A Canadian based study was conducted by three University of Waterloo researchers, entitled “Basic Living Expenses for the Canadian Elderly”, to determine the basic living expenses required by Canadian seniors living in different circumstances in terms of age, gender, city of residence, household size, home ownership / renter, means of transportation, and health status.  It assesses the minimum level of income required in retirement and the adequacy of savings and income security programs.  Using Halifax, Montreal, Toronto, Calgary and Vancouver as base urban centres, the study looks at identifying what the elderly income threshold is for these urban areas for an single elderly individual and an elderly couple for 2001.

The paper’s conclusions suggest that individual circumstances, rather than age, are the primary drivers in determining the cost of basic expenses.  The thresholds resulting from the study provide a general impression of the necessary after tax income needed to cover basic needs.

A no frills retirement – couple rents rather than owns, owns no vehicles but uses public transit, low clothing expenditures, and has very little or no extra cash for minor indulgences (like cable, alcohol and entertainment) – would have an annual cost of between $20,200 to $27,400.  Some comfort is out there for those concerned about those annual cost numbers because the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) programs for low income seniors gets close to covering these basic needs – just barely or very close depending on the city you live in.  If you add the Canada Pension Plan (CPP) payouts, if you worked most of your life, you will get more – a bit less than $30,000.

I’m sure most would look at a no frills lifestyle and cringe but there will be income.  Most Canadians want better than the no frills version and expect the same or similar levels of comfort they enjoyed while working.

Another article that discusses the noted study presents some info regarding how much income to you need.  It assumes you receive about $30,000 from CPP and OAS as a base.  For a more active lifestyle than the no frills lifestyle described above, an extra $10,000 to $30,000 a year would be needed.  Some financial planning research suggests you need retirement savings of 25 times your annual retirement spend (excluding CPP and OAS) if you want to keep spending that much for the rest of your life.  Statistics Canada indicates that median spending by a couple over 65 is about $40,000 a year and average spending is about $51,000 per year.  At the $10,000 value that would mean a nest egg of $250,000.  A higher end lifestyle, at the $30,000 value, would mean a nest egg of $750,000.  If you want to be a big spender with an extra $100,000 a year of disposable income, your nest egg would have to be $2.5 million.

This all goes to show that you need to match wants to means – find a retirement lifestyle that fits your budget.  A more lavish lifestyle will be supported by an appropriately sized nest egg.  For many, going back to work part time can provide additional cash for extra lifestyle improvements.  Ideally finding part time work doing something you enjoy so you would love the work as well the extra money.

Refer to http://ideas.repec.org/p/mcm/sedapp/240.html to download a copy of the study.  Information from one of the authors can be found at http://www.naylornetwork.com/cia-nwl/articles/?aid=31031&projid=2080.

Refer to http://ca.finance.yahoo.com/retirement/article/moneysense/42/retirement-three-magic-numbers for an article about the study plus additional related data.

A recent article published  in the Ottawa Citizen (Saturday, May 1, 2010) by J. Chevreau (Wealthy Boomer) entitled “If you’re in debt, forget retirement” highlighted information worth considering as you look towards defining a retirement life you can afford.

The article highlights the results of 2 new surveys – one from Investors Group Inc. and the other from the Royal Bank of Canada.  These surveys indicated that Canadians intend to carry significant amounts of debt into retirements.  The 1st survey indicate 62% plan to carry debt such as a mortgage into their retirement.  The 2nd survey indicated 39% of Boomers 50+ entered retirement with some debt.

Previously the standard was to enter into retirement debt free but some now feel carrying debt in retirement is not necessarily bad.  A more relaxed attitude regarding debt seems to exist.  This may be due to a number of factors including delayed parenthood for the current boomer generation, family situations (divorce, remarriage, older children still living at home, etc.), and current low interest rates.  The article goes on to talk about deductable and non-deductible debt.  All appear to agree that getting rid of non-deductible debt is important point to stress when considering how ready you are for retirement.  Various views exist regarding deductible debt based upon the fact that this is more of an advantage to those in higher tax brackets.  There are numerous tax advantages.

Another item of note in the article was from an actuary (Malcolm Hamilton).  He is quoted in the article and states that retirees can get by on just 50% of their working incomes, assuming a paid-for home.  He also indicates that if you’re still in debt, you have no business retiring and it is almost always a symptom of poor planning.  Boomers with safe investments (like bonds, etc. which currently generate little or no return) and debt should consider clearing the debt.

