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 (Making Retirement Dreams Come True – Saturday February 6, 2006 – Wealthy Boomer, Jonathan Chevreau) and also in the Financial Post, discusses a book entitled “Retirement Rocks!” (subtitled Canadian Boomers Invest in Life).  The article provides some interesting information for Boomers to consider.

One of the most interesting points raised in the article, and a point I’ve often considered, pertains to “how much is enough?”.  The couple who wrote the book believe that once debts are eliminated and kids launched, retirees can live on 50% or less of what they earned in their working years.  One of the authors was a financial advisor and shares a more detailed perspective of this 50% or less view – a good guideline is 20 times what you spend in a year, assuming you plan to live 30 years in retirement and die broke.

How does that translate into some real numbers……if you were use to living on $50K a year, you would need $1 million, if you were use to living on $100K a year, then you would need $2 million.  The article goes onto say that if you wish to leave an estate, then you want 25 times your annual spending limit.

Another interesting point noted in the article is that working part time in retirement can make a huge difference to retirement cash flow.  For every $1K you earn per month, you’ll need $200K to $250K less in your retirement pot.

The article also notes lifestyle questions – imagine three lifestyles: a bare bones lifestyle that includes Kraft Dinner and cable TV; a lavish lifestyle of foreign travel and dining out; and one between these two extremes.  When asked, most Boomers pick the latter as their dream.  All of this leads to the need for Boomers to do more retirement planning in advance of leaving full time employment and seriously considering whether working part time at something you like to do should be in your future.

Other lifepast50 posts contain information related to this and should be read in conjunction with this post – check out the related posts.

Retired Couples – shared retirement vision?

Boomers Next Stage – Transition Period?

A recent poll examining the attitudes and behaviours of 1,002 retired Canadians, age 55+ which included 746 retirees who are married or in a common-law relationship conducted in January 2010 by Angus Reid showed that 51% of Canadian retirees indicated that they had no idea, or only a vague idea, of what they wanted in their retirement.  The poll also indicated that 51% of those Canadian retirees that were married or in a common law relationship had the same / shared vision for their retirement as their partner.

This result should cause some pause for thought.  What retirement vision do you have and is it shared by your partner?

A recent article published in the Ottawa Citizen and Financial Post on Friday, January 29, 2010 entitled “Couples should have the same retirement ideas”, provides additional details regarding the poll and also identifies additional reading and support tools that couples can pursue.  Retirement planning should include establishing an understanding of what you would like to do together and also recognizing that your vision will evolve over time.  The article encourages couples to tackle the retirement vision discussion and not to avoid it.

Another interesting poll result was that 34% of retired couples say they are closer than ever because they can spend more time together but 19% say the hardest thing about adjusting to retired life is not being able to do all the things they use to do as a result of a reduced income.

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.

A recent article published in the Ottawa Citizen and Financial Post (Saturday, December 26, 2009) by Jonathan Chevreau (Wealthy Boomer) discusses the fact that the decade we are about to complete will be the last decade many boomers will work as full time salaried employees.

The first wave of Baby Boomers born in the 1945/46 era will hit the traditional retirement age of 65 in 2010 and 2011 with the rest of the Boomers born in the 50’s reaching the traditional retirement age sometime before the end of 2020.  According to Canada’s Urban Futures Institute, 425,000 Canadians will retire each year by the time the end of 2020 appears.

The article references a BMO report that thinks the word “retirement” should be retired.  That report, issued by the BMO Retirement Institute in April 2009, found that the 2008 market crash caused Canadian Baby Boomers to revise their “retire by” plans.  A previous BMO study, from 3 years earlier, found most Canadian Boomers planned to work in some capacity after traditional retirement, with the top reasons being “to stay mentally active” and to “stay in touch with people”.  In the earlier study, money placed 3rd.  With the current report, money moved up to 1st as more than 80% of respondents cited the need to make money in retirement or semi-retirement.  Things have changed for those Canadians who aren’t lucky enough to have one of the gold plated defined benefit retirement plans at their disposal.

Boomers are entering a transition period – similar in nature to what Boomers have experienced if they underwent career changes during their full-time working life.  An opportunity to pursue other interests while you transition, which might provide Boomers with the opportunity to make some money on the side without the pressure of a demanding full-time salary job.

