properly transferred into checking and savings accounts.

•        Work with you to develop and manage sources of retirement income and an investment strategy. If needed, your attorney can help find the appropriate financial professional.

Ultimately, your attorney will keep your retirement savings safe by making sure you aren’t sold investments and insurance products that are inappropriate for your circumstances and goals. They can also prevent high charges for professional services from brokers and advisers, and potentially catastrophic losses due to fraud or mistakes. Last, they can make sure you receive public assistance if you meet eligibility requirements.

3. MANAGE YOUR HOME AND OTHER PROPERTY

If you own your home, your attorney can:

•        Work with you to identify what repairs and maintenance are needed.

•        Screen, hire, and monitor work done by service providers like contractors, housekeepers, exterminators, plumbers, electricians, and other repair people.

If you own rental properties, your attorney can:

•        Hire people for maintenance and repairs.

•        Collect and deposit rental payments.

•        Communicate with current tenants.

•        Interview and evaluate prospective tenants.

If your attorney is not comfortable with this role or lives far away, you or your attorney can investigate hiring a professional property manager for rental properties. The goal here is to prevent substantial costs due to neglected repairs and untrustworthy helpers.

In the case of rental properties, you want to avoid losing income due to turnover with tenants and other issues that can come up.

IT’S A PRETTY BIG ROLE

It’s quite remarkable how many tasks you do to manage your money and keep it safe. Your attorney might also spend a lot of time with these tasks. Be sure to thank them for their time!

 

Money fears

I was going to write about “Where have all the Volunteer leaders gone”, but since my interests are many, when I saw this question, I changed my topic. The question is What’s your biggest money fear?

This is an interesting question and the answer is dependent, I suspect based on age, lifestyle and stage of life.  So, I went to the net to see if my assumptions were correct. I assumed that twenty-somethings might say they fear having to live in debt forever, or that they’ll never be able to afford a home, which is true, but this group is also concerned about learning how to manage money, debt and savings

Those in their thirties fear they’ll never stop living paycheque to paycheque. By the 30’s many have children, have bought a home or an apartment, and get caught up living with a mortgage. However, they are still learning to manage their money, controlling spending and debt. The savings are now starting to be geared for college for the kids and maybe retirement.

Forty-somethings might fear losing their job and having to start all over again. However, the concerns are more focused, many in their 40’s are established, but they recognize that a downturn in the economy or automation can put a halt to their plans. So, they are focused on gaining new skills, looking for ways to reduce debt by refinancing their mortgage or taking on a second job. Children are getting married so ways to help pay for the wedding become a bigger issue. In the late 40’s the realization that maybe some more money should be allocated to saving for retirement dawns.

The biggest money fear in your fifties might be whether you’ll ever be able to retire. The reality for many is that they have not because of other issues saved enough for a comfortable retirement. All of us will retire and in Canada and the US, we retire at age 61 or 63. This means that we have to find extra money for retirement. In this process we re-examine or debt and perhaps use debt consolidation to pay down our debt faster, we re-evaluate our retirement goals and we start to consider the value of different types of insurance.

The number one concern for all retirees is whether they will outlive their savings. It’s a legitimate fear, especially for women over the age of 60 who worry about the prospect of outliving their money and becoming homeless. Indeed, careful planning is required for those who retire without access to a defined benefit pension and without sufficient savings in RRSPs.

This fear can be overblown because Canadians enjoy government programs such as CPP, OAS, and GIS that provide a financial floor that has kept seniors out of poverty, although there is no assurance that these programs will continue to work as they were intended.

How much will I need when I retire?

How much you will need for retirement will depend on the lifestyle you plan to lead once retired. Will you travel? take up expensive hobbies? downsize? live frugally? relocate? The key is to start saving/investing early in life and do it with every paycheck. Take advantage of 401k or your RRSP plans if offered and max out contributions whenever possible.

It is also important to stay healthy. First, because you will be better able to enjoy life and second, medical costs will most likely be greater if you are not healthy. There are many web pages on ageing, health, travelling and many may have retirement and health calculators.