A recent article published in the Ottawa Citizen on January 14, 2010 stated that Canada’s greying population could push federal finances into chronic deficit.  The article also indicates that the Parliamentary Budget Officer is asking the government to set targets now on how the government will climb back to balanced budgets in the 5 year time frame.

The newspaper article is based upon information from the Office of the Parliamentary Budget Officer (PBO) published in a document called “Estimating Potential GDP and the Government’s Structural Budget Balance” -published by the PBO on January 13, 2010.  Find the whole article at this web link – http://www2.parl.gc.ca/Sites/PBO-DPB/documents/Potential_CABB_EN.pdf 

For those that aren’t familiar with the PBO, it provides independent analysis to the Senate and the House of Commons on the state of Canada’s finances, government estimates and trends in the national economy.

The PBO report noted is one of many Technical Note’s from the PBO detailing the Officer’s approach to estimating Canada’s potential GDP, potential GDI, and the Governments structural budgetary balance.

Of interest to Boomers are the PBO’s points that the projected decline in potential GDP growth is a function of the projected decline in the growth of trend labour input, which reflects slower growth of the working age population and a decline in the trend employment rate associated with the shifting age composition of the workforce.  This reduction in potential GDP growth will constrain the pace of government revenue growth going forward.  What this is saying is basically this – Canada’s labour force is expected to shrink as Boomers retire and as a result, with a smaller proportion of Canada’s population working, Canada’s economic potential will fall to lower levels.  The newspaper article notes that these lower levels of economic potential haven’t been seen in 40 years.

In a nutshell, a reduced workforce means less revenue for the government which in turn means a larger “structural deficit” in the near future.  A structural deficit represents the difference between what the government takes in revenues and what it spends.  Based upon Canada’s aging population, more and more Canadians will move from the “those who pay taxes” category to the “those who use taxes” category.  As Boomers retire, they move from paying taxes to consuming government services, everything from Medicare to old age security.

We are all aware of Canada’s aging population statistics as noted in other articles posted in lifepast50.  As Boomers, we also should be concerned about Canada’s shrinking economic growth potential as a result of the aging Canadian population.  Will this mean greater taxes in the future, a reduction in government services, government program cuts, and/or continued budget deficits?  Should Boomers be considering continuing with working part time before completely and fully retiring from the workforce (a trend noted in a previous lifepast50 posts) given the recent economic downturn?  These are things Boomers need to keep an eye on in the next 5 years as Canada moves out of the latest economic downturn.

Many of us are relying on our company pensions to finance retirement – in many cases to substantially fund that retirement.  Don’t count on it!   We are now witnessing an unprecedented pension crisis as companies go bankrupt and others struggle to survive.  And, its going to get worse!

The Globe and Mail is running a series of articles beginning with the Saturday October 17, 2009 edition looking at Canada’s pension crisis.  Those Canadians relying on pension income from our current or past employers should be paying attention.  Many examples are presented of companies in bankruptcy whose pensions have been slashed 30% or more.  Recent auto company (GM and Chrysler) failures together with other high profile organizations such as Air Canada and Nortel highlight the problem.  Those corporate plans left standing  face unprecedented stresses.  Markets in which pension funds are invested are in turmoil and have left a $50 billion hole in Canada’s corporate pension funds.

If you’re a retired or still an active public servant, you’re fairly safe.  Most public service pension plans are gold-plated, designed to guarantee a fixed income.  And, of course, the taxpayers of Canada are on the hook for those pensions including those taxpayers whose corporate pension plans have melted down.

The solutions are varied but don’t even think about getting help from Government who don’t seem to be able to fix the flaws in provincial pension regimes.  Governments appear to be sitting on the sidelines – watching as the fate of retired workers is decided in bankruptcy courts.  I’m thinking the only people that are going to come out ahead are the lawyers.

So what are our options?  If you’re not yet retired, plan on increasing your retirement savings or simply plan to work longer.  Yikes!  Some solution eh!  If already retired, some are either going back to work or turning their hobbies into income generators.  No, your small marijuana gro-op doesn’t count as it’s probably illegal.  And finally, plan on simply spending less  or selling some possesions such as cottages or homes to pay the bills.

Tony Almonte, Oct 17, 2009

The recent tragic death of David Carradine brought to mind some wisdom he once imparted – advising that "you should never buy anything from someone who is out of breath!"  I believe he gave us this advice with respect to life in general.  But when I heard this wisdom repeated by a CNN commentator, I thought immediately of the world of investments.  Were the CDO (Collateralized Debt Obligation) and othe Asset Backed Paper salesmen out of breath when they made their pitch?  Were Investment Dealers pushing Bernie Madoff’s fund also out of breath?

