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Saving pennies for retirement

Discussion in 'TRIBE Main Forum' started by Bernnie Federko, Mar 18, 2010.

  1. Bernnie Federko

    Bernnie Federko TRIBE Member

    Canadians need to save more: Dodge

    Former Bank of Canada governor says in report that many Canadians are unaware of the high savings levels they need for their retirement years

    Canadians need to save between 10 per cent and 21 per cent of their pretax incomes each year – if they save consistently for 35 years – to have comfortable retirement incomes, according to a new report by former Bank of Canada governor David Dodge.

    The report says many Canadians are unaware of the high savings levels they need for their retirement years, and may believe they are saving adequately when they are not.

    The report, co-authored by Alexandre Laurin and Colin Busby and published by the C.D. Howe Institute, calculates various savings scenarios based on assumptions that Canadians aim to have annual retirement incomes between 50 per cent and 70 per cent of their preretirement incomes.

    “Our findings provide Canadians with a ‘reality check' about the saving rates required to meet their retirement goals,” Mr. Dodge said in a release Thursday.

    The study said a broad debate about retirement incomes in recent years has mostly focused on potential reforms to rules for corporate pension plans or the possibility of expanding public pension coverage through a new national supplementary plan.

    But there has been little public information about required savings rates for individuals, it says, even though many baby boomers are nearing retirement age and are concerned about whether they are saving adequately.

    “The required level of personal saving is unknown to most individuals, leaving them to their own devices for a large part of retirement planning,” the report says.

    It also says registered retirement savings plan (RRSP) maximum contribution levels do not allow higher income higher earners to save enough to replace 70 per cent of their incomes in retirement.

    And it says many companies' group RRSP plans, defined contribution pension plans and even traditional defined benefit pension plans do not set aside enough income annually to provide “adequate or reasonably assured retirement incomes.”

    The authors base their savings calculations on what they call “prudent” assumptions, including a nominal rate of return on investments of 5 per cent, an inflation rate of 2 per cent, and a real return on investments of 3 per cent. They assume annual wage growth of 3 per cent.

    The calculations look at three scenarios: early retirement at age 63, normal retirement at age 65 and late retirement at age 67. And they assume Canadians begin saving at age 30 and invest consistently each year.

    The report also includes another set of calculations based on a scenario in which some people save less in their thirties, more in their forties and the most in their fifties. In those cases, investors must save much more in their later years to compensate for the shorter investing periods.

    According to the findings, people who earn between $42,803 a year and $150,000 a year need to save between 11 per cent and 21 per cent of their annual earnings to retire at age 65 if they want to have retirement incomes at 70 per cent of their preretirement earnings.

    More specifically, people earning $61,270 a year and retiring at age 65 must save 14 per cent of their annual income consistently from age 30 to have retirement incomes equal to 70 per cent of their preretirement incomes. They must save 11 per cent annually to have a 60-per-cent income replacement rate.

    For people earning over $150,000 a year, the savings rate climbs to 21 per cent of annual income to earn a 70-per-cent replacement rate when retiring at age 65. Such a savings level is not allowed under current RRSP contribution rules.

    Indeed, RRSP rules do not permit enough savings to earn 70 per cent of preretirement income for people earning over $61,270 a year if they wish to retire early at age 63, the report says.

    The authors say their findings raise questions about whether Canadians are willing to spend less in their working lives to enjoy better retirements, concluding “their actions suggest they are not.” But it says this may be because people mistakenly think they are saving enough to meet their goals. Or it may be because they are prepared to accept the trade-off of lower retirement incomes.

    It also says some people may be willing to retire later so they can spend more during their working years and reduce their annual savings requirements.

    “Different Canadians will legitimately make different choices,” the report says. “But to make smart choices, Canadians ... need both adequate information and, most importantly, appropriate vehicles to provide efficient risk-adjusted management of their savings.”