The average age of retirement is officially 67 in the United States, but retirement actually starts at age 61, for many Americans. They do say that they planned to work longer. According to the Centers for Disease Control and Prevention — you should plan to be retired for at least a few decades at least 2 if not three decades.

Your longevity may vary based on things such as your work (for example, executive versus assembly line worker), diet, family health history and participation in extreme sports leagues and your sex.

The average budget for a retiree, according to Bureau of Labor Statistics (BLS) data, or an older household, defined as ones headed by someone 65 or older, spend $46,000 annually. The top three-monthly expenses for those 65 or older are housing ($1,322), health care ($500) and food ($484).

Half of a retired household’s income comes from Social Security as well as private and government pensions, according to the BLS, with personal savings and investment and rental income providing 6.9 percent.

An online retirement calculator can project a more accurate picture of your retirement readiness. It will use your current saving, spending and investment profile, and some rules of thumb about historical investment returns, reasonable withdrawal rates and, yes, life expectancy.

What if the math shows that at the rate you’re going, you’ll outlive your retirement savings? If you’re not yet retired, one of the best moves is postponing your retirement. This strategy is especially valuable for those in their peak earning years.

Besides reducing the number of years you’ll need to live off your savings, working longer allows more time for your investments to grow.

If you’re already retired and un-retiring or waiting to file for Social Security aren’t feasible, there are other ways to make up for the shortfall between retirement income and expenses.

•        Leverage your home as a last resort.

•        Take your investments and shop for an immediate annuity.

•        Budget and reduce the amount you spend, taking out less money from your savings.

•        Seek assistance from family or from the government. There are government, non-profit and for-profit programs that provide benefits to struggling seniors.

Retirement age should it be increased?

On February 1st an article appeared in McLean's Magazine, called  The retirement age in Canada is too low—and that’s a growing problem, it was written by Peter Shawn Taylor and its lead is the following:  The Liberals reversed a plan to push the eligibility age for retirement benefits to 67. It goes against global trends and economic reality.

What is the global reality today? Canada and the United States are two of the countries in the world where workers have to work longer before they retire. According to a study done byAperion Care, the average age of retirement in most countries hovers around the 62-65 age range, there are a handful of countries that plan for workers to leave the workforce even earlier. The United Arab Emirates (UAE) boasts the lowest official retirement age at 49 years old, though the age is 60 for expats (non-UAE nationals). 

The African continent hosts several countries that have low retirement ages. Senegal, Mozambique, and Madagascar are the lowest at 57.5, while most hover around 58-60 years of age, such as Egypt, Tunisia, and Morocco.  There isn’t much information about social services, government programs, or workforce stats but considering so much of workforce is involved in agriculture and labour, over time, a person’s ability to work is affected by the physical toll it takes on their body, and earlier retirement might be necessary.

Other countries, like Russia, Japan, and India, have retirement ages closer to 60, and with large populations of older or retired people. Family obligations, limited opportunity, and rampant poverty keep these large older populations from travelling away and keep them in the workforce longer to be able to make a living.


In Norway, 67 has been the official retirement age since the 1970s and there currently are no serious proposals to raise the retirement age. In 2011, Norway established “flexible retirement” for earnings-related pensions, meaning that Norwegians can draw pensions as early as age 62. Some social science data suggests that Norwegians preferred to retire at 61, then the age rose to 64 in 2013.

In the article, Mr. Taylor states that "According to the Organisation for Economic Cooperation and Development (OECD), Canada’s decision to revert to age 65 bucks a global trend. “Many countries are increasing their retirement age,” the OECD observes."

This argument is that contributing more and for longer, especially by postponing retirement as life expectancy increases, is the best approach to face the challenges faced by increasing longevity. The argument is that the best way to address the problems posed by improvements in life expectancy is to maintain the ratio of years saving for retirement to years in retirement constant, increasing contribution periods as life expectancy increases; or to increase overall contributions. This position is being bought by governments as many countries have responded to population ageing by increasing the statutory age of retirement. Some have linked retirement age to life expectancy.

