The Real Retirement E-Book

Fred Vettese

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 328

Veröffentlichungsjahr: 2012

Beschreibung

Straight Talk and solid retirement advice for all Canadians In the face of government changes, financial market volatility, and an aging workforce, Canadians are understandably concerned about the impact on their finances and their future retirement. This reassuring book debunks the generally-accepted claims about necessary savings rates, which can cause paranoia among those beginning to contemplate retirement. The authors offer greater insight into planning approaches that are not widely understood, demystifies retirement targets (age, savings, income), and outlines concrete approaches to maximizing retirement savings. * Offers practical advice for dealing with the changes to Canada's retirement system * Includes advice for calculating your Neutral Retirement Income Target * Contains solid financial advice in accessible language * Written by the Executive Chairman and Chief Actuary of Morneau Shepell Canada's national actuarial consulting firm The Real Retirement offers a down-to-earth guide for preparing for comfortable retirement and shows what it takes to achieve it.

Leseprobe

Contents

Cover

Title Page

Copyright

Dedication

Preface

Chapter 1: Crisis? What Crisis?

A Delay of the “Golden Years”?

A Major Overhaul, or a Little Tweaking Here and There?

Are Seniors Poor?

Challenges for Future Retirees

Retiring Later

Chapter 2: Understanding the Foundation—Pensions

The Three Pillars of Canada's Retirement System

Pillar 4

Purpose of the Pillars

A Brief History of Retirement Programs in Canada

The Apparent Problem of Low Coverage

The Long Goodbye to Defined Benefit Pensions

Where the Retirement System is Trending

Chapter 3: Understanding the Foundation—Health Care

Early Days of Health Care

Growing Older and Staying Healthy Is Expensive

No Room for More Taxation

We'll Need to Start Taking Charge of Our Own Needs

Chapter 4: Our Best Days Are Behind Us

The Housing Market's Best Days Are Behind Us

Capital Markets Will Be Less Helpful in Building Wealth

The Demographic Pressures that Encouraged Early Retirement

What about the Next 20 Years?

Putting on our Economist Hats

Chapter 5: When Can We Retire?

Why Is Retirement So Expensive?

Why We Won't Save More

Time to Change the Paradigm

Chapter 6: How Workers Will Respond

The Employment Deal Will Need to Change

Part-Time Work Will Become the Norm for Older Workers

Will People Save More to Retire Early?

A New Measure of Grey Power?

Chapter 7: Deciding When to Retire

The Case for Retiring Early

Planning Your Retirement

It's All a Balancing Act

Retirement and Debt

Chapter 8: The Three Phases of Retirement

Phase 1

Phase 2

Phase 3

Spending in Phase 2 and Phase 3

What About Canadian Retirees?

Chapter 9: We Are Better Prepared than We Thought

Introducing LifePaths

Chapter 10: Your Retirement Income Target—Why You Don't Need 70 Per Cent

Why 70 Per Cent Is Wrong

Specific Pre-Retirement Expenditures

A Revealing Look at Pre-Retirement Expenditures

Comparing Pre- and Post-Retirement Expenses

What About Trying to Reach 70 Per Cent?

If Not 70 Per Cent, Then What?

Chapter 11: The Neutral Retirement Income Target

Challenging the NRIT Concept

Looking at Other Situations

Chapter 12: Arriving at Your Own Retirement Income Target

Rule of Thumb

Modifying the Rule

Summary

Choosing a Savings Rate

Reaching Your NRIT

Chapter 13: Investment Basics

Investment Horizon

Getting Comfortable with Risk

Focus on Real Returns

Investment Options: Good, Bad, and Indifferent

Equities Are Better than They Look

What About Bonds and Similar Fixed-Income Options?

So What Are the Alternatives?

