Weekend Reading: Master Class In Retirement Planning Edition

Fred Vettese is a leading expert in retirement planning and his books, which include The Essential Retirement Guide and Retirement Income for Life, are must reads for retired or soon-to-be retired Canadians. The newly updated second edition of Retirement Income for Life will be released on October 20, 2020.

The Rational Reminder podcast had Mr. Vettese on as a guest this week to explore the vast topic of retirement income. The conversation, according to co-host Cameron Passmore, was nothing short of a master class in retirement planning. Indeed, it was.

Those familiar with Mr. Vettese’s writing will know he’s a big fan of delaying CPP until age 70 – with the specific intent of spending personal savings from age 65 to 69 to fill the gap in retirement income. Deferring CPP by five years not only enhances your benefits by 42%, but it may also increase that amount by up to 50% thanks to annual indexing of both the benefit and the CPP maximum.

He’s less enthusiastic about taking OAS at 70 due to a lesser enhancement (only 36% if you defer five years), and because it’s difficult to convince people to defer both pension programs while they spend down their own personal savings. Mr. Vettese did say that at age 67 he still has not applied for his own OAS benefits and will likely wait until age 70 to do so.

Annuities were a big topic of conversation but, while Mr. Vettese is a fan of ‘pensionizing’ a portion of your retirement income, he’s not thrilled about today’s ultra-low interest rates and how that impacts annuity payouts. Furthermore, he said to avoid annuities index to inflation (if you can even find one) because they are more expensive and instead opt for a joint and last survivor annuity that’s payable for life for you and your spouse.

The indexing argument was interesting, as Mr. Vettese looked at longitudinal studies in Germany and Britain that showed how spending in retirement closely tracked inflation during their 60s, and then seemed to slow down rapidly from age 70 to 75, and then keeps on slowing down throughout their 70s and into their 80s. 

The conclusion taken from these studies was that the kind of income people should be looking to secure for themselves in retirement would be an income that’s growing with inflation in their 60s, and then growing with inflation minus 1% in their 70s, and inflation minus 2% in their 80s – which means no inflation adjustments to their income at all after age 79.

There was a bit of a “this time is different” tone to the conversation as Mr. Vettese explained why low interest rates are here to stay for the foreseeable future thanks to our aging population.

I find Mr. Vettese’s arguments refreshing as he takes an evidenced-based view on retirement planning and offers contrarian conclusions about saving, investing, and spending in retirement. No, we don’t need to spend 70% of our pre-retirement income in retirement. We can also spend more than 4% of our investments, especially if we can defer CPP to age 70 and lock-in that enhanced benefit for life.

Listen to the entire episode to hear what was truly a master class in retirement income planning.

This Week’s Recap:

No new posts from me this week – our kids completed their ‘at home’ schooling last Friday so they’re officially on summer break. That meant slower mornings and more time spent outside enjoying the beautiful southern Alberta weather. 

Our new hot tub was delivered and installed on Monday. We also had some minor roof and siding repair completed this week. 

I’m on day 39 of trying to set up a corporate investing account at Questrade. The process is already cumbersome due to required extra documents such as a personal guarantee that must be notarized and mailed in. Despite receiving all of the completed documents on June 16th, the account still hasn’t been approved and opened for trading. Frustrating.

Look for my bi-annual net worth update next week as I document my journey to achieve a $1M net worth by the end of the year. Spoiler alert: the market crash in March did not help the cause.

Many thanks to Rob Carrick for including my post about asset location in his latest Carrick on Money newsletter.

Weekend Reading:

Credit Card Genius explores a topic near and dear to me – is credit card churning a lucrative hobby or risky business?

The FIRE movement attracts a special kind of person who wants to escape the drudgery of a 9-5 cubicle and live on their own terms. Here’s why the early retirement portion of FIRE is the wrong goal.

One of the biggest influences on the FIRE movement is Mr. Money Mustache, and in this exclusive interview he breaks down how you can slash your expenses and save far more money while still enjoying life.

Speaking of enjoying life, the idea of a four-day work week has been tossed around lately. Canadians want a four-day work week, but would it work?

Millionaire Teacher Andrew Hallam says retirees need these two things to boost their odds of success.

Deferred Sales Charges (DSC) have been banned in most provinces, but not in Ontario – where its DSC rules promote wealth inequality.

How has personal income been affected by COVID-19? The latest episode of SPENT looks at income loss by age, as well as who has seen the most outright job loss and who has more partial declines in income:

The incredible amount of government stimulus handed out during the coronavirus crisis gives us a real-life experiment of what a universal basic income might look like and what it could accomplish. But did you know that, 46 years ago, Canada ran its own universal basic income experiment in Dauphin, Manitoba?

“At the time it was the most ambitious social science experiment ever to take place in Canada, and saw rates of hospitalisations fall, improvements in mental health, and a rise in the number of children completing high school.”

Meanwhile, studies in the U.S. found that the vast amount of federal aid has capped a rise in poverty, but warns that families could again be vulnerable if/when aid expires next month.

One of the key differences between a calamity like the Great Depression and the economic crisis we’re facing today is the policy of the federal reserve

A terrific post by Barry Ritholtz about how past claims of radical change fail to pan out, and why you should be skeptical every time you hear, “this changes everything.”

Rob Carrick says deferring OAS payments is a helpful retirement income strategy with a public relations problem.

It seems like everyone is getting into day trading or at least dabbling in individual stock investments. Morningstar’s Christine Benz explains why individual stocks is not the best way to get started with investing:

“I know that many people learned about investing through their Disney shares yadda yadda but I think we need to be clearer about this when we discuss financial education.”

Speaking of day traders, here’s what investors can learn from all the new Robinhood traders and a professional poker player.

