Why we will no longer retire early (Part 2)

The point isn’t about how well our retirees are currently doing but rather about how this is about to change. There are basically three factors that explain why older workers have been able to retire early and relatively comfortably. 

First, they built up substantial wealth as homeowners as house prices soared 500% or more in the past 30 years compared with a rise in inflation of just 154%. 

Second, financial assets have enjoyed a good run, the financial crisis notwithstanding, as the median pension fund returned 9.1% (before fees) over the 25-year period ending December 2009.

Third, and most significant, the labour force grew rapidly in the period from 1960 to 2000 because of two phenomena. First, the female participation rate in the workforce doubled from 33% to 67%. Second, the baby boomers entered the workforce. What does this have to do with retirement age? The labour supply grew much faster than the job market, which caused the unemployment rate to rise from an average of 4.2% in the 1950s to 9.6% in the 1990s. Governments, employers and big labour were all anxious to help older workers leave the workforce a little earlier to ease the pressure on the job market, and they all did their part to facilitate early retirement.

All three of these factors are now starting to work against us. First, we may or may not be in the midst of a housing bubble, but even if it isn’t a bubble, there are many reasons why housing prices will climb much more slowly in the future. The net result will be less housing wealth for future retirees. Second, actuaries are all in agreement that future returns in the capital markets will be lower than they were in the past 25 years. This is more than a guess. Bonds have just completed a 30-year rise as interest rates fell from 18% to under 3%, a slide that produced real returns (after inflation) of nearly 9% per annum. This can’t repeat; in past periods that started with low bond yields, we have often seen negative real returns over the subsequent 30 years.

Finally, the demographics are changing. The large surplus in our labour force is diminishing quickly as the female participation rate is levelling off and the baby boomers are starting to exit. This has caused the average unemployment rate in the 2000s to drop to just 7%, versus 9.6% in the 1990s. Once the unemployment rate gets back down to the 5% level—probably in the next decade—we will have just one large pool of potential workers to draw from: people in their 60s who thought they were about to retire.

If the economy needs workers badly enough, it will find ways to keep them working longer—through either incentives for staying or penalties for retiring early. This is more than conjecture. The recent change in the actuarial factors under the Canada/Quebec Pension Plan reflects this new reality, with a bigger reduction for early retirement and a greater increase for postponed retirement. OAS at 67, of course, is another example. The migration from DB to DC pension plans also results in later retirement. We can expect more measures from governments and employers to encourage later retirement (or discourage early retirement) as the unemployment rate continues to fall. The ultimate result is that Canadians will retire later.

Fred Vettese is chief actuary of Morneau Shepell.

Source: www.benefitscanada.com

Why we will no longer retire early Part One

The following article was prepared by  Fred Vettese and published on  April 11, 2012, in the article he talks about why Canadians not already retired will have to wait longer. So as we move into the fall and closer to Labour Day, I thought it would be interesting to see how much working Canadians have to lose. By the way the forces he talks about are at work in most countries of the world, so the pressure to raise retirement age and reduce retirement benefits to keep people working longer is a world issue, not just a Canadian one.

By 2029, Old Age Security (OAS) will not become payable until age 67. After nearly half a century of improvements in government retirement programs, this is the first significant take-away. And it may not be the last.

For the last four decades, demographics and capital markets have worked in our favour, enabling us to enjoy ever-longer periods of retirement. But that era is coming to an end, and the change to the OAS retirement age is not the cause—it is a symptom.

There is a common misconception that we are in the midst of a retirement crisis. Certainly, this seems like a logical conclusion, given the low pension plan coverage in the private sector (now down to only 22% of workers being covered, according to data from Statistics Canada) and the vast amounts of RRSP contribution room that go unused. Nevertheless, our seniors are doing better financially than the working-age population. Using the low-income cut-off (LICO) as our measure of poverty, only 5.2% of seniors are below the LICO compared with 10.5% of people ages 18 to 64. That doesn’t even take into account the fact that we spend more than $30,000 a year on healthcare for each person age 75 and over, compared with roughly $4,000, on average, for everyone else.

Berries are good for you!

Live Better, Longer

April 26, 2012 -- Eating berries at least once a week may protect the brain from age-related memory loss, a large new study shows.

The study included more than 16,000 women who are taking part in the Nurses' Health Study.

Researchers have been keeping tabs on the women's diets since 1980. Between 1995 and 2001, researchers also measured the mental function of women who were over 70 and had not had a stroke.

Mental functioning was measured during three telephone interviews that were spaced about two years apart. In the interviews, researchers asked the women to recall details from a paragraph they'd just heard, for example, or to remember the order of words or numbers in a list.

