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The naked truth about all things finance, from a Canadian perspective. This podcast is created and delivered by Verecan Capital Management Inc.
Verecan Capital Management Inc. is registered as a Portfolio Manager in all provinces in Canada, except Manitoba.
Speaker 1:
You are about to get lucky with the Barenaked Money Podcast, the show that gives you the naked truth about personal finance. With your hosts, Josh Shelik and Colin White, Portfolio managers with WLWP Wealth Planners, IA Private Wealth.
Colin White:
All right people. We're here with the next podcast. Barenaked Money coming at you, only a shower curtain between us. Today is my turn to be a little wound up because something has got me wound up. Apparently, peep to be defined later, have determined, and again to be defined later that it now requires 1.7 million dollars for a Canadian to retire. Josh, how did we get here and why am I reading about it all over my newsfeed? Where did this come from?
Josh Shelik:
I think I saw that they interviewed or surveyed 1500 people and I just have to imagine they were all from corner offices on Bay Street. That's the only thing I can come up with because otherwise it doesn't make any sense to me.
Colin White:
All right, so was there any rationale given? Why am I seeing this so much?
Josh Shelik:
It's because it's topical, it's scary. It's scary. If you see something that says I need 1.7 million to retire, then you're like, well, I have nowhere near 1.7 million. And I know people have nowhere near 1.7 million on average because I did a little bit of research on this. The media net worth for people 55 to 64 is $690,000. Yet people think they need 1.7 million to retire. So either, the survey is completely off base in terms of the sample of people that they chose or people are completely out to lunch with what they actually need to retire or some combination of the two.
Colin White:
Yeah, so it's like, I thought it's a scary number and it's being promoted because it's got to panic people into saving more money. Who benefits when people save more money?
Josh Shelik:
We do.
Colin White:
Oh wait, I know the financial industry. So let's convince people they should be saving more money. Why? Oh, just because what's the number at 1.7 million? Where'd it come from? It came from God, no more work necessary.
Josh Shelik:
It's funny, I was trying to think of an analogy for this. It would be like asking me on the spot how many liters of gasoline I need to drive from Toronto to Halifax without. That's it. Okay, well what kind of car am I driving? Am I driving an 18 wheeler or am I driving a Prius? How fast am I going?
Colin White:
Sorry you're being disqualified from the survey. You didn't give us a number. Let's go to the next person.
Josh Shelik:
Exactly. Yeah. Well, what month of the year is it? Do I get stuck in traffic? What road am I taking? Can't I just fly. Do I even need to drive there? So the whole premise of the question is a little bit ridiculous to ask somebody on the spot.
Colin White:
Well, actually it's a good segue back into why it's a ridiculous question. Cause I think that we sit in the cheap seats too often, Josh, and just throw tomatoes. I think we need to actually dig into why this is particularly ludicrous a little bit more. So it depends on your expectations in retirement. We deal with people all the time. I've had expectations in retirement where people want to spend $120,000 a year. That's their anticipated spending goal. I've got people who have a budget and they're very, very studious about it, and they spend $24,000 a year. They both don't need the same amount of money in retirement, and that's not getting into whether or not they're carrying a mortgage or whether they have goals with regards to funding their grandkids education or all the other personal goals. These things, when they get thrown out like this can be conversation starters, but nefariously, they're designed as a shortcut to avoid doing the real work necessary to figure out what an individual's number might be. That's where it can cause some harm because there's people out there who have, are anxiety ridden and panicked over this and are really dramatically changing their lifestyle to chase this goal. Perhaps it's because they've had no luck in doing a plan for themselves or understanding their situation. This is just a shortcut. I don't have time to do all the rest of the stuff, so I'll just aim at 1.7 million and try to get there.
Josh Shelik:
Goes back to one of my favorite quotes. If your heads in the oven and your feet are in the freezer on average, or the perfect temperature. An average is completely useless for the average person, for lack of a better word, right?
Colin White:
Yeah.
Josh Shelik:
The average is in this case is telling you almost nothing because we have clients who are in the freezer and we have clients who are in the oven, but rarely do we have clients that fall smack dab right in the middle on the 1.7 million mark or whatever number you want to pick up.
