The average wrinklie in Canada has a retirement income of about $34,000. The average for a couple (and their cat) is $74,200.
This includes everything. The public pension. Old people’s pogey (OAS). Income from RRIFs and any benefits from a past job.
It ain’t much, especially if you live in a city, or have an expensive property to carry. And Dog forbid if you spawned a needy kid or two expecting you to cough up a house downpayment.
The post yesterday about the high-income couple with three million and no pensions who worry about their financial future spawned some interesting comments. Like this from a guy who lives on the wrong side of Nova Scotia:
The snowflakes of yesterdays posting, with no assets other than 3mil of deferred taxable earnings, that burn through enough in one month for IHCTD9 to live for 7.2, don’t need the advice of Garth’s firm to dole out the stash, they need a comptroller to show them how to spend.
In our lifetimes here, we had earned 1/2 of what they have left over, neither of us have worked for decades now, and we still have 2/3 left for the executrix to liquidate and disburse someday. (1/3 RE). Go figure!
Of course, you need less money if you live in a part of the country where real estate is cheap (because few wish to buy there) and you save big by driving a beater car, knowing how to fix your own timing chain and shopping at a local store that sells groceries, bait and ammo.
But most of us don’t. We need income after employment dries up. These days 70% of Canadians have no corporate pension and those among us with govy defined benefit plans is dwindling. The average CPP payment is less than $900 a month. OAS tops at $727 (rising to $800 at age 75). So, less than $20,000 a year. Try living a happy life on that.
For those of us who do not wish to eat bugs or collect shopping carts in a Costco parking lot, how much is enough?
The rule of thumb is that 70% of whatever you made (and lived on) while working should be sufficient. Others scoff, vowing that their living expenses will plunge when they retire, making it possible to live on the public dole and a few saved bucks in a GIC.
In reality, that’s a myth. When you stop working you have more time. Lots more. You can sit home and learn to knit, or actually use the time to pursue a hobby, travel, take courses, run for Parliament, renovate the kitchen, raise goats or write and finance a free money blog for trolls and sociopaths. In short, many folks find themselves spending more in retirement, not less. It’s a nasty surprise.
Some advisors say to retire with grace, dignity and without killing your long-time spouse for an insurance payout, you should have ten times your final employment income saved. So a salary of $150,000 would dictate $1.5 million in liquid assets. Given a 6% annual return from a B&D portfolio, that would yield $90,000. Add in the public cash, and you come close to replacing that working wage. Happiness.
Of course $1.5 million stuck in brain-dead GICs will not do the job. At current rates (which have been around now for years and years) the income generated would be just $52,500. With CPP and OAS, you’re still at only 50% of what you used to bring in. And GIC interest in a non-registered account is 100% taxable, unlike dividends or capital gains from a financial portfolio. Struggling.
But wait. Most households don’t have $1.5 million. They have half that.
The average retirement savings (including any pension amounts) for those at age 60 is $809,000. For the unmarried single, it’s $446,000. The average 65-year-old has about $160,000 in RRSPs and a TFSA combined.
Worse, as mentioned here in the past, Canadians sock more into high-fee mutual funds than they do in low-cost ETFs. Plus the bulk of money stuck in those delicious tax-free accounts is wasted in high-interest (pathetic) savings accounts and guaranteed investment certificates.
Now, what about real estate? People believe if their homes are paid off they can live on air.
Untrue, of course. Houses cost a huge amount. Property tax, maintenance, insurance, utilities, sometimes condo fees – it all adds up. Replacing a roof or a few windows or a furnace can suck off vast amounts of retirement cash. Reverse mortgages are financial death traps. Most importantly, the equity sitting in a home could be put to work generating income to live on. Take the average paid-off SFH in YVR. At $2 million it not only costs a bundle to own, but represents the loss of $10,000 per month in steady income from a balanced financial portfolio.
You can rent a sweet place – anywhere – for half of that. Plus swell your income at the same time and preserve a nestegg of two million to finance the vagaries of really old age. And, of course, the house proceeds would flow tax-free.
Retirement. Thirsty underwear and libido pills. It’s coming. Like it or not.
Are you ready?
About the picture: “Thanks for keeping the blog going, your advice is always wise and helpful.” writes LeeAnn. “My part time stint is finding gorgeous dogs and asking the owners if I can share on Canada’s best financial blog, they said yes. This is Baker, a Great Pyrenees, who lives at Superior Farms on Vancouver Island. She’ll have a great life ahead of her as the farm attracts bus loads of young, eager students. Is there any chance Canada can regain her innocence like Baker? She seems to be pointing out the way.”
To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.