When researchers compared women who ate the most blueberries and strawberries to those who ate the fewest, they found that those who ate the most had a slower rate of developing memory problems. The difference was equal to about two-and-a-half years of aging.

"This is pretty compelling evidence to suggest that berries do appear to have memory benefits," says researcher Elizabeth E. Devore, ScD, instructor in medicine at Brigham and Women's Hospital in Boston.

What may be even better news is that the biggest berry eaters in the study weren't eating mounds of them every day. On average, they were eating a single half-cup serving of blueberries or two half-cup servings of strawberries each week.

"These are simple interventions that appear to have pretty healthful effects," Devore says.

The study can't prove that berries protected the women's brains directly For the full post go to:  Source: http://www.webmd.com/healthy-aging/news/20120426/berries-may-slow-memory-loss

Portrait of Lotte

This is a very interesting and I think powerful film that shows us how fast life can slip by and also shows that people not things are important. 

The photographer Frans Hofmeester says this:

 I  filmed my daughter every week, from birth up until she turned 12 years old an then made this time lapse edit in FCP. To see the video go here:  http://vimeo.com/40448182

Women: Let’s Talk About Retirement

The 12th Annual Transamerican Retirement Survey published in April 2012 gives some advice and some ideas that may help both women and men who are thinking of retirement, but the advice is more timely for women.

Here are some of the ideas generated by this years survey for more go to the link in the previous paragraph:

Here are five conversation starters for women …

1. Personal decision-making style:

The majority of women (54 percent) seek advice but make their own decisions about saving and investing for retirement, but only one-third (31 percent) indicate that they use a professional financial advisor. Another 29 percent are do-it-yourselves who prefer to do their own research and make their own decisions

How do you get information about saving for retirement and what is your decision-making process?

2. Goal setting and estimating retirement savings needs:

The majority of women (60 percent) "guessed" their estimated retirement savings goal

Do you know how much money you'll need to retire at the age you want to retire?

3. The need for a strategy and written plan including a back-up plan:

Few women (7 percent) have a written plan documenting their retirement strategy and 53 percent have no plan at all; 16 percent have a back-up plan in the event that they are unable to work before their planned retirement

Do you know how you’ll reach your retirement savings goals? What would happen if you lost your job or got sick before your planned retirement age?

 4. Go-to sources for learning about saving and investing for retirement:

The majority of women rely on friends and family, closely followed by a financial planner or broker, financial websites and their retirement plan provider’s website

Who do you talk to or where do you go to learn more about saving and investing for retirement? Why?

For my American friends

5.  Awareness of opportunities like the Saver’s Credit and Catch-Up Contributions:

Few women (22 percent) are aware of the Saver’s Credit and (48 percent) are aware of the ability to make Catch-Up Contributions

Have you ever heard of the Saver’s Credit or Catch-Up Contributions? Do you know if you’re eligible?

 

How each woman ultimately plans on spending her retirement is unique, but the tools to help attain retirement readiness are common to all.

Seven tactics can help women improve their retirement readiness:

1. Calculate your retirement savings needs.
2. Develop a retirement strategy and write it down. Envision your future retirement, formulate a goal for how much you will need to save each year (be sure to include employer-sponsored retirement plans and outside savings), and be sure to factor in living expenses, healthcare needs, long-term care, and government benefits.
3. Get educated about retirement investing. Seek professional assistance if needed. Learn about Social Security and government benefits.
4. If your employer offers a plan, participate. Be sure that your annual salary deferral takes full advantage of employer matching contributions, if available. Defer as much as you can. If you decide against maximizing annual salary deferrals in the plan, be sure to save for retirement outside of work.
5. Consider retirement benefits as part of your total compensation. If your employer doesn’t offer you a plan, ask for one.
6. Take advantage of the Saver’s Credit if eligible. Make catch-up contributions if eligible.
7. Have a back-up plan in the event you are unable to work before your planned retirement.
1. And, get the conversation going by talking about retirement with family and close friends.

Policymakers also should consider the following to help employers and their employees, both women and men, to increase retirement readiness:

1. Pursue legislative and regulatory initiatives to expand retirement plan coverage for all workers including part-time workers:
2. Additional safe harbors for 401(k) and similar plans for purposes of non-discrimination testing
3. Expanding the tax credit for employers to start a plan and facilitating the opportunity of employers to participate in existing plans by implementing reforms to multiple employer plans.
4. Expanding the Saver’s Credit by raising the income eligibility requirements so that more tax filers are eligible.
5. Expanding Catch-Up Contributions by raising limits and lowering the eligible age.
6. Extending the 401(k) loan repayment period for terminated plan participants and eliminating the six- month suspension period following hardship withdrawals.
7. Requiring retirement plan statements to state participant account balances in terms of lifetime income as well as a lump sum