Friday, March 28, 2008

Retire in peace

I am a self-professed personal finance nerd. The majority of blogs I read have personal finance as their focal point. I read books about personal finance for fun. I subscribe to MoneySense magazine and do retirement calculations and financial spreadsheets for shits and giggles. I could not be happier that I have been vindicated for my unending commitment to this part of my life. Allow me to explain.

In the last issue of aforementioned magazine, there was an excellent article on why we should not spend so much time worrying about whether we will have enough money for retirement. It adds some common sense and facts into an issue too often dominated by fear and marketing tactics employed by the financial services industry. Unfortunately the article did not walk readers through example calculations to map out their retirement more concretely. Leave it to Chris at Canadian Dream to pick up the slack.

He wrote a series of five genius posts that I now consider essential reading (along with the above mentioned article, Personal Finance for Canadians for Dummies, and The Wealthy Barber). Chris takes you through a series of calculations you can easily do to arrive at an estimate of what you should need to live on in retirement. He then helps you determine whether your current savings plan will give you enough to provide what you need. Believe me when I tell you that you will be pleasantly surprised by how little you'll need, and how much of that will come from CPP and OAS.

When I plugged my own projections in, given the financial plan we have mapped out, which for now is completely feasible, we will have more than enough to live comfortably in retirement, even if returns on the stock market are a measly 4-5% over the next 65 years.

This is a far cry from the fear mongers at Fidelity who warned recently that the majority of Canadians will not be adequately prepared for retirement. The announcement helped them draw awareness to their Snapshot Calculator, which will inevitably tell you you're screwed and to hurry on into your financial advisor to purchase as many Fidelity mutual funds as possible. For example, they tell me I need $3.5 million at retirement to live only a modest retirement (60% of pre-tax pre-retirement income). Yet over at, I'll be living the high life if I reach $3.5 million (which I do not plan to). Even at paltry interest rates of 4%, I would have to draw $200 000 a year from my retirement fund to drain it over 30 years. Bah.

Do yourself a favor and listen to those with no vested interest in you saving more money for retirement.

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