Colin White:
Well, the other way to look at that is 50% of all farmers make less than the average.
Josh Shelik:
Yep.
Colin White:
Yep. It's just mathematically true. When you have an average, that would mean that 50% of the people would fall below the average. So again, it's being, and perhaps some of it's genuine, some of it's organic people are looking for an answer. I mean, I can, and you get asked the same thing, Josh, how much money do I need to retire? I mean, everybody wants a number. Everybody wants us to give them a number. I can give you a number, I'll guarantee it's wrong. There's no way to know with precision, what number you need. We can work with somebody over a period of time to get you into a comfortable retirement. But that doesn't mean you're going to get to do whatever you thought you wanted to do on the terms you wanted to do it. We're going through one of those times right now, the kind of upends that because when you see inflation kick in like it is right now, this is changing how people live.
There was no way to completely isolate yourself from the globe unless you're going to go off grid somewhere in the interior BC in one of the bunkers I see for sale all the time and completely isolate yourself. You're going to be influenced by what happens on the planet. To think that somehow you are such a genius planner that you're going to put yourself in a position where it's never going to affect you and you want to retire at 55 and you're going to live to 90... No, shake your head something's loose. That's a 35 year period of meeting expectations. That's not how life works.
Josh Shelik:
So to your point, there's a lot of uncertainty around what that actual number is going to be. Even if you have all the information today, you still don't know exactly what that number is and that that's kind of what you're saying. I was going to ask, it's funny you went down this path of not knowing exactly what that number is. We do financial plans with retirement projections for many, many of our clients. I was going to ask you if you asked them this question on the spot in a survey, how many of them could come up with that one number that they need?
Colin White:
Well, a lot of them could come up with a number.
Josh Shelik:
Would it be the right number? My point is we don't communicate a number to people. We don't say you hit 1.7 million and you could, then you can retire. That's not the way that this works. There's too many other variables, and that's not a very useful thing to do because things are changing too fast. There's too many regular and frequent and consistent changes to come up with one number and just leave that static number in place.
Colin White:
One of the major changes that comes up with is people change their mind. Whether it's their health changes, their family changes, the first time they get a grand kid. There's lots of reasons that people change their objectives in retirement. I mean, the human condition is not static. So forget the financial markets. Your priorities are going to shift and you're going to expect different things in retirement and that's going to influence your need for money and finances. So yeah, it's a calculation. I tend to talk to clients more about, you got 90, 95% chance of living out your retirement just fine, and that's a pretty high number. There's always an opportunity this is going to go completely sideways, but you know, you can't live your life based on, yeah, there's a one in a hundred shot that this is going to get real messy.
Enjoy your life, adjust as things go and try to keep it pointed in the right direction. We had Carl Richardson and I think that he had that great quote that you used, so I'm going to steal you quoting him. It's the whole, we're climbing a mountain and you're looking for a lake and you hit a spot where you expect a lake to be in. There isn't one, but what do you do? Do you abandon [inaudible 00:08:23] . No, I've got the tools and I have the experience, we'll just get over the next ridge and we'll likely find a lake there, we'll just keep going. We'll adapt to what's going on and we'll still make progress in the right direction using tools and experience. Even then, it's just a matter of you're, putting the probability , you're not making it a certainty. The old expression I use with people is like, look, if I tell you to get out of the corner and use the crosswalk to cross the street and you get hit by a car, that wasn't a bad plan. Sometimes you even do the right thing and something's going to knock you down and you just have to deal with that and expect you're going to go through 30, 35 years of your life never getting knocked down. That's a little optimistic.
Josh Shelik:
So let's assume for a second that the sample of people wasn't chosen from the local yacht club and it's a true cross-section of the average sort of Canadian. Why do you think people are so out of touch with reality? Because we can tell you from experience that the average person does not need 1.7 million to retire.
