If you asked 100 people the same question, you’d have a terrible game shot hosted by Steve Harvey’s very white and large teeth. But if you asked 100 people what their biggest fear is about getting older, I’d be willing to bet that running out of money would be pretty high on the list, as well as “diabetes,” and “crapping one’s self.”
God, I never want to get old.
So we encourage people to save and save and then save some more, even going as far as telling them that their spending in retirement will be close to what it is today, because hey, losing all your money to that nice man on the phone takes capital, dammit.
But even though guys like me are on your ass like Kim Kardashian’s pants are, uh, also on her ass, the average Joe doesn’t bother to save worth a crap. He might stick a few bucks here and there in an RRSP, but that’s it. You might be a good saver, but of course you are. Like anybody is here for the jokes.
Because of this, many people in the financial services industry are convinced that a RETIREMENT CRISIS is soon to be upon us. Retired baby boomers are going to flood the streets, in search for stray cats and the dandelions needed for their nutritional needs. Screw the children, Helen Lovejoy is going to start begging WON’T SOMEBODY PLEASE THINK OF TEH BOOMERS.
Except it’s all hogwash. We’re not in such bad shape at all.
Meet Dimetri and Dave
Vanessa recently sent me a terrific example of this, from good ol’ MoneySense magazine back in 1999, when magazines were printed on paper, dammit. You got a paper cut like a man, and YOU LIKED IT, DARGBLOOMIT. When it got infected and you had to get your finger sliced off, you took a big shot of whiskey, and the doctor sliced that digit off with a rusty farmer’s blade. It hurt like hell, but you smiled, knowing that sweet, sweet, death would take eventually take away your pain.
Since the article is so old, the numbers are a little low, but the concept is still the same. Let me give you the gist of it.
Poor old man Dimetri and his old lady made $24,000 last year. He never bothered to save for his entire life as a former Soviet citizen, numbers were hard for him. Between CPP, OAS, the Guaranteed Income Settlement, and various other forms of tax incentives (GST rebates mostly), he and his wife manage to survive.
But Dimetri isn’t just surviving, he’s thriving. He’s got enough to be able to make regular donations to his favorite charity, and he and his wife have been on several overseas vacations. So what gives? How can he afford all that crap?
Let’s compare him to Dave, who’s a teacher making $63,400 per year. From that $63,400, Dave has the following annual deductions:
- $16,300 to taxes
- $14,500 to his mortgage and other debts
- $6,600 to cover his retirement and his kids’ education
- $1,800 for work expenses and union dues
Subtract all that, and it turns out Dave is actually living on about $24,000 per year.
Remember, Dave has kids, a big house, probably the need for two cars, and has to buy food for five people, because apparently kids need to eat.
Suddenly, the whole picture changes. Rather than feeling sorry for Dimetri, we start to feel sorry for Dave. How exactly is Dave making ends meet?
Will you really spend that much in retirement?
Remember, those examples are in 1999 dollars. It costs even more to have a normal life in 2015.
One thing I’ve figured out over the years is most people spend the money they have. If they take in $3,000, $5,000, or $10,000 per month, they’ll find a way to spend all of it. Some might go to savings, but it’ll all be gone at the end of the month.
But humans are a pretty resilient bunch. If presented with something — like a retirement crisis — that drastically cuts their income, most folks will adapt. They might not like it, but they’ll find a way to survive.
The beauty part of retirement is you don’t have to save for retirement anymore. That 5-20% of your income you were contributing to your RRSP is now yours to spend, plus you’re not losing 5% of your wage to Canada Pension Plan withdrawals either.
And if you’re sitting on a moderate RRSP, tax implications aren’t much either. You’ll go from paying tens of thousands in taxes to not paying much at all.
Add all those factors together, and it’s easy to see how the average retired couple could not only survive on half their pre-retirement salary, but also thrive on it. Yes, there are things to worry about as you age — like long-term care insurance — but here in Canada, that industry is heavily subsidized. And if you’re really worried about that, insurance against it isn’t terribly expensive when purchased a couple of decades in advance.
Finance folks make this mistake all the time. I’m not saying it’s ideal for retirees to survive on what Dimetri was, but the point is they can do it, and do it without resorting to eating cat food from the bag. For people who never made a whole lot through their working lives, this isn’t a big deal.
The financial industry is motivated by assets under management. They’re directly compensated by making you feel like you’ll never have enough for retirement. While I think there are still a whole lot of people in Canada who are under-prepared for their golden years, I don’t think the consequences are going to be quite as bad as we all figure. Sorry, there is no retirement crisis.