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Saturday, March 25, 2017

Making My Retirement Less of a Gamble

Posted by Dave on February 7, 2012

This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.

I made some terrible bets on the Super Bowl this past weekend.  At the time I made the bet, everything seemed to make sense and I thought I was in a position to come out way ahead for the year with football betting.  Unfortunately, the game did not go as well for me, either as a fan of the New England Patriots or as (I would term it) a somewhat degenerate gambler.  On the plus side, my homebrew beer was delicious, as was all of the food I ate (probably too much) so my Super Bowl was fun, it just didn’t add very much to my retirement fund (which is why I don’t bet very much at all).

As far as gambling goes, the stock market is consistently a gamble – making my retirement plans somewhat risky as this is where I am hoping the majority of my cash will be coming from to fund my retirement.  I’m hoping that in the 10 years I will have to invest, and the 40-some years I’m hoping to live off of these investments there is no significant collapse.

In the off-chance that I invest in stocks the same way I bet on this year’s Super Bowl (and capitalism has carried on) I do have a backup plan.  In my retirement fund calculations, I have not included some funds that will be coming in.  On top of my retirement savings, there are three sources of income which may be added to my retirement.

The first source is my work pension.  I work for a crown agency of the Ontario government and have a defined benefit plan, which at this point is fully funded.  Right now, I have no plans of leaving this company in the near future.  This source should provide a significant increase to my cash flow at age 65.

The second source is Canada Pension Plan income.  From everything I have read, this is a relatively safe bet, even over 30 years from now.  If for some reason it turns out that the statements Prime Minister Harper made that CPP is “fully funded and actuarially sound” is not, I’ll still be okay.  If this pays off, there will be a considerable boost to my retirement account.

Finally, and the one source I am not sure of is Old Age Security.  Depending what you believe and what happens over the next 40+ years, this potential source of income may disappear.

Added all up, after age 65 I should (hopefully) have a considerable buffer in monthly income.  I will be fine without these, but felt it prudent to not include this income – which I really have no control over.

What do you include in your retirement calculations?  Do you have any “extra” sources of income that may be a buffer after age 65? (Or whatever age retirement will be in the future).

Comments

8 Responses to “Making My Retirement Less of a Gamble”
  1. Poor Student says:

    I do not know yet if I will ever work for a company which provides a pension, so I don’t include that.

    While I know it is far off I am not sure I can count on CPP either. If I do end up receiving anything from it then that is great. If not, then everything is still okay because I made sure not to count on it.

    I have not heard enough about OAS but if you are not sure about it I am not going to factor it in.

    My RRSP is the big boost to income that I will receive at 65, and that is the only one one which I am relying right now. That is the way I like it because I have some control over it at least. I hate leaving things to chance, even though I also enjoy betting on football (and also had a bad Super Bowl).

  2. Rob says:

    I retired after 20 years with the Military, so receive a Defined Benefit that provides me with an income of approximately $2000.00 per month. Enough to live on, but not a lot of extras. We currently have about $126,000.00 in investments and our relatively large house is paid for. In order to make sure we have enough funds, we are selling the house, and building a smaller house on a lot we already own, giving us around $200k for a nest egg. After all, my pension is not indexed until age 60, so the 2k I bring in now, will not buy then, what it does today, plus I lose $500 per month from it at age 65, the CPP bridge amount. Ideally I will have around $300k in our TFSAs by the time we are 65, our RRSPs will be depleted, and so will our non-registered investments, ensuring that extra money from investments does not get included in any income tests. That will provide us a handsome income. I know that my CPP will be minuscule, because I only worked 22 years. As for OAS, both my wife and I will receive it, but I fully expect it to be payable at age 68 by the time we get there, although, I would argue that it will likely be more money than it is now, just a gut feeling. That should provide us with an income of about $50k per year at 65, and as much as $65-70k per year by age 70, with house paid for, and $300k invested. The tough part is from now (41) until age 60. However we are going to spend a few years living on our sailboat in the Carribean, so that should help, as it is a lot cheaper to live on a boat than it is to live in a house.

  3. Marianne says:

    I know this is probably old news but I think the recommendation by the Wealthy Barber to leave yourself a 7-10 year buffer nearing retirement to be able to switch your investments into lower risk holdings at an opportune time is a great idea.

  4. Rob says:

    “Marianne”

    If by low risk, you mean less volatile, say bonds vs stocks. Then I agree, however, IMHO that should happen at a very slow pace, and even in your 70s you should still be holding stocks. The riskiest thing an investor can do is opt for lower yielding securities in order to maintain capital, especially when nothing is ever certain. At 41 I am 100% in stocks, but most of them are good strong blue chip dividend payers, and worst case scenario, I still receive the $4500.00 per year in dividends. I can wait for the market to come back for a long time. Check out Derek Fosters books. In full disclosure though, I am slowly moving some money into bonds as I will need to draw on them in the next few years, but only the amount I will need to draw; and it is to reduce volatility, not for safety. I would argue that a strong dividend company like say Bank of Nova Scotia is a lot safer than a province of Ontario bond. Because, the bond will not likely make any real money after inflation, where BNS has the potential to increase, and pays a little cash to tide you over. Sorry, don’t mean to pick, but the general definition of risk always bugs me.

  5. Marianne says:

    No worries- didn’t seem ‘pick’y to me. :) This gives me lots to think about. I am quite new at this (only been investing for about a year and with the help of our financial advisor) so am always looking to learn as much as I can from others’ experiences!

  6. Ty Webb says:

    I plan on having NO CPP, OAS, or any other goverment money in retirement. Then I will have a nice safety buffer and the CPP/OAS is a bonus.

  7. Alyssa says:

    Aren’t you people afraid of another depression and stock market crush? This thought makes my stomach churn. I lost mine more than once in my 10 years in Canada.
    Last time I woke up with this feeling in my stomach was in 2008, and I immediately switched my investments to GIC. People laughed, but a week later my $100K were still there,and theirs were 40% down.

    My retirement strategy is to have two houses paid off,and a passive income from my Internet properties. This way I can always work very little to cover expenses…

    Anyone knows a good financial adviser to run my numbers and see if they make sense?

    Cheers,
    Alyssa

  8. Dave says:

    @ Alyssa: I think everyone is always concerned about losing a significant portion of their retirement portfolio. I plan on reducing some of this risk by investing in interest-paying bonds, as well as dividend paying stocks.

    Placing your entire retirement fund into GIC’s may be just as risky, as the interest being earned in the GIC is lower than the rate of inflation, leaving you with less purchasing power over time.

    I’m not sure what kind of internet properties you have, but Nelson at Financial Uproar wrote an interesting post today about blogging being in a bubble right now (http://financialuproar.com/2012/02/20/is-blogging-in-a-bubble/)

    I don’t have anyone specific to look over your numbers, but I would think that a fee-for-service adviser would perhaps provide better service than a financial planner that will try to sell you their products that they are making money on, kind of a conflict of interest.

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