Determining Your Asset Mix

Invest, Don't Gamble

Chapter 14: Managing Your Portfolio

Choosing an Investment Manager

Fees Are Important

Manager Selection Process

Adapting the Process

Monitoring

Statement of Investment Policy

Think Twice Before Changing Your Asset Mix

Chapter 15: Your Expected Return

Building Blocks to Estimate Future Growth

The Result

Chapter 16: Choosing Your Savings Vehicle

Why Invest in a Tax-Assisted Vehicle?

The Accumulation Phase—RRSP or TFSA?

DC Pension Plan or RRSP?

The De-Accumulation Phase—RRIFs

Depletion Anxiety

Annuities: The Cure for Depletion Anxiety

Delaying C/QPP Payments

Chapter 17: Should You Buy an Annuity?

The Purpose of Annuities

Variable Annuities and Annuity Derivatives

Present-Day Annuity Market in Canada

Taxation of Annuities

The Under-Annuitization Puzzle

Annuitizing Later

Should You Annuitize?

Chapter 18: When You Can No Longer Cope on Your Own

Home Care

Retirement Homes

Nursing Homes

Analysis

Chapter 19: Tackling the Big Unknowns

First the Good News: You're in the Right Place

The Clouds on the Horizon

A Quick Look Back at the Private Sector's Response

A Likely Model: U.S. Corporations and Their Benefits Programs

The Challenge of Dealing with Downloading of Costs

The Long-Term Care Question

One More Time: Our Three-Pillar Retirement System Is Doing Well

Chapter 20: Ending on an Optimistic Note

Of Course, There Are Always Challenges

Prepare to Assume More Responsibility

The False Glory of Retiring Early

Take Charge of Your Life!

Appendix A: Pillar 1 and Pillar 2 Benefits

Eligibility Age Raised for OAS and GIS

Option to Defer OAS

Appendix B: Income by Source

Appendix C: NRIT Charts

Common Assumptions

Appendix D: A Guide to Retirement Programs in Canada

Types of Retirement Programs

Glossary

Endnotes

Acknowledgements

About the Authors

Index

Copyright © 2013 Fred Vettese and Bill Morneau

Published by John Wiley & Sons Canada, Ltd.

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Library and Archives Canada Cataloguing in Publication Data

Vettese, Fred

The real retirement : why you could be better off than you

think, and how to make that happen / Fred Vettese and Bill Morneau.

Includes bibliographical references and index.

Also issued in electronic format.

ISBN 978-1-118-49864-4

1. Retirement income—Canada—Planning. 2. Retirement—

Canada—Planning. 3. Finance, Personal—Canada. I. Morneau, Bill II. Title.

HG179.V48 2012 332.024′0140971 C2012-907331-8

ISBN 9781118498675 (ebk); 9781118498682 (ebk); 9781118498699 (ebk)

Production Credits

Managing Editor: Alison Maclean

Executive Editor: Karen Milner

Production Editor: Pauline Ricablanca

Cover Design: Adrian So

Composition: Thomson Digital

To my own three pillars, Gregory, Troy, and Michael

—F. V.

And to the foundation of our business, our many colleagues at Morneau Shepell

—B. M.

“The Real Retirement is a clear and sober look at the state of aging in Canada. Concluding that we may actually be better off than all the hype and scaremongering going on in the industry is a refreshing evelation. But there is no attempt to sugar-coat things here. Early retirement is not an up-and-coming trend; it will be increasingly difficult in the years to come. The goal for most Canadians is to enjoy our working lives and our retirement in comfort and security. This book will help: a thorough look at the risks and the reality of retirement in Canada.”

— Suzanne Steel, Personal Finance Editor, Financial Post

“Canadians have had a rocky time in preparing themselves after the 2008 financial fallout. This sensible book without alarmist rhetoric is worth a close read for anyone preparing themselves for retirement. It has the right balance in articulating critical needs and providing some good advice.”

