Retirement and sustainable retirement income and other income | RRSPs and RRIFs | Discussion forum

There are a great many assumptions in what has been written above. Many of them do not hold water. And most of them do not hold water for most people.

1. CPP, OAS, GIS, and even corporate pension plans can be here for people if we understand their value and want them. If we continue to denigrate them, then it will be a self-fulfilling prophecy, and, yes, they will decline. It's time to speak up and defend them, not treat them like they are dispensable. Tell your MPPs, MLAs, MPPs, co-workers, and union leaders if you have any, that this is really important to you and will influence how you vote at the polls and on negotiated agreements. By all means, become truly financially literate, and you will appreciate that people who do have good pension plans are very glad of them and think they are worth fighting for. You want to join that crowd, not assume that you can't. And if you think globalization is part of the problem, then join the people who are trying to do something about it. Don't be a sitting duck for lower wages for the majority, elimination of full time jobs, increases in part time jobs, outsourcing, and the elimination of pension plans. The best retirement income plan in the world will be no use if people are earning poor wages at part time jobs because they can't get anything else.

2. CPP, OAS, GIS may not have been intended to be enough for people to live on in some people's views, but in fact this assumption is wrong. The reason GIS was invented was precisely to deal with poverty amongst seniors, which was a huge issue at the time it was introduced. Many many people can and do live on this income package. Many of them worked their whole lives (I know one who raised her family, then went back to school and back to work, but it was not enough, even though she worked till she was 74); many had health problems along the way, or their children had health problems so that they had to stay home, and could not save enough for themselves; many had elderly relatives of their own to look after in their homes; and many could simply never get sustainable jobs that would enable them to save $1.2million for retirement or anywhere close to it. These people absolutely do rely on CPP, OAS, and GIS.
The mythical Mary and John in the above example, who may bear an amazing resemblance to the writer 30 years hence, may run into difficult circumstances at some point in their lives and be unable to fulfill their ideal plan of funding RRSPs, TFSAs, and so on. They have good jobs now, and are gambling on remaining healthy, fully employed, and having perfect children. I hope they succeed, but I know that there are people who don't. For those who don't, a combination of CPP, OAS and GIS ought to provide a foundation to allow them to get by.

3. The family that at age 67 in 2014 has $1.2million in investments is in the minority statistically, and probably isn't looking for this advice, so the plan that is presented here does not apply to most people.

4. It must be remembered that financial literacy, while a good thing in theory, is an idea that was thought up by the investment industry. They want people to understand investments better and make more investments, and they don't want to be on the hook for those decisions. They want to download the responsibility for those decisions onto you and me. There is much to be learned, but, frankly, the bulk of it is beyond the time or ability of the average person who already has a busy life. The idea that people had to have a good knowledge of investing in order to have a decent retirement is, historically, quite recent. Even mutual funds are a relatively recent invention, I believe from the 1960s or so. The investment world is not really set up for the little guy to "win". Its purpose is to simply get more money out on the table that people are willing to put into various investments, most of which offer no guarantee. If you find investing a scary prospect, you are rightly cautious, no matter how "literate" you may be. Even the rich sometimes fall into poverty, and there are many examples of that.

5. A fixed term annuity for 25 years, if bought at age 67, will EXPIRE when you reach 92, if you should happen to live that long. This is the age at which your expenses might increase, and you may need to purchase extra care. But, according to this model, you will suddenly lose $24,000 of annual income. Further, we are not told if this income is inflation-protected. The cost of buying an annuity with the 3 necessary conditions, namely inflation protection, 2 beneficiaries, and a term that extends to cover your entire life, will decrease the annual income from it. So, I would not count on $24,000 without seeing quotes from insurance companies which specify these 3 conditions.
Need I mention that benefits from a pension plan continue as long as you both shall live and usually have some degree of inflation protection?

6. The writer is confused when he says that the children or other named beneficiaries will necessarily get a benefit from the $400,000 annuity. He has said that this is to be a 25-yr term annuity. That means that you have to gamble on how long you will live. If you live past 92 (increasingly likely as longevity is generally on the increase), then nobody will get a cent from this annuity. If you die at, let's say, 85, they will get the remainder of the annuity only (7 x $24,000); and so on. If there is no inflation protection in this policy, and if inflation continues at its general average, then this might only be worth considerably less than $100,000 in today's dollars. A pension plan pays out as long as you and your spouse live. Most people want that kind of security when they are old, although they may not appreciate its importance when they are young and healthy and imagining that they can do everything themselves.
Annuities, however, should be considered as part of one's retirement planning if you have the money to do it. Most advisors feel that you are better off though to wait until you are about 75 or 80 to buy an annuity, as you will get a better return. You will get a much better tax break, though, if you buy them with non-registered funds.

7. It's not wise to assume what the returns will be for the next 25+ years. As rates are low at the moment and no significant sign of rising, it could be difficult to attain these returns. On the other hand, they might be greater. In either case, inflation will probably rise to meet or exceed them. The unique advantage of a pension plan in this regard, which can never be matched by the individual, is that it can invest for the very long haul, which typically brings better returns.

