The Retirement Bubble

As Chaya Cooperberg of Toronto’s Globe and Mail mentioned today in her column, “Chatting with a financial planner recently, I learned that increasing life spans mean we all need to adjust our retirement savings goals. People should plan for retirement income to last until at least age 95, she told me. Even for those not leaving the workforce early, that’s still 30 years of living expenses to finance. No wonder many Canadians don’t expect to be able to afford their dream retirement.”

Her last comment is a reaction to the release of the results of a major poll of Canadians, retired and planning to retire, contracted by the Royal Bank of Canada (RBC) and conducted by the professional survey firm of Ipsos Reid late last year. I will summarize some of the results below, but the full press release can be read here.

I am delighted that Chaya’s financial planner friend told her that clients had to plan to live “until at least age 95″. I think this is an under-estimate of a decade, possibly more, but it is a huge improvement over the 85 age still used by some planners. That is the closest thing I would call “good news” to report tonight. The poll itself offers no real surprises to us, but is still scary. Here are a few excerpts from their press release and my brief comments:

“Nearly all Canadians (90 per cent) feel they will have enough income to cover their necessities in retirement but only one-in-four Canadians (25 per cent) feel they will have enough money to fulfill their retirement dreams.” Let’s ignore that many of these people may be under-estimating their age at death and thus their needs. The idea that 65% of Canadians (90%-25%) seem to think they will cover their “needs” but not their “dreams” is disturbing. Why? Because they have no margin of safety. If they leave the work world and go unemployed for years, then discover they cannot meet their needs, they are in serious trouble. At least the 25% have a fighting chance, if they have under-estimated their requirements, to fall back from “dreams” to “needs”. But the 65% are more likely to fall from “needs” to “desperation”.

What would I say to these folks if I was a future planner? As for the 10% who don’t think they even have enough to meet their needs, I would work with them to create a strategy to find employment. Nothing else makes much sense. For the 65%, I would help them focus on a Life Sabbatical or some similar positive approach that gave them some of the benefits of retirement while we developed a positive approach to income-earning that would bring them supplemental income and keep them “in the game” of the work world, but with greater satisfaction. But I doubt RBC is going to do anything like this. They will just continue earning fees to handle whatever “portfolios” these folks have. And if they run out of money in the future, I would not be shocked to hear the bank express their regret, wish their former clients well, and send them on their way. Next customer, please.

“The poll found that most retired Canadians (75 per cent) didn’t know how much they spent in their first year of retirement, virtually unchanged from 2008 (76 per cent).” Good grief. If you don’t know what you are spending right now, how much confidence can you have in your future planning?

I’ll be frank though, it is not the statistics that bother me so much as they statements made by bank representatives. Let’s take a look at a couple.

“How much money you’ll need in retirement depends on how you’ll be spending your time, with many Canadians underestimating the amount they will need,” said Lee Anne Davies, head, Retirement Strategies, RBC Royal Bank. “Financial planning is more than just number crunching and your retirement is not a single phase of your life, but a series of stages.” Okay, not too bad, what’s next?

“A personalized financial plan can look at options to make your nest egg last and help ensure your retirement needs and dreams are met…Whether retired or not, your life will be somewhat unpredictable at times and you need to be ready when life throws you a curve ball. This is where having a plan can provide peace of mind – you’ll know you’ve considered the unexpected and you’ve taken the steps to save for your retirement, said Davies.”

Good god, that just sucks. How many glittering generalities can you stuff into three sentences? They feed us this pap and they expect us to be impressed.

This is what I would like to say to any RBC or any major “retirement planning” outfit that fed me that pap. “You spend plenty of money on market research (and this poll is just market research), so I am sure you must spend a lot on evaluation of past efforts. I need some sound statistical evidence demonstrating that your planning advice of the last ten years successfully protected your clients from the current financial crisis. You hire outside professionals like Ipsos Reid to do your polls. I expect you to hire outside professionals to prepare a statistically-valid study of the outcome of your actual planning advice to real clients over the last decade. Prove to me that you have already demonstrated that, “you’ll know you’ve considered the unexpected and you’ve taken the steps to save for your retirement” is not empty talk, but solid results you can point to with pride.

I would think you already would have done this and proudly announced it. Funny though, I haven’t seen that press release.

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