We’re often advised to jump on bandwagons by brokers and advisers who are out of breath with enthusiasm.  My own history includes buying Dome Petroleum at the top of the market when everyone was out of breath pushing this stock.  We know what happened to Dome but there was a silver lining for me personally.  When those same brokers, analysts and advisors pushed Bre-X at me, I stuck by the old saying "once burned – twice shy" and avoided this loser.

Tony Almonte June 9/09

BMO Nesbitt Burns Technical analysts have provided the following currency exchange prediction (May 27, 2009 – Relative Strength Research Notes)

"Technically, we (BMO Nesbitt Burns analysts) expect the Canadian $ to appreciate to the .93 to .97 cent zone.  The only question is whether we get there in weeks or months." 

Another view expressed by Avery Shenfeld CIBC Economist (on June 8/09) was  that "we still see the Loonie averaging not much below 90 cents (US$) over the next four quarters. 

So, should we wait for the buck to get to the .93 to .97 cent zone or buy now at about .90 cents? 

During the week of June 1, the Canadian $ did climb to almost .92cents.  I, therefore, went ahead and bought $1000. for our US Savings Account which is used to fund our  winter getaways.  My strategy is to buy US$ whenever the Loonie hits a new significant high against the US greenback and build enough US$ reserves to pay for a few months down south come winter.

Tony Almonte, updated June 9, 2009

If there is only one rule you must follow as a retail investor, it is to "buy low and sell high".  Easy eh!  So why can so few investors point to a record of consistent success?  

Dan Richards in a recent Globe and Mail article points out that the root of this investing mystery lies in our emotional reactions to market movements, creating an impulse to buy high and sell low – exactly at the wrong times.  Peter Lynch, a famous and successful fund manager was also puzzled by the extent to which investors who owned his funds had dramatically lower returns than the funds themselves. The reason for this, quite simply, is the typical investor’s inability to stomach the markets ups and downs – buying at the peaks and selling at the troughs.

So here’s the lesson we’ve learned, take some valium and  "buy low, sell high"  easy eh!

For a complete read of the referenced article, see the Globe and Mail (Business Section) of May 25, 2009.

 From an article  published in the Ottawa Business Journal in April 2009

Canada’s workforce is clearly aging, putting increased pressure on employers to find new ways to attract young talent. At the same time, Investors Group reports that 58 per cent of all working Canadians – and 67 per cent of those are in the 45 to 64 baby boom age group – definitely plan on working during retirement.

For this group, retirement will no longer signal the end of working, but rather a career and lifestyle transition.

To do this effectively, you’re going to have to develop a "deceleration" phase in your career, says Tammy Erickson, author of Workforce Crisis: How to Beat the Coming Shortage of Skills and Talent. People tell her they enjoy their colleagues and their work, and would definitely consider staying on longer if options to slow down a bit were more available. This way, they could ease up and step down, without the angst that comes from leaving altogether, she maintains.

Trouble is, though, that most of them are still going to want to get paid.

Recognizing this, more employers are creating programs that allow older workers to ease out of their jobs by reducing their work time, rather than just showing them the door when they hit a magic number of combined age and years of service.

But this causes problems when it comes to calculating future pensions, particularly for participants in defined benefit pension plans such as those enjoyed by teachers and public sector workers.

In these cases, employees have been prevented from working and earning additional pension credits while receiving a pension from the same employer. Either the pension had to be postponed, or the additional pension accruals had to stop.

Some companies have found ways to get around this by hiring former employees as consultants or contractors. However, the resulting loss of seniority and job security — to say nothing of forgone medical, dental, and future pension benefits — often makes these arrangements both unwieldy and unpopular.

Happily though, changes in the rules regarding how pensions are treated are starting to solve this problem for many people.

Last year, the federal government changed the pension rules so that workers 55 and older, who are eligible for a full pension from a DB plan, will be able to draw as much as 60 per cent of their pension while still continuing to work and earn benefits.

Under the new plan, as income decreases with lower hours of work, pension payments can actually increase.

In the past, employees who opted to stay on the job despite being eligible to receive a decent early retirement pension often ended up working for substantially less than the wages received, taking into account the value of missed pension payments. But that’s changing now.

The big winners here are plan members whose spouses are in a lower tax bracket.

Now, they’ll be able to negotiate a reduced work schedule, earn a matching salary, take a partial pension and split at least some of that income with their spouse for tax purposes – as they do now with Canada Pension Plan benefits.

