Cat Food and Retirement

Life expectancy in Canada hit 81 last year.

For the vast majority of us who are not on the indexed-government-pension-gravy-train (the filthy bastards), and who also hope to avoid the dignity-crushing-part-time-Wal-Mart-Greeter-package, a principal amount high enough to support 26 years of work free income will be necessary to start relaxing at age 55.

In other words, if you are an average, private-sector Canadian with grandiose plans of Freedom 55, you better start redefining your definition of relaxation (as someone I used to work with put it, a pension of $20,000 a year is a lot of cases of beer to drink while sitting in a folding chair on the garage floor with the door open).

Ignoring all effects of inflation – which is actually quite stupid, as these will probably be massive – I’m fairly confident that in today’s dollars, a couple heading into retirement who owns their house free and clear and has no other debt (apparently a rarity these days, even among the dermatologically withered) can probably get by reasonably well on $2,000 a month. Annual trips to the ski chalet in Europe and the ocean-front Caribbean cottage aside, of course.

To generate $24,000 per year for 26 years in AFTER-TAX income from a non-registered portfolio is going to require somewhere in the region of $500,000 (remember, everything is in today’s dollars, no inflation, etc.). And that completely depletes the principal to zero at the end. To survive strictly off the interest would require at least $750,000. Of course, this is all assuming you are able to generate a rate of return that beats inflation by 4% consistently over the 26 years, which is probably a realistic number to use (ignoring the hordes of pension fund managers who inflate this number massively to shrink the appearance of unfunded liabilities).

If you step back and actually use your brain for a minute, working for just 30-35 years until age 55 and then retiring for almost the same length of time (26 years) should seem rather difficult. It is.

Using the same 4% rate of return (I’m not going to run more than one case, as I spend enough time in Excel at work and at home as is), it is possible to come up with the $500,000 necessary to fund my above example by saving about $8,000 a year, every year, from age 25 to age 55. This is around $675 a month. Put that way, it doesn’t seem too far out of reach, but remember we are still depleting principal and leaving no money to our children/pets/stalkers, etc.

To get to $750,000, you need to be saving about $1,000 a month for 30 years.

Recall before when I said non-registered accounts. This would likely apply to RRSPs as well, as the government forces you to make minimum withdrawals (the amount of which they can change at will) above a certain age, and you are taxed at the prevailing rate when you start to withdraw. The demographic issues of the present dictate that it is impossible for this rate to be lower than it is now.

Therefore, while older Canadians are essentially screwed, us young folk (the most stupid, financially) now have the advantage of the TFSA at our disposal.

I am a fan of paying tax now over tax later. I don’t like RRSPs because they assume you will make less in retirement than you do right now (possible, but unlikely for those who plan to retire well) and they also assume that taxes in the future will, at best, be the same, and not rapingly higher. The government can also claw back your old-person rewards (OAS/CPP) as well, but not to worry, as those won’t exist by the time anyone presently under 40 reaches retirement anyway.

With a TFSA, you are investing after-tax dollars that will never be taxed again (at least for a few elections). This knocks a staggering $100,000 off the principal amount required to generate our chosen amount of $24,000 a year for 26 years to $400,000. Leaving the principal intact raises this to $600,000, which is $150,000 less than the previous, non-registered example.

The monthly amounts to come up with these principal amounts, calculated the same as before, are $540 and $810. Both of these are presently possible within the $5,000 per person TFSA annual limit (provided there are two of you; if you don’t have a spouse, you will only be able to come up with $308,000, and will have to supplement your cases of beer with cat food).

What all this boils down to is that the average Canadian needs to be saving between 20% and 30% of their net, after tax income each and every year just to reach the “reasonable” standard we’ve established above.

In other words, if you have eager hopes of building a yacht and sailing around the world with your freshly injected botox glistening in the sun, I suggest you set enough money aside for a bullet when your last tin of cat food runs out.

The median contribution was $2,680 and the average contributor was 45 years old with a median income of $51,570.

The RRSP deadline looms this Tuesday; if you are near the age of 25, fill up the TFSA first, and consider carefully with someone who knows something (not the person at the bank, who is only qualified enough to sell you terrible products) if you want to waste your time with RRSPs.

Have a happy week of employment, and consider selling one of your Escalades!

Insert obligatory statement here of taking no responsibility for any of the math here or your ill-formed investment decisions. Etc, etc. Anything performed above can be done in about 3 minutes with any version of Microsoft Excel and the Goal Seek tool.

Long Timey No Posty

Greetings, fellow tubers.

It has been a while since my last literary regurgitation. Much has happened since then.

