Morneau Bill - The real retirement: why you could be better off than you think, and how to make that happen

Copyright 2013 Fred Vettese and Bill Morneau

Published by John Wiley & Sons Canada, Ltd.

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Library and Archives Canada Cataloguing in Publication Data

Vettese, Fred

The real retirement : why you could be better off than you

think, and how to make that happen / Fred Vettese and Bill Morneau.

Includes bibliographical references and index.

Also issued in electronic format.

ISBN 978-1-118-49864-4

1. Retirement incomeCanadaPlanning. 2. Retirement

CanadaPlanning. 3. Finance, PersonalCanada. I. Morneau, Bill II. Title.

HG179.V48 2012 332.0240140971 C2012-907331-8

ISBN 9781118498675 (ebk); 9781118498682 (ebk); 9781118498699 (ebk)

Production Credits

Managing Editor: Alison Maclean

Executive Editor: Karen Milner

Production Editor: Pauline Ricablanca

Cover Design: Adrian So

Composition: Thomson Digital

To my own three pillars, Gregory, Troy, and Michael

F. V.

And to the foundation of our business, our many colleagues at Morneau Shepell

B. M.

The Real Retirement is a clear and sober look at the state of aging in Canada. Concluding that we may actually be better off than all the hype and scaremongering going on in the industry is a refreshing evelation. But there is no attempt to sugar-coat things here. Early retirement is not an up-and-coming trend; it will be increasingly difficult in the years to come. The goal for most Canadians is to enjoy our working lives and our retirement in comfort and security. This book will help: a thorough look at the risks and the reality of retirement in Canada.

Suzanne Steel, Personal Finance Editor , Financial Post

Canadians have had a rocky time in preparing themselves after the 2008 financial fallout. This sensible book without alarmist rhetoric is worth a close read for anyone preparing themselves for retirement. It has the right balance in articulating critical needs and providing some good advice.

Jack Mintz, Director and Palmer Chair, School of Public Policy, University of Calgary

We all want simple rules to navigate the complexity of saving for retirement but the rules need to be right! Fred Vettese and Bill Morneau explain why common targets for retirement income are too high, and why retiring later is realistic and desirable for people who need more. The systematic approach and clear examples in this book help us see ahead more clearly, to retirements that are comfortable and achievable.

Bill Robson, President and Chief Executive Officer, C.D. Howe Institute

Time to get real about retirement? It may be closer than you think. The Real Retirement is the best Canadian retirement guide since The Pension Puzzle .

Jonathan Chevreau, Editor of MoneySense Magazine and Author of Findependence Day

Preface

Fred Vettese and I have worked together for more than 20 years. We have spent many hours questioning the status quo and pondering the future of our retirement system and its impact on people and organizations. From those discussions, and from Fred's analyses and informed observations, we have come to the conclusion that there exist many persistent myths about the Canadian retirement situation. Fred has turned many of these observations into Morneau Shepell client newslettersour Vision publication. From that base, we have delved more deeply into the retirement issues facing individual Canadians.

I have been a willing partner to Fred's analyses and observations, considering and reconsidering his data, and debating his conclusions. Fred is the main author of The Real Retirement , but the fact that we put both of our names on this book reflects our shared views and the power of his arguments. We conclude that Canadians are actually doing better than they think they are in their retirement planningand are better off than many of the experts are telling us.

There are a number of factors at work to explain this phenomenon. First, there is the simple fact that perceptions tend to lag behind reality. We think of our seniors as a fragile group living in near-poverty. This may have been somewhat true in the 1970s, but major improvements in government programs since then have changed the picture. Today, the proportion of seniors living near the poverty line is not only small, it also is less than half what it is for working Canadians. Second, Canadians seem to believe that we must somehow replace our income when we retire, when in fact what we really need to do is to replace consumption. There is a major difference between the two, and consumption replacement is by far the easier task to achieve. Third, the focus tends to be on the retirement income one can achieve from the first three traditional pillars of our retirement systemOAS/GIS, C/QPP, and tax-assisted retirement vehicleswhereas retiring Canadians are quietly supplementing those sources with what we term Pillar 4 assets. These consist of equity from the home and other real estate, non-tax-sheltered stocks and bonds, part-time work, and inheritances. Pillar 4 assets in Canada are greater than all the assets we have in the first three pillars combined.

The retirement system is by no means perfect. While many Canadians will have much more than they need for retirement, some others will not have enough. In these pages, we will help you to understand which group you are in, and to identify your neutral retirement income target what you need to achieve to maintain your current lifestyle. Our goal is to help you to understand how to achieve your target.

Looking farther down the road, demographics and public policy are conspiring to create significant strains, which will mean younger Canadians will not have it as good as those who are nearer to retirement. In particular, we will not be able to retire quite as young. But even then, we have reasons to be optimistic.