The fairness of this solution, however, can be questioned when we look beyond the average. Gains in life expectancy have not necessarily been distributed equally across society. A skilled executive, for example, can expect to enjoy nearly four additional years in retirement compared to a manual labourer; this assuming that “retirement” begins at age 65. 

Inequality becomes more apparent when considering the period before retirement. Not only can the manual labourer expect to receive his pension for fewer years, but he can also expect to have made contributions to the system from an earlier age, as the highly skilled worker likely spent a number of years in higher education and began working later. Given the same retirement age, the unskilled labourer pays relatively more into the system to receive his pension for a shorter amount of time.


Automatically linking retirement age to increases in life expectancy across the board may, therefore, be regressive. Life expectancy, time of entry in the labour market and improvements in life expectancy are not homogenous across the population, they vary across different socio-economic groups (e.g., low skill, low-income groups). Hence, the best approach may be to link the number of years contributing to life expectancy. Unfortunately, the data needed for this is not available across all countries and the application across different socio-economic groups may be far from straightforward but it is a better method than adding years of work before people can get their pensions.

Mr. Taylor concludes his article by saying, "In other words, Canadians may now be stuck with a retirement age that gets more out-dated with each passing year. Age is just a number, of course. But 65 stopped being the right number for retirement a long time ago." Around the world, there is some pressure to increase the age of retirement with the average age of retirement being between  62-65, but I believe Canada should not be in a hurry to move it that direction as our retirement age is already higher than most countries in the world.

Watch for more articles and studies that will take the position that we need to raise our retirement age. These positions are a response to the risk of living longer. Demand for protection against longevity risk will only increase as individuals are expected to live longer, and the sustainability of pension funds and annuities providing this protection for individuals has to be ensured. 

Sufficient provisioning for longevity is essential to guarantee that future payments will be met, and the ability for providers to manage and mitigate this risk will allow them to continue offering protection in the future.

Start earlier rather than later Part 2

If everything goes well for us, we will make it through the stages of retirement in good health and will remain active and will have lots of things to keep us happy.  So as we plan for retirement we should develop a personalized spending estimate based on your interests and planned activities. What do you want to do, well, first I think you should decide the lifestyle you want in retirement, including where you will live. Many of us stay in our family home, but some of us downsize or decide on a nomadic lifestyle and just travel. Whatever you do, sit down and estimate its current and future cost.  Your spending will not stay the same,  and you should adjust for inflation, year after year.

While most of us spend less as we age because we become less active and have done those once-in-a-lifetime activities that may not be you. For most people, spending steadily declines after age 75 but starts to increase between 80 and 85 because of medical and long-term care expenses.

After estimating the spending and looking at your sources of retirement cash, you might need to modify the expected activities to make spending match income and assets. When you are planning for your retirement think about inflation, which has averaged about 3% a year over the last few decades. Most of what you’ll spend money on in retirement will increase in price over time. When planning your retirement lifestyle also increases your retirement readiness, preparing you psychologically for the changes retirement will bring.

Health and medical costs will increase as we live longer, We do know that on average most of us in North America will spend between 2 and 3 years needing extra medical care. The wildcards in most retirement plans are medical expenses and long-term care. Their timing and amount are unpredictable. We underestimate these costs and overestimate what our health care and other government programs will pay for because we do not do our research well enough. One of the best ways to control retirement medical expense spending is to maximize insurance coverage. Investigate long term care insurance. In Canada with the rising cost of care and the coverage gaps that exist in provincial health insurance plans, the expenses for long term care can easily add up to thousands of dollars:

• Out-of-pocket costs for a long-term stay at a government-subsidized nursing home can reach as high as $2,161.71 per month.

• The average cost for a room in a privately-owned retirement residence is $1,527-$4,774 per month for a semi-private room and $1,600-$7,750 for a private room.

In Canada, the full cost of long-term care received at home or even in subsidized facilities is not covered by provincial health insurance plans. No coverage is provided for privately-owned retirement residency. So plan to buy or at least investigate this type of insurance. 

