“The good news is that most people overestimate how much they need after retirement,” says Otar. “That forces them to save more.” Starting at age 35, he says a person who makes $100,000 a year and saves about a third of his or her income in RRSPs, tax-free savings accounts and through contributions to CPP will be able to finance their retirement “reasonably well.” As for the assets required, he says that for every $10,000 in pre-tax annual income that a retiree hopes to have indexed fully to inflation, he or she needs about $300,000 in investment assets to start with at age 65. “Based on market history, this amount of assets can provide income for at least 30 years.”
On the other hand, asking someone in their mid-30s to part with 30 per cent of their income is probably unrealistic given other financial demands such as home mortgages and the cost of raising a family. Indeed, one of the biggest dilemmas Canadians face when planning for their retirement is balancing their savings with the need to pay off increasingly weighty home mortgages. Hamilton says the trend toward bigger mortgages amortized over longer periods is troubling from a retirement perspective. “The problem that we have in Canada right now is not a savings problem, it’s a borrowing problem.”
McCurdy generally recommends that clients contribute to RRSPs and then use the refund to pay off a mortgage quicker. However, a growing number of advisers argue that people are likely better off paying down debts by the time they are in their 40s, and then turn their attention to saving for retirement. “My philosophy is to get totally debt-free and that includes the home mortgage,” says David Trahair, a chartered accountant who has written books challenging the thinking behind traditional retirement planning strategies. “The vast majority of people are going to need money in their RRSP. But if you’re trying to save while you’re in debt, you’re essentially cancelling out the saving.”
As well, Hamilton warns that there’s a point where an unwavering focus on retirement can become counterproductive if “you have to live like a pauper your whole life, like it was a prison sentence.”
At the end of the day, the key is investing that hard-earned cash wisely. For many, that will mean a traditional portfolio that consists of a mix of stocks, bonds and guaranteed investment products such as GICs. Many advisers also recommend that the percentage of funds invested in stocks and other risky instruments be re-calibrated to become increasingly conservative as the age of retirement draws closer. “For our clients, we have a rule: 100 minus their age,” says McCurdy. “That’s the most they should be investing in the stock market.” Still, if there’s any good that came from last year’s market meltdown, it’s that it taught people a badly needed lesson about the immutable relationship between risk and reward, which had apparently been forgotten after a half-decade of ballooning market returns.
Back in Sault Ste. Marie, Lach says he would do things differently if given a second chance. “You have to get in early, put some money away every month and let it snowball,” he says. While that doesn’t guarantee freedom from financial headaches, it could help make sure you will have enough extra cash to Rock and Roll All Nite when your favourite band comes to town—providing that security doesn’t confiscate your walker.