8. There is an implicit assumption here that RRSPs and pension plans are a kind of either/or situation, that you can only have one or the other. This is not the case. Many people have both. It is the rare pension plan indeed which accepts contributions up to the RRSP limit. Most people have contribution room left over after their pension plan contribution and can, if they choose, maximize their RRSP accordingly.

9. Contrary to the summary statement about the total income, this is not a sustainable income, as no mention has been made of how the couple will deal with inflation - except, of course, for that much-despised pension plan which they eschew. At least the CPP (Canada PENSION Plan) and OAS have inflation protection. Yes, it might be changed or whatever, but so can anything. The principle has been established that it is important.

All of that said, it's not a bad plan, if you happen to have been able to save $1.2million and are 67 and retiring right now. (Watch out for inflation though, as it can eat you alive! $61,000 will not be very impressive in 10 or 20 years.)
In the financial planning world, too little attention has been paid, generally, to how one would go about living off the money one has saved, and, thus, some financial institutions do not even offer RRIFs. Some do not even offer RRSPs.
The best plan is a well-diversified one, and that includes a good pension plan.
If you want to read more about why good pension plans are important and how they work, I suggest
Pension confidential: 50 things you don't know about your pension and investments. by Drummond, R. J. (Robert Johnston); and Roberts, Chris. (Toronto: Lorimer, 2012.) I found it very helpful, and it is available in most public libraries.
However, the ideas I have expressed are my own, based on a variety of sources.

I have done my share of long work days and weeks. And now you, who are very concerned about the intrusive role of government, propose that I ought not to post anything at 2am in my retirement years because you apparently don't like it?? Sorry, but this is what retirement looks like.

I have explained pension plans more than once, and do not intend to do so again. People who want a balanced understanding of them can pursue this.

I must agree with you that we are losing our democracy and freedom in many ways, but pension plans are not a big concern. A good pension plan remains an important piece of any sound retirement plan. In the many books I have read, from various perspectives, I can't think of ANY that did not agree with that. ALL responsible advisors except for people who have offbeat ideas such as investing solely in precious metals, unanimously advise diversification, and that is what I am advocating. A pension plan remains an important piece of a defensive portfolio. No one knows for sure what the future will bring.

I must say that I haven't always supported this idea of diversification. For a long time I was looking for some kind of formula that could take advantage of trends and then jump off the train when investments peaked. I didn't lose any money on that line of thinking, fortunately, because I could never bring myself to follow it, as I was afraid of losing.

But I have come to understand that the only way one can hope to avoid the various surprises that always come up is to have irons in several fires, including a good pension plan. Frankly, I do not personally approve of a great many of the investments that the Canada Pension Plan has made. They strike me as risky. The same goes for the work-related pension plan that I am involved with. So, I consider that those plans do the work that I can't do, by investing in things that I would never consider and don't understand. And, thus, I benefit from that diversification without having to do any work or take personal risks. I doubt very much that I could ever do any better. However, I certainly don't have all my eggs in that basket, nor do I suggest that to anyone.

If I die before collecting much of that pension, I won't be needing it and am not concerned. If I live to 100 and collect it for all the remaining years, I will be grateful. That is the kind of pension plan that serves me well.

The last time I looked, the Conservative gov't had not gotten rid of pension plans, which you have labelled as "socialist" (post #11, last paragraph). Heaven knows what they might yet do, but I think they realize this would be very unpopular with seniors.

I have made it clear in various posts that a pension plan is only one part of a diversified retirement plan, so there is no necessary connection between pension plans and major expenses. Only a fool would think that a major expense such as you have suggested could be covered by any kind of existing pension plan - unless it's like the one given to high-placed Ontario Hydro executives, which has been fully funded by taxpayers through both blue and red governments and is outrageously high.

Actually, Jack, I am not trying to convince you of anything. I accept that your position is what it is, will not change unless hit by an avalanche, and that you are entitled to it.
I am tired of the repetition, hyperbole and inflammatory comments, but I am really only bothering to respond to you because I am concerned about the influence of your views on others who may not have thought through all the options yet.
I think it's important to have more than one point of view explored - for the common good, a concept for which you have rejected in another thread.
Other than that, I don't care.

I don't know what ever made you think you OUGHT to get back personally all the money you have contributed in taxes and so on. Taxes go to all kinds of things which may never touch us as individuals, such as defense budgets and police.

As I said, you know next to nothing about my financial situation. Your comments are completely off the mark and irrelevant.

Inflation, as I mentioned in another thread, is not something anyone can predict. Everyone needs to be concerned about its potential. Financially literate people understand that past performance is not an indicator of future success. The same principle applies to inflation. Let me spell that out for you. Just because inflation has been more or less controlled to the 1 to 3% range for some time, that doesn't tell us anything about what might happen in future. Very few people, no matter how prudent or frugal, can deal with runaway inflation such as has been experienced in some other countries, and often repeatedly.