Sure, your monthly expenses will be higher because of insurance premiums but your potential maximum out-of-pocket expenses will be lower. If you don’t buy the insurance, you should save more and spend less on other things. You’ll need a cushion in your nest egg for large medical expenses. 

You should have enough guaranteed lifetime income to pay fixed, basic expenses. By having that amount of money you will reduce the stress of retirement. In Canada, The Canadian Pension Plan is the only inflation-indexed guaranteed lifetime income for most people. However, the rules have changed for when you can collect your Canada Pension Plan, so don’t make a fast decision on when to receive it. This is an area that you should research and when you make your choice consider it very carefully.  The right choice can add tens of thousands of dollars of lifetime income.

Even when you retire you need investment and a spending strategy. Of course, these will have to be adjusted as circumstances change.  We plan our retirement but we forget that once we are retired we have to have a spending strategy or we may run out of money too soon.  We believe that we can spend 7% or more of our retirement portfolio each year without the risk of running out of money. You need to establish a spending policy.  I have a spending strategy and it is to spend about 6% of my retirement portfolio. Some people think this is not a good idea, The consensus among financial planners and economists is that the maximum safe spending rate is about 4%. Some say the safe spending rate is even lower.  Most people don’t have a policy, they “wing it.”

At some point, you may not be able to speak for yourself so you have to plan for that reality as well. In your plan, you should 

include documents such as a will, financial power of attorney, advance medical directive and perhaps more, depending on your situation and goals.

You need to determine how the estate will be divided among the objects of your affection and how to meet any other goals you have.  An estate plan should cover more than what happens to your assets after you pass away.

You also need to ask whether it is likely you’ll have to help support either your children or parents or both at some time during retirement.

Of course, you should plan who you want making decisions when you might need help in the later years.

Start earlier rather than later Part 1

Planning for retirement should start earlier rather than later, but many of us put off this planning until we are in our mid 50’s.  But to have a prosperous retirement you need a plan. Forming a program that allows you to plan for a retirement that is everything you dream it could be will challenge you to prudently consider some essential points.

Some people will write down their plan, others will talk about their plan and perhaps sketch an outline for the plan. However, surveys of retirees show that those who have written their plans down are happier than those who don't write their plan down. 

Life is full of unexpected events, and we cannot plan for all of them, but those who create plans believe that their plan will reduce uncertainty, and it gives you reasonable expectation of success. With a plan, hopefully, you will look at what your expectations about retirement are and you will be able to understand if those expectations are realistic for you or not. 

How do you start to plan, well I think like any good plan you start at the end (what results do I want) and work backwards. So the first question could be When will I die or what is my life expectancy? 

If you are going to live until you are let's say 85 you will plan differently that if you think you will live to 75. The problem is that we don't know how long we will live so we guess. Our guesses are based on family history, our health, and all other factors we can think of when we sit down to do this task. The problem is that we underestimate our life expectancy and that of our loved ones. So if we get the first question wrong, our plan is off to a bad start. So I suggest you make your best guess as to when you will die and then add 10 years to the number if don't you live that long you may not run out of money.

Women and men have different life expectancies, so the odds are if you’re married, one of you will die before the other and you need to plan for that reality because your income and expenses will change after one spouse passes away.

So you have an expiration date, so looking at your life when do you think you will want to retire and how many years do you want to spend in retirement. When do you think you will be ready? Many younger people think they are ready now, but they probably are not ready. Retirement readiness is a state of mind. Being ready means you are happy to leave your workplace, including partners, structure, the sense of purpose and the activities associated with it. 

Once you determine your ideal age for retirement, you can start the transition to retirement by over months or years, reducing working hours or increase vacation time. If life were ideal we would slowly transition into retirement, but life isn't ideal and sometimes your retirement date isn’t always in your control. When you’re more than a couple of years from retirement, your plan should include a possibility that you might retire before you intend because of health or the economy.

You have an expiration date, you have a planned date for your retirement. It is now time to think about two things, How much money will I need and how will I occupy my time.

