In case you didn’t notice it, this is Misery Week here on GreaterFool.
On Monday we quickly reviewed how screwed most aging hipsters are (between the ages of 35 and 44), compared with the hippie generation that went before. Cheapo mortgage rates have been no match for house lust, bad choices, stagnant incomes and insatiable children. Debt levels are off the chart, most net worth is in one asset, and if houses go into reverse, it’ll be ugly.
On Tuesday we reviewed net worth in general, in light of recent claims that Canadians are raking it in, families average $422,000 in assets, and we’re all cool. But, it ain’t the case. Half the wealth is in fragile house equity, eighty grand is in brain-dead GICs and bank accounts, and just $145,000 is invested, most of it in taxable RRSPs. Worse, ‘average’ numbers mean nothing when just 1% of our citizens control $979 billion, averaging over $3 million a piece. Yes, and most of them read this pathetic blog.
Today, let’s dive into an issue even more miserable: the abyss of retirement. So how much money do you actually need?
That’s easy. More than you think.
And to find out how much (if you are a working couple) do this:
- Multiply your current income by .8
- Deduct $27,400 from that number, then
- Multiply the remainder by 27.
So if you have a family income of $100,000, you probably should have $1.42 million in order to ensure you can hit Margaritaville in your early 60s.
Of course, one size doesn’t fit all. But here’s a rough yardstick for you. It assumes you’ll need 80% of your working income in retirement (it might be more), that you have no corporate or government defined-benefit pension (over 70% don’t), that you both collect the average CPP ($611) at age 60, and OAS ($540) at 67, and you earn at least 4% (after inflation) on your investments, with the bulk of them being non-registered (not in RRSPs). Thus, you should have saved/invested between 25 and 30 times the annual shortfall between your required income and government pogey.
Your nestegg will include any roll-over of a defined contribution pension plan (like a matched RRSP program at work), plus your tax-free accounts, RRSPs and non-registered money. House equity doesn’t count, of course. And no moochy adult kids in the basement.
So, how are we doing? Like I said, this is Misery Week. Suck it up and keep reading.
The average amount people believe they’ll need to amass as a retirement nestegg ranges from $447,000 in Quebec (folks there plan to live on maple syrup and beaver entrails) to $1.13 million in BC (you know why). In Ontario it’s $876,000, and Alberta $970,000. Those numbers are from a survey just completed for the wealth management arm of BeeMo.
The interesting bit is that most Canadians also think they’re not going to make it. The average amount saved by the people Nesbitt Burns polled (between the ages of 45 and 64) is $258,000, and most of that would be in fully-taxable retirement savings accounts. This means there is an average gap of more than a half million dollars.
It also begs the question of how a guy who’s 55 years old can save another $500,000 or so by the time retirement rolls around a decade later. Without selling meth, I mean. And the answer is, he can’t. For most people it’s just not gonna happen. And that’s one good reason why real estate has a troubled future.
With Canadians continuing to squirrel away the bulk of their net worth in a house, millions of soon-to-be-wrinklies will discover they have little alternative but to sell the real estate to liberate the cash needed to stay nicely in Depends and Cialis. With 9,000,000 Boomers, it won’t take a big fraction of them dumping houses to have a significant market impact. Others will toy with reverse mortgages, which are very effective if you hate your children.
Speaking of which, the bankers also learned a majority of people in this age group are sandwiched between caring for their basement-dwelling kids and ageing parents. And this: “The study found that 76% of this cohort feel that the stress of everyday living — such as working, taking care of family, paying household bills, helping older relatives, etc. — is impacting their ability to meet long-term financial goals.”
The hipster children figure you should buy them condos. Mom expects you to be her nurse and housekeep. Meanwhile the clock’s ticking, and you wonder if you’ll have enough for your own retirement.
Well, now you know. Do the math.