Written September 2016 by Marie DeLauretis

Retirement Myths Debunked

Is retirement realistic? Were we meant to retire for 25 to 30 years of our total life span? Retirement means to stop employment completely.  Semi-retirement means to aggressively reduce work hours.  Think about it, retirement is a relatively new concept in our history.  It was first introduced in the late 1800’s early 1900’s. But my, did it ever catch on!  One could argue that a whole new servicing industry was created as a result. Take for instance the financial planning industry to be precise.

And with this relatively young concept, “retirement”, came with many myths.  There is so much confusion surrounding retirement that we felt a need to debunk some of these myths that are circulating in the media, dominating our conversations around the work-water-fountain, and causing sleepless nights in Canada!

By debunking retirement myths, we hope you will feel inspired to work toward that comfortable retirement you are beginning to envision…….Let’s debunk!

Myth 1 – Retirement planning is just for older people

The definition of retirement is changing and even though it may seem like a long way off you might want to use that to your advantage. Much like dieting and exercising, starting a plan and sticking to the plan are the hard parts.

Every little bit of savings helps and will make it easier, if you start early enough. Harness the power of compound interest where planning and saving a little now on a regular basis can let money work for you: 24 hours a day, seven days a week…for decades! Your money seems to grow slowly at first, but then starts to balloon as you get older, even if you put in the same amount of money.

Every year you delay making efforts of what you’ll need to save more money and perhaps take on more investment risk in order to reach your goals. Every year you delay means you’ll need to save more money and perhaps take on more investment risk in order to reach your goals.

DWM’s Debunking Myth Strategy:

Be proactive when planning your retirement and remember the earlier you start the better! Review your cash flow (income coming in and expenses going out).  Can you squeeze in a bit more savings? Call our office to set up monthly contributions if you are not yet on a monthly pre-authorized debit plan.  If you are regularly contributing to your savings, ask us to increase the amounts for you.  Healthy retirement planning will help ensure a more successful retirement!

Myth 2 – I’ll never be able to save enough for retirement

It’s surprising, even shocking, that with all of the attention devoted to an aging society and the need to save for retirement, that so few people are inspired to get started. Many do have a doom and gloom attitude about retirement. Myths aren’t helping matters.

“I’ll never be able to save enough for retirement.” That may seem true when you’re young, starting a family, paying off those school debts and dealing with a mortgage. Instead, you figure your income will go up in the future and you’ll work on developing your money management skills and habits then.

Don’t fall into the trap of thinking it’ll be easier to save for retirement in just a few more years! After all, there are competing and expensive needs no matter how old you are.

First you pay off your college debt and the next thing you know, you’re helping your kids pay off theirs. Then there is the house, wedding expenses, home renovations, grandkids and the list goes on and on. One day you’ll stop and ask yourself, ‘Where did the time go…and where did it all go?’

Every year you delay starting to save, ultimately means you will need to save more in order to get on track for a retirement that’s getting closer and closer.

DWM’s Debunking Myth Strategy

The best time to start saving for retirement is when you are young and just starting to work at a job.  But if things just don’t work out that way for you, then start now! Let the power of compound interest work for you as long as possible.  Be proactive when planning your retirement by calling your advisor and having a retirement & cash flow planning consultation.  Learn how you can work the cash flow into your retirement plan!

Myth 3 – I need $500K, $1M, $2M to retire

The fact is that your “number” can vary greatly depending on your personal situation and goals, how long you expect to live, whether you will be single or with a spouse/partner and when you will actually retire.

If you want to maintain the same lifestyle before and after retirement, your number is tied to how much income you will need to provide the same consumption dollars. That’s the money you normally spend on your own lifestyle. Add some extras to that bucket list of yours for those early years of retirement so you can do all those things you were dreaming of doing – your early years of retirement will be your most active years and you may potentially spend more money in these more active years.

DWM’s Debunking Myth Strategy

Consider asking one of our advisors who specializes in retirement planning, or better yet, retirement income planning, like me!  Also, consider trying some of the tools available from trusted sites produced by large financial institutions. And don’t forget to make a list of all your assets and sources of income you will have available at retirement time such as government benefits like the Canada or Quebec Pension Plan (CPP/QPP) and Old Age Security.

Proactive retirement planning will help ensure a more successful retirement. Get started today!

Myth 4 – Never touch your capital

Conventional thinking and approaches often work on keeping your assets intact during your retirement.  That may work for the high net worth, whose investments generate plenty of cash flow so that they can preserve their capital for their children and grandchildren.