Many of us believe that we are not putting away enough for retirement and want to find ways to save more. While some money will be needed for everyday living expenses, medical issues and hobbies to occupy your time. To help find money start by simplifying your finances. Be practical and accept that it will take time to get everything finished.

The first step is to organize information and documents about your current situation, and then research alternatives and decide on a course of action. Some simple tasks you can do during relatively short periods each week. For more involved tasks, you might need to set aside a half day or more at different times during the year.

  

Here are some ideas to think about as you focus on your retirement finances. One review your bank and financial accounts.

Financial firms count on your inertia. They may offer good deals to entice customers, then over time either reduce the benefits or don’t keep up with what others are offering. Schedule a meeting with your financial institution and ask if you can get better terms, and then see what others offer. For example, if your checking account is at the bank that holds your mortgage, the checking account should be free with no, or a very low, minimum balance. Or if you have most of your investment accounts at one discount broker, you should have free checking, no annual account fees and other benefits. You also should be able to link accounts so that if you go to the website, you can log in once and see an overview of all your accounts at the firm. You shouldn’t have to log in to each account separately.

Secondly, consider the consolidation of your accounts. Most people have too many accounts and too many investments. Often, they purchased mutual funds and opened accounts over the years for good reasons, but didn’t monitor them. Now, they have multiple accounts and funds. Not only are their finances unnecessarily complicated, but they’re missing opportunities to reduce or eliminate fees. By consolidation, you may get better service and a reduction of fees.

Manage credit cards, the rules may have changed or your circumstances may have changed. Rewards programs for debit cards generally were scaled back or eliminated over time while credit card rewards programs have improved. Study the rewards programs for your current cards. Then, manage your spending and finances to maximize the benefits.

For example, some cards give higher rewards for certain types of spending (gasoline, restaurants, etc.) and most place an annual limit on the amount of rewards. It also is a good idea to compare the rewards points you earn from a card to its annual fee or other costs. Be sure the rewards you receive exceed any costs. If you’re ambitious, survey the cards available and consider changing to the one that’s best for you.

Think about refinancing your loans and mortgage. Take some time to ensure you’re receiving the best deal on your loans, especially first mortgages and home equity loans. You might be able to refinance to lock in a lower rate or a different loan term. The easy way to do this is to discuss options with your current lenders. If that doesn’t deliver a better deal, contact other lenders to find the best deal for you.

Doing the bills is a task that many of us don't like to do, so think about automation. Technology can simplify your financial life. Recurring bills automatically can be charged to payment cards or deducted from financial accounts. Many financial institutions charge late penalties,  by automating your payment, you avoid late payments and check printing costs, and save time. Automating bill payments also can make it easier to see how much you’re spending and where the money is going. By knowing where your money is going you can save more for retirement and will have money to do what you want to do.  

Feeling smug, think again.

I have several friends who are very happy that they did not invest in the stock market. They tell me that they sleep very well at night, knowing their money is safe and protected in their saving accounts in the bank. Yes, the stock market can be volatile, and if you pay attention to the market in times of volatility you may not sleep well. I know that I am guilty of that. My investment advisor told me to not check the market every day. She said to trust the research that lead me to invest in the companies I invested in and to trust her to watch the market and alert me if I need to make any changes. 

High volatility rates characterize the stock market. Market volatility is the tendency of the market to either rise or fall sharply when responding to several variables in the market. The higher the volatility, the riskier is the market. 

However, as I have been told, doing nothing is often the best course of action when it comes to a volatile stock market. Having said that it is a good idea to have a backup plan just in case the market takes a downturn by taking advantage of favourable fluctuations. For example, you can consider selling some of your stocks if they rise sharply before they bounce back down. You can make some profits in this period of uncertainty, and your broker should be able to offer you solid advice. 

Financial inertia can cost us in other ways.  I have friends who could not save $50 a month to save for retirement, yet they were willing to pay $15 a month or more in bank fees. They also were not willing to give up their Tim Horton's or Starbuck habit of $5.00 to $10.00 a day. They would not drive half-a-block to save money on gas or groceries and don’t bother returning items of clothing that don’t fit. There are good excuses for this behaviour and they justify their actions very well.