Colin White:
We can surmise a lot of different things. Maybe some people are looking at the fact that with interest rate changes, they're going to carry a mortgage into retirement that they weren't expecting. Maybe that's part of it. It could be that their fear over increasingn prices and they've noticed food inflation and things like that, and they've dramatically increased their expectations of spending. That's kind of recency bias. These are things that have changed recently and if people are getting project those forward for the next 30 years, that does look ugly and that does lead to a much larger [inaudible 00:09:56]. If you take a 1.7 million and you say, you know what? I'll probably get a 4% yield off of that over my life. So you're looking at about 68,000 of income off of that money add in some Canada pension, maybe you're going to count an OS, maybe you're not.
You're looking at a fairly substantial retirement income far above the average income in Canada, and that's aspirational.I think everybody should aspire to be more. Again, my fear with something like this is it really creates a huge set of anxiety with somebody who cancels the family trip to Disney and cancels all family vacations and then cancels sending their kids to school. They would take huge, huge actions to try to correct this and that might not be necessary if they actually took a look at their situation and did a little bit of math. That's my fear. For some people that give a false sense of security because it's a shortcut and other people it causes huge anxiety and they put a whole bunch of sacrifice in that they just don't need to make. That's why these things are damaging. It's not thoughtful. It's not a thoughtful conversation about a retirement issue.
Josh Shelik:
Yeah, you brought up two points. One that this misconception could be driven more by fear orori. Which I think has got to be a big part of it because mostly we talk about inflation and the chaos that we've experienced over the last few years for sure. So that's driving part of it, and then you talked about, well, maybe this is a more sort of rational or logical calculation based on interest rates. I thought we're going to be X now they are Y I'm going to carry this debt into retirement, plus I see my price is going up everywhere, so I'm going to need more money. It's probably some combination of those two things where it is numbers and dollars and cents, but it's also sort of a fear and a worry and a concern driven thing. So it's emotion and rationale at the same time, if that's true.
Colin White:
And also it can be how they frame these questions and how they present the results. I mean, I get surveys all the time and they're just absolutely pointless. It's like, what are the percentage chances your business is going to decline by more than 10% in the next 12 months, between five and 10% stay even plus 5% or plus 10%. Your percentages just must equal 100. Okay, I'll give you numbers that equal a hundred. So here are the findings like, oh, come on, what did you find? I was just dividing it by five. There's no scientific method to me establishing probability of different outcomes than that kind of granularity over a 12 month period for running a business. There just isn't. So some of this goes back to, and everybody's participated in the survey. Most people kind of thrown out their hands at one point and go, this is stupid. But those get turned into news articles. They get tuned into findings and may or may not. And again, without getting into it, I didn't because I just got too wowed up when I read the headline. I didn't get into exactly how they come up with it, but apparently it's a repeated thing. Theyused to be 1.4 and now it's 1.7.
Josh Shelik:
Yeah, well I did see it's gone up 20% since 2020. This is where I come back to this sort of emotional partially, again, emotional and partially data driven. It's like inflation's gone up a lot since 2020. So maybe this is why people feel that they need so much more money now than they did back then.
Colin White:
I think that overall inflation's much more topical now. People are talking about it again, leading up to 2020 university tuitions were growing at double-digit rates of inflation. So if you were in that space putting kids through school, you were feeling it prior to that. But it is much more global since 2020. I think the anxiety level of COVID for sure is a contributing factor. And I think what has come out of the inflation pipe and everything else since then, and we've had a bank fail now, Josh.
Josh Shelik:
Yeah.
Colin White:
I don't know. Foreshadowing or other podcasts or referring to a podcast that has already been published, but it's one of those two things.
Josh Shelik:
This study was published before the bank failed. So if we ask people now, maybe they need 1.9 million. I don't know.
Colin White:
You know what we need? We need we to have a daily indicator that can plot this.
Josh Shelik:
An index.
Colin White:
Yeah, well, no, not even index, but a VIX something that measures the volatility of the market that turns into an investment vehicle. The guy who comes up with this going, how are you investing in this? This is just a thing I made up. Something Like that.
Josh Shelik:
Oh, the SPAC is launching next month. Stay tuned.
Colin White:
Thanks. Are those still a thing? No, they can't be.
Josh Shelik:
They Still exist. They are not a good idea, but they still exist. So let me ask you then the natural follow up for me again, if we assume that this is truly a misconception, this 1.7 million number, what do you think people should be doing to ground themselves more in a realistic number for them?
