In the world of personal finances, retirement savings, and sexy fun times, there’s a common refrain out there. You better save your ass off when you’re young, or else you’ll only have 14 nickels to rub together once you hit retirement age. You’ll be so concerned about cash that you’ll barely be able to enjoy your lightly salted meat and non-threatening television programming. Oh look Mildred! Matlock is on.
I’m not going to deny running out of money is a very legitimate retirement threat, because of course it is. Nobody wants to hit up their kids for money once they enter their golden years. Hell, even getting the average senior to sell the house and downsize is akin to pulling teeth. Which is why I think reverse mortgages are going to become all sorts of popular.
But like I touched on a couple of weeks ago when I said our upcoming retirement “crisis” was severely overstated, I think people who don’t do a whole lot of saving today will still be okay when the time comes to hang up the proverbial skates. They might work a little longer, delaying taking CPP. They might ratchet down the lifestyle expectations, especially after falling asleep in front of the TV 583 days in a row. And remember, most retirees will hardly pay any taxes and don’t have to worry about retirement anymore. I’d be jealous, but they go pee 14 times a day.
If running out of money isn’t the biggest retirement threat, what is?
If I make it through this without making six off-color jokes, you all owe me $20. This is going to be tough.
According to alzheimers.org, which I’m going to assume is a pretty good source for this stuff, the average 65 year-old has a 1 in 14 chance of getting Alzheimer’s, dementia, or some other disease of the brain. The chance of it developing doubles every 5 years, which means the average 80 year-old has a 1 in 6 chance of permanently forgetting where they put their keys.
SEE? I LASTED A PARAGRAPH.
I’m sure you all have a relative who got either increasingly stubborn or out of it as time went on. I know I sure have, and they’re annoying as all hell to deal with. “Hey, relative, do this sensible thing.” “HOW ABOUT YOU KISS MY OLD WRINKLY ASS, JIMMY.” “But, why?” “BECAUSE I SAID SO, GODDAMMIT.” (Has mini-stroke) “My name isn’t Jimmy, by the way.”
For a lot people, figuring out asset allocation, pension withdrawals, income splitting CPP benefits, and RRSP contribution room is really hard. It’s why blogs like mine exist, because like hell any of you are here for the jokes. And there hasn’t been a scantily-clad lady in weeks now. Imagine trying to figure out all that stuff while dealing with a brain you know isn’t working quite as well as it used to.
We all laugh at the stories of seniors getting swindled out of their cash by a nice representative of the Microsoft company phoning to see whether their computer is still running. But the fact is those scams work because of dementia. When your brain just isn’t working right, scams seem like reasonable things to do. Short of not letting old people talk on the phone anymore, there’s not much we can do.
Active management during retirement
I’m willing to bet that just about every active investor you will ever meet says they plan to keep picking stocks during retirement. It gives them something to do that isn’t annoy the grandkids all the time. Dividend investors are especially likely to think this way. The whole point of dividend investing is to replace one’s income. Real estate investors are just as guilty. Thousands of guys buy rental houses as retirement projects.
But once the ol’ cognitive functions start getting a little impaired, is somebody going to be good enough at analyzing a company to do so accurately? Hell, most investors can’t pick stocks very well even after getting help from smart folks on the internet. I’m not liking Grandpa’s chances at that point.
Which is why annuities are a smart choice for more people than you’d think. Yeah, I know they’re fee-ridden products that are only sold by the SPAWN OF SATAN financial advisors OF DEATH, but they have a place in many people’s retirement planning. Especially for those folks who aren’t very smart at picking investments in the first place. I’m not an expert on annuities, but I’m sure there are some lower-cost products out there.
Deferred annuities are a product you can put some money into when you’re younger, and have it not start paying out until you’re 70 or 75 years old. You can choose the annuity when you’re younger and still with it, and delaying the payout means a smaller amount of money will go farther when it’s finally payout time.
There are other options too. You could do what my parents have done, and that’s keep a relatively astute member of the family up to date on the finances, allowing that person to slowly take over major decisions as they get older.
Or you could accumulate so much money that all you need to do is put the money in GICs when it’s time to retire and live comfortably on the interest. Which is fine, assuming you’ve got so much disposable income that a 40% savings rate isn’t a big deal. I suspect many people reading this rag can accomplish that, but it’s probably a pretty big stretch to assume the average person wants to do that. They’d rather consume now.
With people living longer than ever, dementia could be a bigger retirement threat than outliving your money. Yet, I see nobody acknowledging it as even a remote risk. The time to plan for such a thing is now, not when you’re Grandma and you aren’t allowed to have credit cards anymore because you keep telling the numbers to the nice man on the phone.