Other examples of this type of action or complacency are when people don’t take advantage of their employer matching RRSP program. Or when their mortgage comes due, they don’t shop around for a better rate or they continue to pay high fees on their investments. 

They are approaching retirement and are worried that they won't have any extra income when they retire, and they blame the system for not providing opportunities to invest.

Sometimes a wake-up call is needed. For some, it may be a major life event before they start taking their finances seriously. If we can see how much complacency is costing us that’s usually enough to motivate a person into taking action. If not they will end up not having enough retirement income to continue with their current lifestyle.

How much do you need for retirement?

On January 14, 2019, the Royal Bank of Canada (RBC) released the 2019 RBC Financial Independence in Retirement Poll, which uses findings from a poll conducted by Ipsos of over 2,000 Canadians online for RBC in November.

There are problems with online polling but we can assume that the figures they use are fairly good, but they are not definitive. 
How much do you need for retirement? Many experts claim that a person should have between 50 and 70% of their current income a year in retirement. In Canada, if a person is working, they can expect that the Canada Pension Plan will replace between 25 to 30% of their working income. If you add the Old Age Security Benefit most Canadians can expect to have about 35 to 40% of their income covered by our government programs. This means that if you want to follow the guidelines by the experts you need to come up with a saving strategy or work for a company that has a pension plan that will replace between 15 to 35% of your current yearly income. 

 According to the survey, Canadians believe that they need $1 million to fund a comfortable financial future. As Canadians look to retirement, we hope to amass this amount in private savings held in TFSAs, RRSPs and other un-registered investment accounts. 

In the survey, Canadians have identified their top four motivators to accumulating such a nest egg. These motivators are 
1. being debt-free
2. having things to make life more comfortable
3. having money to take part in desired experiences
4. having enough to travel wherever you want.

However in Canada that million dollars is not a goal for all of us, in British Columbia, we need a little more than a million, we need about $1.07 million. Albertans think they need $916,000, those in Saskatchewan and Manitoba cite $907, 000 and Ontarians just $872,000. Quebecers need just $427,000. The figures are interesting when we compare them to the national average of $787,000. Men believe they’ll need $942,000, compared to women at just $650,000. I wonder why this is so as women tend to outlive men so should need more.

Canadians are prepared, according to the poll to take four actions to achieve the financial independence we want. These actions are: 
1. spend less on non-essentials [74%] 
2. eat out less [59%]
3. postpone major purchases [45%]
4. cut back on travel [34%]. 

Our goals as Canadians this year appears to be to delay gratification, live within our means, eliminate debt, and then grow our retirement income.

If you retire with debt, the debt can cause you some worry, but the good news is Canadians said clearly that they don’t want to live with debt and certainly don’t want to carry debt into retirement and if we are able to achieve our goals then we as a country are in good shape for the future.

Retirement readiness

Age shouldn’t determine if you retire. You need to be willing and ready to leave. What I mean by that is retirement willingness is a state of mind. When you are ready, you are happy to leave your workplace, colleagues, the structure work gives you, the sense of purpose and the activities associated with work. You are able and willing to spend your time on other projects not related to work.

Today many Boomers don't just retire, many find a way to transition into retirement. Over months or years, they reduce working hours or increase vacation time. My brother is doing this now, he is ready to retire but he is slowly reducing the amount of time he has at work. For the past year, he has been taking one day off a week, and in the next few months he will transition to working only three days a week

I retired on a whim, my wife had medical issues and when she was better, she made a decision to retired from her work. She had been thinking about this idea for a year while she recovered from her medical problem. When she told me, she was retiring I gave my notice the next day so we could retire together.   My move to retirement was not thought out and I went back to work for six years before I finally fully retired.

The experts suggest that when you’re about three for four years from retirement, you should plan for your retirement and create a contingency that you might retire before you intend because of health or layoffs.