Colin White:
Josh, this sounds so contrived that people are absolutely going to think that this was a set up question. Because the answer is get an advisor, get somebody who looks over your shoulder and helps you come up with a reasonable projection, challenges your assumptions and works with you on that basis. And ignores the magic number. Because as you talked about earlier, there isn't a magic number. Now, this is where the perspective of a good professional really makes a difference. Listen, everything I know you can find online somewhere, you're going to have to do some reading to find it, but you can find it. What I can bring in and what a professional advisor can bring to the table is their perspective to maybe ring the bell when you start getting a little too anxious or a little too confident or you start making assumptions that are a little offsite.
Foror an individual to try to keep perspective, I don't think that's a reasonable expectation. This is your one life. You're learning as you go. I'm learning in my one life every year. It's like, oh, okay, I'll learn something else about my life. I've had the advantage of how watching hundreds of people retire over the years and see things work and they see things now work. So I have a perspective on that aspect of things that you can't get unless you work getting it professionally. Now, my perspective on personal health, I'm talking to other people who've gone through my age and stage with their personal health and trying to gain their perspective. I have but one perspective. I got one set of cranky knees and I've got one sore hip, but I don't know all of the other aspects of personal health for somebody who's aging like I am, I got to rely on other people who give me that perspective.
Josh Shelik:
So thank you for answering my self-serving and leading question there.
Colin White:
For the record, I didn't know that was the question. Just for the record, I want to state that.
Josh Shelik:
Yeah, that's true. I had a couple other data points from this study that I thought were somewhat hilarious and lead me to question the efficacy of the study even a little bit more. So 22% of the surveyed individuals plan to retire between 60 and 69. Thoughts?
Colin White:
What? Where are the rest of them planning to retire?
Josh Shelik:
I was waiting for it.
Colin White:
Because you know what? I wouldn't even be so bold as to predict where people were predicting that they're going to work longer or shorter.
Josh Shelik:
I don't know. Would you say 80% of the clients that we talked to will pick a number somewhere between 60 and 70 that they want to retire, do you think?
Colin White:
It also depends on what you call retire, because we have lots of clients who work at least a part-time job into their seventies. Is that retired? So we get down into defining retirement, and this is why it doesn't lend itself well to this conversation. It's like we're coming up with a number, we're coming up with a retirement date. Both of those things are wrong. You can't talk about retirement as this is my retirement date and this is how much money I need with any kind of confidence. Because both of those things are fungible. They really, really are. You ou could have a cottage that you're planning on selling 20 years into retirement and that's going to fund part of your retirement. So you don't need that necessarily in cash upfront and projecting what it's going to be worth in 10 or 20 years. That's going to be a difficult projection to make. It just gets messy. It doesn't lend itself to these easy answers.
Josh Shelik:
Yeah. It's funny because you asked that question or people earlier or later than that timeframe that I gave you. I no idea. I'd say there, there's a lot of people that probably say that they want to retire at 55, but then there's probably a lot of people that say, I'm probably going to work until my seventies as well. So no idea. But I would say that if only 22% of people in this survey think that they need to retire between or want to retire between 60 and 69, this survey is completely out of whack with, again, the reality that we see on a day-to-day basis.
Colin White:
Yep. No, absolutely. And it's again, odd question. I've watched it for sure. I've got clients who, when I met them when they were 50, 53, they were going to retire at 55 regardless, that was almost 20 years ago. They're still working and making far more than they made when they were other working because it's not even the same job. They've just moved on to different jobs. And I was like, the running joke is, oh, you going to retire this year? I was like, stop asking again that that's happened to me far more often. And listen, I want point out the success of London Life in convincing everybody that 55 was the age to retire with their Freedom 55 Campaign. That may be one of the best marketing campaigns in the history of marketing. It's convinced a entire generation of people that they need to retire at 55. I can see no other source for where that target date has come from.
Josh Shelik:
Interesting. Maybe we should call ourselves Freedom 50 and then we're, one upping.