The above piece references Barstool Sports founder Dave Portnoy, who now leads an army of former sports gamblers turned day traders. A Wealth of Common Sense blogger Ben Carlson goes back in time to profile Joe Granville, the original Dave Portnoy.

Annie Duke and Morgan Housel explain what the coronavirus pandemic and the resulting market volatility has to teach us about risk, uncertainty, and investment decision making.

The Sustainable Economist Tim Nash takes an in-depth review of Wealthsimple’s new SRI portfolios. His TL;DW – “Very promising. Won’t make everyone happy, but a welcome addition to the market. The strictest I’ve ever seen on gender diversity at the board level.”

A common question these days: should you exit a defined benefit pension plan? Here are my thoughts from my own pension decision.

Pattie Lovett-Reid talks COVID-19 and setting up seniors for financial success. Some good points on wills and power of attorney.

We know that high mutual fund fees can steal thousands of dollars from your retirement savings — so here’s a better way.

As hotels prepare to re-open, guests can expect plenty of changes such as mandatory masks, plexiglass shields, contactless check-in and no coffee makers in rooms.

Finally, last year Squawkfox money blogger Kerry Taylor was diagnosed with Triple Negative Breast Cancer (TNBC). She bravely shares her experience with breast cancer, including early detection, in hopes this could save someone’s life.

Stay healthy, everyone!

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10 Comments

  1. Maria @ Handful of Thoughts on June 27, 2020 at 3:05 pm

    Wow great list of articles Robb. Even though you didn’t write anything new this week you’ve still provided lots to read.

    Enjoy the summer staycation with you family.

  2. Court @ Modern FImily on June 28, 2020 at 7:32 am

    Really enjoyed that Rational Reminder episode and a lot of similarities between what Fred was saying vs Wade Pfau who I also highly respect. Are you familiar with the 8 year GIS strategy by Ed Rempel? We’re planning to utilize that (OAS + GIS + supplemental TFSA) for those 8 years and delaying CPP until max 70.

    • Robb Engen on June 29, 2020 at 9:55 am

      Hi Court, agreed it was an excellent podcast. Fred and Wade have similar philosophies of creating safe retirement income, although my impression is that Fred takes a much more optimistic view about retirement standard of living.

      As for the GIS strategy, I’m not a fan of taking advantage of government benefits designed for low income seniors. That approach also takes timing and precision, and makes major assumptions about future tax rates and availability of these programs that I simply wouldn’t want to count on 20+ years from now (I’m turning 41 this year).

  3. Gin on June 28, 2020 at 12:43 pm

    Loved the retirement planning master class podcast, truly exceptional and a worthwhile listen for everyone. Unfortunately, I know that in spite of my best efforts my 25 year old son will not want to spend an hour listening , a retirement future being too distant to be uppermost of mind in today’s world. The best we can hope for is to guide and yield some measure of success in doing so.

    • Robb Engen on June 29, 2020 at 9:59 am

      Hi Gin, I’d cut your son some slack about not wanting to spend an hour listening to a podcast ab out retirement income. The best advice for a 25-year-old is to try to live consumer debt free, spend less than you earn, and set aside a portion of your income for retirement, plus a portion for short-term savings goals (make the contributions automatic like a bill payment). If 20-somethings can figure that out they’ll already be in great shape when they start to think about retirement.

  4. Douglas Badger on June 28, 2020 at 2:13 pm

    Rob, a good ‘counter-point’ to Mr. Vattese’s argument for delaying CPP while spending RSP’s and other savings, is that it ignores the possibility of an early demise.
    The CPP has a terrible survivor benefit, and this needs to be explained by financial professionals like yourself. Essentially, folks need to factor in one spouse being left on their own if a big portion of their retirement income is the CPP (i.e. survivor risk). OAS also stops on death.
    Not to mention loss of income splitting for the poor survivor!

    • Robb Engen on June 29, 2020 at 10:06 am

      Hi Doug, I’ve heard that argument a lot from folks who’d rather take CPP as early as possible to get “their share” in case they die early. Fred Vettese’s counter argument to that line of thinking is that you’ll have bigger things to worry about if you die early – like not breathing!

      There are cases where it does make sense to take CPP early, but if you’re healthy and have reasonable savings to get you through age 60-70 then the math is clear that deferring CPP to age 70 is the smart move.

      Isn’t the bigger risk to run out of money in old age? The life expectancy for a 60-year-old male is 80.5, and for a 60-year-old female is 85. I’d much rather plan for a long life and make sure I have enough income to last.

  5. Biggrey on June 30, 2020 at 9:55 pm

    Robb, congratulations on your site. I’ve browsed your posts often. A lot of great information for mainstream Canadians to absorb.

    I just have a slightly provocative comment about Mr. Vettese’s plan for his own OAS claim. I would be shocked if he had any chance whatsoever of not having 100% of it clawed back no matter when he takes it.

    If his post-work retirement income level allows him to claim any usable OAS amount, I’d eat my hat! He was a very senior and publicly known executive of a very successful business for a long time. Given his background and approach, he must have built significant retirement assets including but not limited to deferred compensation, retained dividend paying equity in Morneau, a sponsored retirement plan of some type, and of course his own accumulated savings and financial assets.

    I’m not doubting his veracity – but he’s not a “normal” retiree. No more than I am and I’m not planning on ever claiming OAS. There would be no point.

    • Robb Engen on June 30, 2020 at 10:37 pm

      Hi Biggrey, thanks for the kind words. I suspect you’re right about Mr. Vettese. There’s a good chance he’s deferring OAS personally because it would get clawed back anyway.

      That fact certainly doesn’t take anything away from his expertise in retirement income planning, but it’s probably worth noting anyway.

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