The article also points readers to a BMO online “transition calculator”.  You can find it by Googling “Retirement Your Way”.  The calculator will show the impact on savings if you work past the traditional age of 65 or if you opt to work part time during a multi-year transition period as you move from full time employment to full time leisure.  Sounds like a potentially useful tool.

Taking on part time project related work that could produce income in the $40K to $80K should be of interest to many Boomers who want to transition more slowly before getting into full-time leisure mode.  A interesting pursuit to me.

The author also goes on to say that semi-retired Boomers can accomplish a lot during this transition period and he is expecting many great things to appear.

We're continuing to post new US housing information to help Canadians who are planning to buy vacation homes in the US sun-belt.  The following is a summary of Standard&Poors (S&P) Case Shiller Index ending October, 2009.  For complete and detailed index report results, head to www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/

The Standard & Poor's/Case-Shiller home price index (covering 20 top US cities) released Tuesday (December 19) edged up 0.4 per cent to a seasonally adjusted reading of 145.36 in October from September. The index was off 7.3 per cent from October last year, nearly matching expectations of economists surveyed by Thomson Reuters. The index is now up 3.4 per cent from its bottom in May, but still almost 30 per cent below its peak in April 2006.

For US sun-belt areas, prices in Las Vegas were down -.1%, Miami down -.4%, Tampa down -1.6%, Phoenix up +1.3% and San Diego up +.4% from September to October

“Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip,” David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement. That happened in the early 1980s, he said, and the current housing recovery appears more solid.

The federal government has stepped in with an extraordinary level of support this year for the housing market. Home price gains since the summer reflect the rush of home buyers trying to close their deals before the original expiration date of a federal tax credit. The Nov. 30 deadline was extended last month to April 30.

Besides a credit of up to $8,000 for first-time buyers, Congress expanded the program to include homeowners who have lived in their current properties for at least five years. They can now claim a tax credit of up to $6,500 if they relocate.

The Federal Reserve is also buying up $1.25-trillion in mortgage-backed securities to help keep interest rates at historical lows.

Canadians considering a purchase of that “home in the sun” have much to consider given the conflicting data coming from various sources.  Buried in all the information coming at us is something called “the shadow inventory” which are homes in the process of foreclosure and not yet counted as available for sale.  Also, we should be aware that although sales volumes of existing homes are climbing from month to month, they’re being sold at lower prices. Below is a summary of what Standard and Poors (S&P) have recently reported.

The economic downturn appears to be over, but Standard & Poors think the recovery will be sluggish. Most importantly, however, the housing market appears to have stabilized. Home prices across the US have risen for five consecutive months, according to the S&P/Case-Shiller index and the number of homes sold also continues to rise. Home sales hit a 14-month high in October, though there are worries that the first-time homebuyer credit may have disproportionately fueled the rise.  And although S&P expect home sales and prices to fall off after November with sales decline more than normal in December and the first quarter of 2010, the worst appears to be over. The extension of the tax credit and its expansion to other than first-time buyers ease fear that sales could drop sharply.

But home sales have to be matched against the properties that are still in the process of foreclosure and could swell the supply of homes on the market. The supply of homes for sale dropped for both new and existing homes by 15% and 37%, respectively, reducing the unsold supply to only 6.7 months for new houses and 7.0 months for existing  homes(close to the rule of thumb of six months). However, S&P believes there is a large shadow inventory of homes in the process of foreclosure and homes that are being held off the market because of the weak prices. This inventory will likely limit any improvement in home prices. The drop-off in sales should bring home prices down, both because of the weaker demand and the likely shift in mix. We expect prices to drop about 7% from their expected November peak in 2010, which will bring the S&P/Case-Shiller index down about 35% from its July 2006 peak.

A recent post highlighted an article in the Globe and Mail focused on financing warm weather vacation properties.  This post is a companio to that article written by Roma Luciw.  Check out the LifePast50 "where to live" post category for more.  And, LifePast50 would sure appreciate responses from Canadians with actual southern buying experience – let us all share the benefits of your experience.