Colin White:
There was a boat in Lunberg Harbor that was called Freedom 99. So...
Josh Shelik:
That's one way to do it too. So one more piece that I found interesting from the study is that millennials and Gen Z, so probably the youngest cohort of the studied group, I would imagine. 59% say economic conditions have affected their confidence in meeting their retirement goals. They're the most nervous about their ability to save and invest millennials and Gen Z. Why?
Colin White:
Yeah. Again, I'm' asking for forgiveness for repeating my questions the first time you go through anything. It seems like the end of the world. So you ask me why I was bored, with this banking collapse? It's like that's not the first one I've been through. The best example I can give is when I coached young kids playing basketball, and the very first time a kid gets the wind knocked out of them, they think they're going to die. You're holding them by the hand, looking them in the eye and in their eyes they think they're dead because they can't breathe, And if I can't breathe, I'm going to die. You're just going to look them calmly in the eye and go, it's okay. This will pass. No it won't. It's going to pass. Your breath is going to come back in about 15 seconds, you're going to be able to breathe again.
But for that moment, in that time, they can't see it. So when the younger generation experiences the first economic upheaval, they don't understand, I don't know, things that it comes and it goes. So yes, I can completely get how a generation that has not been through the air quotes, wars of previous economic strife, they would say that, oh my God, this is terrible. Talk to somebody who went through the early seventies, talk to somebody who went through the 99, 2000, talked to somebody who went through 2008. Those experiences were all apocalyptic. They were all the end of the world. Once you've been through the end of the world a few times, start to lose interest a little.
Josh Shelik:
Yeah. Start to question the premise of the apocalypse itself, right?
Colin White:
Yeah and I don't want to be unempathetic. I mean, people's anxiety is real. One of the things that I always talk to our group about is meet clients where they are. So it's super important that you find a place where somebody is willing to accept your current level of anxiety and maybe help work you get you to a spot that's not quite as end of the world kind of thinking.
Josh Shelik:
If you're a millennial or Gen Z, you have the longest timeframe of any of us to recover from any economic strife that you experience. So you're actually in by far the best position, and actually, hey, by the way, you should want things to go down now because when you're saving and you're plowing money into savings, you're buying at a lower price. Maybe hard to fathom, hard to get comfortable with that idea, but it's the truth.
Colin White:
Well, and geneticists are telling us that the first person who lived to 150 years of age has already been born. So walk around in that a little bit and see how it makes you feel. Maybe you got way more time to let this play out than you originally are thinking.
Josh Shelik:
That's far more scary than anything economic related for me as a millennial.
Colin White:
Yeah. See, I mean, birth rate's gone way down. So there's room on the planet for you to live longer. So maybe you get longer to get this right. Maybe you could screw it up longer. Maybe you don't even need your first job until you're 60 maybe. Maybe that's the life you're going to lead.
Josh Shelik:
All right. We better stop this before I get this.
Colin White:
All right, thanks, Josh.
Josh Shelik:
Thanks, Colin.
Speaker 4:
Based on observation, it seems that the time an investor is most likely to move his or her portfolio to a new advisor is when the old advisor dies. Let us go on record is saying that having a pulse is not a great reason to trust someone with your entire financial future. Stop putting your life in the hands of still breathing wealth planners.com and call us.
Speaker 1:
This information has been prepared by White Loblaw wealth planners, who is a portfolio manager for iA Private Wealth. Opinions expressed in this podcast are those of the portfolio manager only and do not necessarily reflect those of iA Private Wealth, Inc. iA Private Wealth Inc. Is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
Speaker 5:
This should not be construed as legal, tax or campaign advice. This podcast has been prepared for information purposes only. The tax information provided in this podcast is general in nature, and each client should consult with their own tax advisor, accountant, and lawyer before pursuing any strategy described herein. As each client's individual circumstances are unique, we've endeavored to ensure the accuracy of the information provided that the time that it was written. However, should the information in this podcast be incorrect or incomplete, or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented, or revised, whether as a result of new information, changing circumstances, future events, or otherwise. We are not responsible for errors contained in this podcast or to anyone who relies on the information contained in this podcast. Please consult your own legal and tax advisor.