According to every study that makes the rounds, the average person is screwed come retirement age. More screwed than Jenna Haze’s average day at work.
(Edit: She’s been retired since 2012. Way to be up on the trends, Nelson)
They all point towards the same things. The average Canadian barely has two spare nickels to rub together at the best of times. They’re not putting any money towards a rainy day, never mind their golden years. The only reason why we keep getting richer is because the top 5% keep it going. Everyone else continues to struggle.
But here’s the interesting part. The average person has saved bugger all for retirement for decades now. Sure, many people used to be able to count on pensions, but it’s not like everyone who worked in the 60s had a gold-plated pension.
Enter Nelson’s friend
Let me tell you a story about a buddy of mine, a guy who retired about five years ago.
Despite only qualifying for a small pension from his long-time employer, he’s doing fine. Both he and his wife get CPP and OAS. They shoveled a little money into RRSPs over the years. Put all those income sources together and they earn about $30,000 a year. This is easily enough for them to live a relatively comfortable life.
Perhaps most importantly, they live a simple existence. Only one car is needed, since they spend the majority of their time at home. Fancy business casual clothes aren’t needed as an office wardrobe. There’s no need to put aside 10% of their income for retirement. Their tax bill is nonexistent.
Think about all the expenses a regular working Joe has. The government takes off anywhere from 20% to 50% of his pay for various deductions. Taxes make up a big percentage, of course, but so do CPP and EI. There are commuting costs as well as socializing after work. And somebody is always selling something for their kid. Hell, the cost of working can easily eat up a third of your salary. That’s bananas!
The cost of living goes down in retirement. It’s that simple.
Humans are smart
I’ve long been an advocate of working part-time during retirement. It allows you to do something productive, get out of the house, and, most importantly, will help stretch meager savings so they last longer.
Even if a retiree gets a shit-ass job making $15 per hour for 10 hours a week, that works out to $7,500 a year. Just about everyone can work 10 hours a week. Using the 4% withdrawal rate, that’s the equivalent of an additional $300,000 in retirement savings.
Too old to work a traditional job? No problem. The internet makes it incredibly easy to earn a little money while sitting on your ass. Or you can drive an Uber. By the time automation makes Uber drivers obsolete, you’ll be dead.
People have other levers they can pull too. Downsizing is going to become increasingly common over the next couple decades, especially in expensive markets. Single retirees can get roommates, or, gasp!, move in with their kids. My cheap small town sees a steady influx of retirees who like the laid back lifestyle, decent amenities, and, most importantly, inexpensive real estate.
Another possibility is a reverse mortgage, a type of loan that doesn’t require any immediate repayments. The amount of home equity you can borrow with such a loan is established using a loan calculator tool. Then you can receive that money to spend as you see fit with no immediate consequences. You only have to pay the loan back when you vacate the property. In the meantime, you will have the money you need to pay for essential expenses or enjoyable pastimes. If you leave the property, you can pay what you owe or let the home be sold.
Humans are smart creatures. They will find a way to survive. Sure, it might not be ideal, but are these options really that bad? Let’s put things into perspective here.
Fear from asset managers
Let’s face it. Many of these fears are hoisted upon us by the people in charge of managing our money. Of course they’re going to tell you to save more. They’re directly poised to benefit from this relationship.
It’s like asking your barber if you need a haircut. Which reminds me — I really need a haircut. I look like a hobo who’s intentionally trying to play the part.
Now don’t get me wrong. Saving for retirement is a good thing. I like knowing I’ll have options in my golden years. And there’s nothing that beats that feeling of security. Except orgasms, of course.
Us financial folk also have to realize we’re preaching to the choir a bit here. The average Financial Uproar reader already knows the benefit of saving for retirement. If anything, y’all are oversaving for your golden years.
Compare that to your friend who can barely keep themselves above zero. Getting them to go from struggling week-to-week to putting aside 15% of their income is going to be a big challenge. Some find the light and get reformed, but most don’t. They’ll struggle for their entire lives, yet somehow won’t starve.
Besides, if everyone invested, think about how expensive the stock market would be. I’d have to slit my wrists.