For the rest of us, it’s okay to spend our capital as a way of providing lifetime income.  After all, isn’t that what you planned for?  While saving is a goal in itself during your working years, plan on an orderly spending of what you have saved for retirement income purposes.

It really is okay to spend your capital.  That’s what it is there for.

The idea for many is to begin drawing down their investments in retirement. That’s why you save during your working years. Easier said than done!  It is very important to work with a qualified financial planner (retirement income planner) on ensuring that you have enough capital to provide you with the cash flow you need no matter what happens; no matter how long you live.  If you are concerned with leaving a legacy to your children and favorite causes, look for alternatives tools that can help such as life insurance, while still giving yourself the cash flow you’ll need during retirement.

DWM’s Debunking Myth Strategy

To ensure a more successful financial future and retirement draw down, contact our financial experts to get started today on retirement income planning! To provide a legacy for your loved ones or that special charity, and still be able to spend your saved capital for a comfortable retirement, have us put an insurance plan in place for you.

Myth 5 – You need 70 to 85 percent of your current income level in retirement

A growing number of analysts and researchers on retirement income and spending patterns have found that most people will be fine if they target 50% of their pre-retirement earnings. Statistics Canada has many years of data to support this discovery.

You see, the focus should be on “consumption dollars” – what you will spend on yourselves and your own lifestyle during retirement. For most Canadians, consumption dollars excludes expenses such as mortgage payments, child rearing costs and saving contributions for retirement – things you wouldn’t necessarily be spending money on during retirement.

Having said that, your actual replacement income goal will depend on your marital status, whether you own a home, if you are still carrying debt and whether you have children, as well as how much money you earn, so the range can go from 40 to 60 percent.

But in any case, you will need 100% of your consumption dollars (living and lifestyle expenses) and some extra money in the early, active years of retirement for those special trips and experiences you have dreamed about for years.

DWM’s Debunking Myth Strategy

Get a cash flow retirement plan completed!   If you carry debt, get a cash flow and debt management plan in place immediately to rid yourself of debt in time for retirement and to determine what kind of a retirement you want and will have.  Working with our advisors, who are trained in either the unique field of cash flow planning or retirement income planning can prove greatly beneficial in order to work out what you need and what you want to do throughout the various phases of your retirement.  

Myth 6 – You need that initial level of retirement income, indexed for the rest of your life

I’m sure you can come up with a list of things that do not fit the “set it and forget it” philosophy.
Some things like:

  • set the cruise control and forget it (or the auto-pilot on a Tesla)
  • Set the room temperature and forget it
  • Invest in a certain investment that has a particular risk associated with it and forget it.

You need to make adjustments as the situation changes, as your needs and priorities change. Retirement income planning works like that.

Retirement isn’t one long vacation (although we wish it could be). It isn’t one period in your life. It can represent the longest set of phases in your life. Each phase will have different needs for cash flow.

You’ll possibly spend more money in your early, active retirement years (age 65 to 75). Eventually, most retirees typically settle down to a more normal retirement where expenses tend to drop. Then, late in life (80’s or 90’s), poor health, the loss of your spouse or partner, losing your driving license and mental incapacity, could cause you to spend even more money!

You will require additional money for long term care needs, especially if you would like to remain in the comfort of your own home, or move to your choice of retirement home.  Hopefully you have planned for this potential change well before your retirement commences. Planning for the amount of money you’ll need during the different phases of your retirement and the most efficient means of accessing that money are crucial points to review yearly. Set up an investment and income stream that is flexible and adaptable to changing circumstances. Stress-test the plans, strategies and components to make sure they continue to fund the retirement you were planning! Life changes and your needs for income will change with them.

DWM’s Debunking Myth Strategy

Be proactive when planning your financial future by calling one of our advisors to complete a personalized retirement plan for you! Considering different insurance and investment options offered by our firm to provide a portion of guaranteed income matched with an income stream that is flexible is vitally important to meeting your various goals in retirement.  Remember: the earlier you start the better! Retirement planning that includes flexible and various insurance options will help ensure a more successful financial future and retirement.

Myth 7 – You’ll have enough money to last through retirement as long as the average rate of return matches your plan.

Some rules of thumb and long held assumptions may work well and serve as a guide while you are saving for retirement. Holding on to them when you are spending those savings during retirement may become detrimental to your financial health.

Averages can be very misleading when applied to rates of return during spending periods. The pattern of returns can dramatically impact the size of your assets when you are withdrawing money to provide yourself an income to meet expenses.