— Jack Mintz, Director and Palmer Chair, School of Public Policy, University of Calgary

“We all want simple rules to navigate the complexity of saving for retirement – but the rules need to be right! Fred Vettese and Bill Morneau explain why common targets for retirement income are too high, and why retiring later is realistic and desirable for people who need more. The systematic approach and clear examples in this book help us see ahead more clearly, to retirements that are comfortable – and achievable.”

— Bill Robson, President and Chief Executive Officer, C.D. Howe Institute

“Time to get real about retirement? It may be closer than you think. The Real Retirement is the best Canadian retirement guide since The Pension Puzzle.”

— Jonathan Chevreau, Editor of MoneySense Magazine and Author of Findependence Day

Preface

Fred Vettese and I have worked together for more than 20 years. We have spent many hours questioning the status quo and pondering the future of our retirement system and its impact on people and organizations. From those discussions, and from Fred's analyses and informed observations, we have come to the conclusion that there exist many persistent myths about the Canadian retirement situation. Fred has turned many of these observations into Morneau Shepell client newsletters—our Vision publication. From that base, we have delved more deeply into the retirement issues facing individual Canadians.

I have been a willing partner to Fred's analyses and observations, considering and reconsidering his data, and debating his conclusions. Fred is the main author of The Real Retirement, but the fact that we put both of our names on this book reflects our shared views and the power of his arguments. We conclude that Canadians are actually doing better than they think they are in their retirement planning—and are better off than many of the experts are telling us.

There are a number of factors at work to explain this phenomenon. First, there is the simple fact that perceptions tend to lag behind reality. We think of our seniors as a fragile group living in near-poverty. This may have been somewhat true in the 1970s, but major improvements in government programs since then have changed the picture. Today, the proportion of seniors living near the poverty line is not only small, it also is less than half what it is for working Canadians. Second, Canadians seem to believe that we must somehow replace our income when we retire, when in fact what we really need to do is to replace consumption. There is a major difference between the two, and consumption replacement is by far the easier task to achieve. Third, the focus tends to be on the retirement income one can achieve from the first three traditional pillars of our retirement system—OAS/GIS, C/QPP, and tax-assisted retirement vehicles—whereas retiring Canadians are quietly supplementing those sources with what we term “Pillar 4” assets. These consist of equity from the home and other real estate, non-tax-sheltered stocks and bonds, part-time work, and inheritances. Pillar 4 assets in Canada are greater than all the assets we have in the first three pillars combined.

The retirement system is by no means perfect. While many Canadians will have much more than they need for retirement, some others will not have enough. In these pages, we will help you to understand which group you are in, and to identify your neutral retirement income target – what you need to achieve to maintain your current lifestyle. Our goal is to help you to understand how to achieve your target.

Looking farther down the road, demographics and public policy are conspiring to create significant strains, which will mean younger Canadians will not have it as good as those who are nearer to retirement. In particular, we will not be able to retire quite as young. But even then, we have reasons to be optimistic.

There is no sugar-coating in our book. We know that many people will not like our conclusion that younger Canadians will need to work longer to solve Canada's retirement challenges. Others will think that we are understating an enormous societal problem. Our research shows that Canadians not only can, but for the most part will, achieve a comfortable retirement. This book should appeal to any thinking Canadian who wants to prepare for retirement but prefers to do so armed with facts rather than impressions.

Bill Morneau

Executive Chairman

Morneau Shepell

1

Crisis? What Crisis?

Older readers will remember a classic TV series from the early 1960s, The Twilight Zone. In one memorable episode, a gangster dies and finds inexplicably that he ends up in heaven. The life he lived on Earth resumes, except now he gets all the women he wants without trying, wins every time he plays the slots, sinks every ball when he plays pool, and so on. You get the picture. He is delighted at first, but after a few days of this he becomes totally bored and goes back to the angel who welcomed him to the afterlife. He tells the angel he doesn't think he belongs in heaven; maybe he would be better off in the “other place.” The angel responds with a diabolical laugh and says this the other place.