One question to ask when you are planning is what is your average life expectancy? You can go online or talk to older family members or your doctor to give yourself an idea of how long you will live. Your plan will be very different if your life expectancy is 10 years than if it is 35 years. If you retire at 65 you may live another 20 years, if you retire at 55 you may live another 30 years or more, depending on family history and your health.  We underestimate our average life expectancy, so give yourself the benefit of the doubt and assume longer not a shorter life expectancy.

Retirement planners may also ask if you’re married, how long will you live together? The reason they ask is that income and expenses will change after one spouse passes away and you should plan for this reality. However, you should also consider this question because many more Boomers are getting divorced after retirement and you may have to plan for that reality

The link between income and pension

The idea for this workshop came from an article written in 2014 by Richard Denniss.

Women have a problem when it comes to saving for retirement in all countries. In most countries around the world, women earn around 17% less than men who perform similar work. In addition to lower pay, women are far more likely than men to take time out of the workforce to raise children; to care for elderly parents; and to work part-time. All of these factors impact on the ability of women to accumulate retirement savings. 

It’s important to acknowledge the link between the pension and wage gaps. Statistics Canada, for example, found women’s average hourly wages were 88 percent of what men earned in 2014, although that doesn’t necessarily take into consideration factors such as occupation, age, union status and location. But when it comes to annual pay, that drops to 74 percent, because women work far fewer hours. And pension contributions, of course, are based on total salary and not hourly wages.

So, when you’re looking at an employer contribution into a pension, that percentage will be pounds and pence, or dollars and cents, if you will, less in a woman’s pension than a man’s because she actually receives less in her salary.

The gap between the retirement incomes of men and women will never be solved by information campaigns, decision-making tools or new websites. Better information may help some women (and men) avoid the exorbitant fees charged by many pension plans, and may enable better investment decisions, but information will not overcome the underlying structural flaws in the system which disadvantages women.

For example, calculations by The Australia Institute show that an average woman who worked full time would have around $200,000 less in their superannuation savings than the average man, a hypothetical nurse who took time to care for her children and parents would have around $538,000 less and a hypothetical lawyer who took time out for caring would have around $457,000 less. A recent study by Zurich Insurance Co. Ltd. found that over the course of her career, the average British woman would earn 47,000 pounds less in employer pension contributions than the average British man. In Canada, women need to save 26 percent more than men for retirement. 

If we are serious about improving the retirement incomes of women then tinkering with pension programs or superannuation has a very small role to play. Millions of women have already made 'bad decisions' such as having children, working parttime and caring for their elderly parents. Indeed, all women made the mistake of being born into the gender that gets paid between 17 and 26% less than a man

The only way to help women in retirement, as opposed to making them feel guilty for having made 'bad decisions' is to increase the age pension. While such an increase would be expensive, the cost is trivial compared to the enormous, and rapidly growing, cost of helping women in poverty survive.

If we wanted to spend money to help boost the retirement incomes of women, or all retirees, we could do so. Instead we have chosen to run seminars and provide information for women on how to make better decisions, and make women feel guilty about the choices they make for their family. 

Best Retirement Books

As I wander through the Internet, looking for inspiration and ideas I came across this article about the Best Retirement Books written by Sarah Horvath who is a Contributor to Benzinga. She wrote this article on November 1, 2018. Benzinga is, according to its website, is a fast-growing, dynamic and innovative financial media outlet that empowers investors with high-quality, unique content.

Sarah's article is interesting because she gives her criteria for her selection in a clear and brief format and she provides a link on where you can buy the book. Here are her criteria for her selections.

What makes a retirement planning book worth reading? 

Though each individual author will maintain his or her own unique tone and advising strategy, the best books all share these common characteristics:

Different strategies for younger and older investors
The best way to invest will largely depend upon how close you are to retirement when you begin. Younger investors have the added benefit of compound interest and time on their side; because they have more years to allow their money to grow before they reach retirement age, they can afford to take more risk.

Older investors may have to put off their retirement if the market takes a turn for the worse and they’ve placed their money into volatile equities, so investors closer to retirement will want to make more conservative investments when it comes to their retirement accounts. Be very wary of retirement planning books and financial experts who advertise a one-size-fits-all strategy to saving and investing—you probably aren’t getting the best advice possible for your unique situation. 