When you need to withdraw money and the markets are down, or if what you take out is more than what your investment is earning, you deplete your retirement nest egg sooner. This accelerated depletion can be difficult to recover because you have to make up for the lower rate of return in a given year and account for the money you spent that is no longer invested. Negative rates of return in the early retirement years of spending can be devastating on how much money you will have left 10, 15 or 20 years down the road, even if the long term average rate of return matches your plan. It’s not just about average rates of return; it’s about the sequence of returns that make up the average.

Starting with a low or negative return has the potential to permanently upset your plans.  So how can we protect our retirement income from low or negative returns in any given year?

DWM’s Debunking Myth Strategy

Insure a portion of your retirement investments of course!  Through the implementation of a Guaranteed Lifetime Withdraw Benefit strategy, The Helios2 Contract by Desjardins offers you investment funds with guarantees that protect your investment (and retirement income) against market downturns and lets you take advantage of the upturns!  This is a truly unique investment strategy that can help you match guaranteed lifetime income to your fixed (essential) retirement expenses.

Working with a financial advisor who is also life, accident & sickness insurance licensed can prove very advantageous.  In order to obtain access to these unique strategies and products, your advisor must have the appropriate licenses in place.  Putting in place a personalized retirement plan that includes various investment and insurance options will help ensure a more successful financial future and retirement.

Myth 8 – The government will take care of me and my health care needs in retirement!

At the risk of sounding cynical, governments don’t pay for anything. Working Canadians do. Taxpayers do. Taxes are directed to certain areas of need. Growing needs and rising costs means that there isn’t enough public money to go around. That reality is hitting retirees hard and will continue to hit them harder as time goes on.

Our rapidly aging society is adding pressure to an already strained public system, forcing our governments to make tough decisions on health care. It seems that there are currently too many elderly people to care for with existing insufficient programs and funding. Absolute costs are going up while essential services are being cut back. This pattern will not cease in the future. You are going to have to channel more of your retirement income into paying for such uncovered services or deplete your long-term savings more quickly to take care of yourself and/or your aging family members. The government is not picking up the full tab.

Some of you will depend on the physical efforts and the monetary funding by various family members, such as your spouse, child, or sibling even, to take care of you.  But what if they are unable physically, or not able to due to distance, or unwilling to care for you?  It is imperative for you and your family members to begin discussions of creating financial plans that will take care of your long-term health needs in retirement.

DWM’s Debunking Myth Strategy

Considering different investment and insurance options such as disability insurance, critical illness insurance and long-term care insurance that our firm offers to form the foundation of your financial plan is vitally important to meeting your various goals in retirement.  Retirement planning and cash flow planning that includes various insurance options will help supplement your health care costs later in life and ensure a more successful financial future. Include these important insurance strategies today as part of your overall financial plan!

Myth 9 – I can deal with a shortfall in retirement savings by working longer or taking up some part time work.

Recent studies have found that almost half of retirees left the workforce earlier than planned (Source: Associated Press, AARP Public Policy Institute 2012). The primary reasons for leaving the workforce early were downsizing, layoff, negative working conditions and health related – either for the worker or someone in the family.

Working longer is not an option you can count on with certainty because staying on the job or getting another job with similar earnings is not guaranteed. Almost two thirds of retired Canadians had less than a year to plan and adjust for what could be 30 to 40 years of retirement!

The average working career is 35 to 40 years. During this time, most people enter long-term relationships, have children, buy a home, purchase vehicles (and other motorized toys), go on meaningful vacations, fund children’s education etc. This lifestyle could equate to a $100,000 per year.  The question is: how do we fund our retirement to sustain our lifestyle for another 25-30 years, maintaining that same standard of living pre-retirement, if contributing a median amount of only $3,000** per year to your retirement funds?

Some of us will have employer funded pensions, many of us will not.  Some of us will receive full Canada Pension Plan payments, and some of us will not.  Assuming the Old Age Security program is still in effect in the long-term, we could qualify for full Old Age Security benefits (different qualification for new-comers). However, will that be enough to maintain your standard of living you have become accustomed to?

DWM’s Debunking Myth Strategy

Be proactive when planning your financial future.  And remember, you need to prepare a financial/retirement plan to determine:

  1. Where are you today financially? (This step entails data gathering, just put in all in a box for us!)
  2. Where do you want to be financially? (this part is writing down your dreams and financial and security goals – tell us what you want in life)
  3. How are you going to get there? (Strategies developed for you by us, your financial experts!)

The earlier you start, the better! Healthy financial planning will help ensure a more successful financial future. Let us help you put it all together!

**According to Statistics Canada, $3,000 was the median RRSP contribution in Canada in 2014