Stu Lach’s retirement dreams were relatively modest. The former heavy equipment mechanic wanted to be able to eat well and dress “sharply.” He also wanted to go see classic rock legends Kiss. But when the ’70s band comes to Sault Ste. Marie, Ont., in mid-December, with its face paint, spandex and copious pyrotechnics in tow, the 61-year-old won’t be soaking it in from the front row. Instead, he plans to be at home, in his recliner, staring at the TV set. “I would love to go see them, but at $95 a pop I’m not going to do it,” says Lach. “I will hear them on the radio now and again and that will have to be good enough.”
Like many Canadians, Lach has recently discovered that retirement plans can fall well short of retirement reality. While he never envisioned himself trotting the globe or playing daily rounds of golf, he also didn’t foresee himself foregoing simple pleasures like a live music event. He and his wife have already sold their house and downsized to an apartment in the city. They pay constant attention to their monthly spending and have put off plans for an annual trip to Eastern Canada this year to visit relatives. “I’m not where I thought I would be,” Lach says. “I’m pinching pennies.” Suffice it to say, it’s not the sort of “freedom” typically portrayed in glossy retirement planning brochures.
Lach blames a combination of factors for his predicament: a retirement savings plan that was slow to get off the ground, last year’s devastating market crash and government rules that limit the amount he is allowed to withdraw from his pension funds each year. But while his experience is unfortunate, it’s far from unusual at a time when companies are backing away from gold-plated pensions, putting the onus on employees to make sure they have enough socked away for their golden years.
Many Canadians believe that $1 million is the magic figure when it comes to retirement savings. That was exactly how Lach saw things too—that is, until he realized it was never going to happen. “The closer I got to retirement, the idea of having a million bucks wasn’t realistic. I couldn’t have that much money.”
The good news is that you probably need far less to retire comfortably, despite what financial planners may tell you. But figuring out the right number is easier said than done—particularly once you consider that unexpected swings in the stock market can throw a serious wrench into the equation.
Financial advisers like to say that people spend more time planning their vacations than they do their retirements. That wouldn’t come as a surprise to anyone who has spent time with an adviser being bombarded with pie charts, brochures and phrases like “guaranteed minimum withdrawal benefits.” However, there’s good reason not to rush through the proceedings: you’re essentially making preparations for as much as a third of your life. That’s a long time to go without sufficient income.
As a rule of thumb, many financial planners say the average person can retire comfortably on about 70 per cent of their previous income and that it is best to start squirrelling away money in RRSPs in your 20s in order to enjoy the benefits of compound interest. But there are a growing number of skeptics out there who say the financial industry has a vested interest in telling Canadians they need to save more money than is really necessary. After all, they are making money off your hard-earned savings through fees and charges. “It doesn’t make sense for financial institutions and financial advisers to tell people they really don’t need to save that much, and that they can comfortably start saving in their mid-40s,” says Malcolm Hamilton, an actuary with Mercer Human Resource Consulting.
Hamilton argues that the 70 per cent figure is simply unrealistic for many people and probably unnecessary as well. For one thing, the target is often thrown at people who are closing in on their retirement age—a time when most are at the height of their income-earning potential and already have most of their major investments (house, car, children’s education) paid off. The reality, he says, is that most people live off substantially less than 70 per cent of their income for most of their lives because the bulk of their paycheques is going toward paying for their house and their families.