 
A fun and engaging writing stylePlanning for retirement doesn’t have to feel like work. The best retirement planning books place the voice of the author front and center, employing an interesting and unique writing style to keep you turning pages. You wouldn’t read a boring novel—so don’t force yourself to “tough it out” through a snooze fest.

Easy-to-follow and up-to-date adviceInterest rates have plummeted, tech stocks have skyrocketed, and we all have computers in our pockets—the world changes, and the best retirement advice changes along with it. If your retirement planning book is old enough to remember writing checks or life before the internet, chances are high it doesn’t have advice that is still relevant to saving for retirement in the digital age.

Realistic claimsHonest retirement planning books will tell you up front that saving for your golden years is a long and intense process that won’t happen overnight. Be very wary of retirement planning “gurus” who claim to have the secret to retiring in five years or the next Amazon or Apple stock—these so-called “experts” are more than likely trying to sell you a scam.

Here is her number one pick, for the entire list go here

The New Retirementality: Planning Your Life and Living your Dreams… At Any Age You Want by Mitch Anthony

Does the idea of working into retirement scare you? The New Retirementality author Mark Anthony wants you to challenge everything you think you know about retirement. Anthony believes that retirement is an artificial “finish line,” and expounds upon the mental, physical, and financial dangers of quitting work just because you’ve blown out the candles on your 66thbirthday cake. This doesn’t mean that Anthony advocates throwing investing to the wind and indulging in the pleasures of today—rather, the author encourages readers to create their own custom plan towards retirement and to rethink what it means to be retired.

Retirementality is unique because it’s not a step-by-step how-to book—instead, Anthony focuses on teaching readers how to think for themselves and identify the type of retirement that will help them feel personally fulfilled.

Get it on Amazon

Kindle edition: Buy it now
Paperback edition: Buy it now

Thinking of retirement?

If you are working and have been for a long time, you may be asking yourself, as my brother did this year, “When should I (or can I) retire?”

The official age of retirement in Canada is 65 in the USA it is 66. However, the average reported retirement age in 2016 for Americans was 61. The age of retirement is not going down, it is going up. The U.S. Census Bureau did a poll that shows that Americans are retiring in 2018 at age 63. 

Retirement has been on the rise for many reasons since 2004:

1. We are healthier, so we are able to work longer.
2. We live Longer interest rates have dropped which means you need to save more money.
3. More of us work in white collar and service jobs. This means we can perform our job tasks longer when compared to manual labour jobs.

Given all of the above, it is interesting that we are still retiring three years sooner than we planned. We plan to retire at age 66, but we actually retire at 63.
As Robbie Burns once wrote… “The best-laid plans of
mice and men can sometimes go awry.”

Why do we retire sooner than we plan? There are a few reasons I can think of, for example, personal medical problems, medical concerns of a cherished one, or corporate downsizing. Some investigations conclude that 60% of us end up retiring sooner than we planned to retire.

Other reasons for retirement could be that your job gets eliminated or your job is transferred to new locations and you don't want to move. The job market has shifted which has affected numerous workers’ planned and actual retirement. 

The job market has also seen a swing in the unemployment rate in the US since 2000, Since then the unemployment rate has ranged from a low of 3.8% in April 2000 to over 10% in 2008-2009, then down to 3.9% in September 2018.

The job market has also shifted during this time, and the types of jobs, where they’re located, and the skills required have also changed. Manufacturing employed the most people in 1997. Since 1997, the healthcare/social assistance industry has gained 6 million new jobs while manufacturing has lost more than 5 million jobs. 

The skills needed in healthcare are different than those needed in manufacturing. Without training, workers cannot make the switch to the new growth area jobs. In the US healthcare is now the top sector for employment while manufacturing has slipped to 4th place. 

If you are like many of us you may find yourself behind on your retirement savings. I know that happened to me but I was lucky enough to catch up between 50 and 63. Many of us hope that we will catch up while we are at peak earning. (ages 55-65).

As you move through life and think about retirement, live within your income, and put some money into your emergency fund and your retirement.