    Canadians need to save more: Dodge - The Globe and Mail
  2. R4V4G3D_SKU11S

    R4V4G3D_SKU11S TRIBE Member

    21% percent of pretax income seems high.
  3. SJN

    SJN TRIBE Member

    they're not supposed to....they're intended to be one of several sources of retirement income, not the only source
  4. Hi i'm God

    Hi i'm God TRIBE Member

    Being that the MFDA is screwing Canadians with regulations also means good luck getting loans to invest in the rrsp market when you need to start catching up.
  5. rubytuesday

    rubytuesday TRIBE Member

    My generation is going to continue to be so fucked by the boomers.
  6. diablo

    diablo TRIBE Member

    This story has nothing to do with that, really.
  7. sheik rock

    sheik rock TRIBE Member

    They are goign to be surprised as fuck when we start unplugging machines.
  8. rubytuesday

    rubytuesday TRIBE Member

    It says adults working today aren't saving enough to retire, and will stave off retiring to continue funding a lifestyle that is beyond their means. This is going to affect younger people negatively. To me it's related.
  9. Deus

    Deus TRIBE Member

    What does a person get from CPP once retired? Is that a percentage of the income over a lifetime? or how does that work?

    Combine that with maximized RRSP and other forms of savings, the 70% post-retirement income should be fairly easy to meet, no?
  10. swenard

    swenard TRIBE Member

    How so?

    I don't see any relation to you being fucked by them not retiring.
  11. Deus

    Deus TRIBE Member

    Because if there is a mass of people requiring social assistance the working citizens will have to pay for that.
  12. rubytuesday

    rubytuesday TRIBE Member

    If people are holding on to their jobs they are going to be making more than someone just starting out, and they will be holding onto jobs that could go to young people. It's already happening in many professions, for instance, teaching.

    Young people have debt from getting educated, have a harder time getting employment (and thus paying off that debt), and will likely have to pay for older people's retirements as well as support their aging parents who will live forever. Student's issues like debt relief are being ignored politically but because boomers are nearing old age and have sway they are bringing in pension reform.
  13. kyfe

    kyfe TRIBE Member

    i think if you put away $1000/mth you'd probably be alright combined with your CPP when you retire you should be fine.
  14. WestsideWax

    WestsideWax TRIBE Promoter


    From what, life?
  15. Spinsah

    Spinsah TRIBE Member

    $1000 a month? Like $12,000 a year?
  16. MoFo

    MoFo TRIBE Member

    Just wanted to pipe in, if you've received EI, you've received social assistance.
  17. diablo

    diablo TRIBE Member

  18. glych t.anomaly

    glych t.anomaly TRIBE Member

    so lets say i retire with 50 % of my annual income for the last 5 years i have worked with my company due to the pension i contribute to.

    as well as from 35 onwards, so 30 years i put 500$ /month(min) into various investements. Plus i get my CPP.

    Then there is the equity i have built up on property etc.

    shouldnt that be relatively enough to retire on comfortably?

  19. diablo

    diablo TRIBE Member

    Don't forget to accumulate Shoppers Optimum and Petro Points - those'll really see you through the lean years.
  20. WestsideWax

    WestsideWax TRIBE Promoter

    Combine those with $7/day for food and you're golden!
  21. diablo

    diablo TRIBE Member

  22. Deus

    Deus TRIBE Member

    I think retirement is something people don't like to think about, like death, so they avoid it. Eventually when they realise that they will retire in 10 years they start saving and investing but it's too late. Had they done that earlier in their careers and compounded their interest for a longer time they would be much better off.

    Conversations in threads like this are useful for these realisations so that we can mull over the multiple factors that we need to think about for a comfortable retirement.
  23. Teflon

    Teflon TRIBE Member

    This is completely untrue.

    Although the requirements for loans has tightened up, pretty much anyone with a good beacon score can qualify for a $25,000 RRSP loan.
  24. WestsideWax

    WestsideWax TRIBE Promoter

    Or quite possibly, some of us have thought of it and realised that it might be more prudent to find jobs that we really, really enjoy and will continue to enjoy and be able to perform well into our later years, so that life continues to have meaning over and above riding the clock out in Florida when it seems like there's nothing else to do.

    Some of us.
  25. diablo

    diablo TRIBE Member

    Still might be nice to slow down sometime, though.

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