If you file for a CPP pension at 60, for instance, you’ll get a reduced benefit that will stay reduced for the rest of your life. However, because benefit payments are based on how much, and for how long, you contributed to the plan, you could rack up bigger monthly cheques by staying on the job longer and not collecting CPP payments.

Waiting until full retirement later in your 60s raises the payment 20 per cent to 30 per cent, depending on your age.

Or, at age 60, you can draw a CPP pension even if you continue to work full-time. You can work as much as you want without affecting your pension amount, but you aren’t allowed to contribute to the plan on any future employment earnings.

To get CPP between the age of 60 and 64, you either have to stop working or earn less than the current monthly maximum CPP benefit ($909) for the current and prior month in which your pension begins.

It remains to be seen whether the 60-per-cent pension with ongoing accrual will be enough to entice employees to remain at work instead of collecting 100 per cent of their pension, and working elsewhere or for the same employer as a contract employee.

And, while the option of returning to work and starting to build up a pension again may be attractive to some retirees, others will have to see whether stopping their current pension payments and stepping back into a phased retirement makes good financial sense.

I (Tony Almonte) work hard to find wines at afforable, everyday prices given we consume 3 or 4 bottles of wine per week. An article by Beppi Crosariol in the Saturday April 18 Globe and Mail provides some guidance when buying cheaper wines particularly those popular reds such as Cabernet Sauvignon, Pinot Noire or Merlot. Here’s the article excerpt. He goes on to say…

When I aim to spend no more than $15 on a wine, I have a rule. I generally ignore three red grapes: cabernet sauvignon, merlot and pinot noir. It’s simple. Those grapes cost top dollar at the wholesale level, largely because of popularity. In Napa Valley, Calif., for example, cabernet sauvignon fetched two and a half times the price per tonne of sauvignon blanc last year.

If a wine based on cabernet is cheap, you can almost bet that the fruit was of poor quality and likely farmed factory-style on high-yield, valley-floor vineyards with pesticides and lots of irrigation to pump up weight at the cost of flavour.

One big exception to the cabernet sauvignon part of my rule, I should add in fairness, is Chile. The South American country manages to churn out a good number of impressive examples for $12 or $14, such as Santa Rita Cabernet Sauvignon Reserve ($13.95 in Ontario, product No. 253872). Most of the time, though, I zero in on less-ritzy varieties when I have less than $15 to spare – Malbec from Argentina, say, or montepulciano d’Abruzzo from central Italy.

An article in the Feb. 19th edition of the Ottawa Citizen indicates that economic troubles are delaying retirement plans.  The article states that 28% of Canadian boomers plan to delay their retirement.

Refer to http://www.ottawacitizen.com/Business/Boomers+postpone+retirement+plans/1304257/story.html for an on-line copy of the article.

The data comes from an Ipsos Reid poll conducted for the Royal Bank of Canada between Oct. 16th and 23rd, 2008.  The poll results were released on Feb. 18th and included 3, 113 Canadian respondents of boomer age with assets of at least $100,000.

After some further searching on the internet, I found out that this is the 19th annual poll conducted.  Information from the Ipsos Reid website indicates that further poll details are considered premium content and you must subscribe to obtain further details …… refer to http://www.ipsos-na.com/news/pressrelease.cfm?id=4285 for more information.

The article presents the following findings:

• of those polled owning businesses, 37% were pushing back retirement
  • retirees dependent upon selling their business aren’t in a good position to sell their business given the economic situation

• of those polled who were pushing back retirement (the 28% who indicated this fact:
  • 43% were delaying by 1 or 2 years
  • 37% were delaying by 3 to 5 years
  • 9 % were delaying by more than 5 years
  • 3% were delaying less than an year

The article goes onto to indicate that delaying retirement can be good for the economy because boomers who work longer will most likely spend more money thus increasing economic activity.  Some negative impacts could be less tourism, since working boomers travel less than retired boomers, and less opportunity for younger Canadians to fill the work positions available due to retirement.

Other interesting points in the article indicate that:

• only 30% of Canadians have pension plans with defined benefits which means the majority of Canadians rely on retirement funds that have been negatively impacted by the economic downturn.
• there is a trend among those approaching traditional retirement age where individuals are reconsidering whether retirement is something they really want to do.
  • if you are 55, you probably have another 30 years to live – what are you retiring to?

It isn’t surprising that Canadian boomers are looking at delaying retirement given the recent economic downturn.  One of the most interesting points noted in the article is that 30% of Canadians have pension plans with defined benefits which clearly indicates that the majority of Canadians will be relying on their own savings, RRSPs, government benefits and possibly other means to get by in their retirement.

Lane Smith – reach me at Lane@lifepast50.ca