As a highly-liquid and mobile citizen, when I became dissatisfied (yet again) with the management at my previous employer back in November of 2010, I elected to be quickly presented with a number of options at greener pastures, and pounced on one of them in early January. After another busy paid-for-and-full-service move, the family and I have relocated, once again, back to the province directly adjacent to Alberta (to the west, not gross Saskatchewan). On a brief side note, the town I live in now is about the same size in population as my high school was.

I have now worked for 4 different employers since my graduation just under 3 years ago, and while some may scoff at that, I have had offers to return at each of my previous employers, and I have more than doubled my salary since 2008. So, moving with a frequency that some may find excessive, in my case, has paid off quite handsomely. The reason for this, of course, is that many people reduce their mobility and liquidity, and hence their ability to capitalize on opportunities elsewhere, and the pool of available candidates ends up being extremely small.

As another example, 2 days into my new job, a headhunter called asking me to move to Brisbane. It's good to be in demand, though at the level we are seeing, we must be approaching the next down leg.

What all of this also tells me, however, is that we are essentially mirroring the path of 2007/2008. With the TSX cresting 14,000 in the last couple of days, we are following the path right along to $150/bbl oil and a hell of a crash.

See: Average Canadian Household Debt Tops Six Figures, Report Says

Anyway, I don't want to rant too much because I am rather busy these days, but my motivation to post today was sparked by my thwarting of Bell Canada. Without a nearby Wal-Mart as a daily muse, I have run short on inspiration and motivation to post. Today, however, changed all that.

To start, I have a corporate plan, through my association, with Bell that I've had since sometime in 2006. It gives me $0.10/min long distance North America wide, unlimited texting, voicemail, call display, a lot of local minutes, and a bunch of other stuff I can't remember. The awesome thing about this plan, is that it costs $29/month, all in.

However, since 2008, I have not lived in the city in which my phone number is based. I have never had the will to change it, because with my long distance rate as low as it is, it doesn't really cost me anything to use my phone moderately every month, wherever I happen to be.

Today, I was able to add unlimited long distance to my amazingly cheap corporate plan. Bell informed me that I could still go over on local minutes, which is their ace-in-the-hole for raping me on the bill. However, since I don't live in my area code, I NEVER use local minutes, so I basically have unlimited minutes forever for a very low fixed price.

Being too lazy to switch area codes for the last 3 years ended up being a FANTASTIC move. Highly recommended.

On a quick investment note, I mentioned I was getting into oil back in late August (right near when I was talking about silver). I am up 25% on my oil holdings a mere 5-ish months later. I figured the geopolitical strife would center around Iran, but this Egypt thing and its fallout has been very healthy for my portfolio, and while I have reduced my position a lot, I will ride the remainder through the summer on the hope that we follow the insanity of 2008 once again.

On the long term front, I am rehashing my language abilities in Mandarin, as I have emigration to Asia on my time horizon. It is truly the new land of opportunity. I have a vision of millions of North Americans sailing to Asia to start a better life in a strange country with their families, in a similar fashion as the Europeans who came to North America in the 18/1900s.

STAY LIQUID AND WATCH THE HORIZON! Be careful how you leverage yourself in this environment, there is no sense having your real money compete with easy credit when the bond market is close to flipping everything on its head, as massive inflation and higher interest rates start coming down the pipe. Also, this isn't the 1950s. You have to be able to move to where the work is/goes. Look at what happened to Windsor, Ontario, as an example.

Their Flower Power is no match for my Glower Power!

Normally I'm not one to complain too much about things. In fact, I'm a pretty easy going guy. But this is one time where I can't just let it go. So here's the story...



Just before Valentines Day, Groupon (an online coupon company) had a deal with the online florist FTD. Being a reasonably romantic-type person, I had planned to send flowers to my girlfriend anyway, but this deal allowed me to buy something more expensive than I otherwise could have. I've ordered from FTD a few times before as they're quite large and that makes sending flowers to the other side of North America a little easier.



So the day before Valentines Day I get notification from UPS that they will be delivering my arrangement on the 14th to my girlfriend's apartment. I figured it was all set. On the afternoon of the 14th, I checked the status of the delivery and found that the flowers had been delivered. About 20 minutes later, I get a phone call from my girlfriend. Her neighbour had called her and said that someone had stolen the flowers. They left the box and vase but the flowers themselves were gone.



A bit of an aside here: how low has society sunk that someone would even think of stealing flowers like that?!



Anyway, I call up FTD. After an hour on hold with some of the worst hold music I've ever heard, I finally get connected to someone. She immediately apologized and promised me that another arrangement would be sent out the next day (Tuesday Feb 15). I agreed that this would be acceptable but only if I changed the delivery address to where my girlfriend works. I didn't want the flowers left outside again. I don't fault FTD for the flowers being stolen, but I do think that UPS needed to handle the delivery better. The doorstep of the building my girlfriend lives in is very exposed. There is absolutely no place to leave something without it being clearly visible to anyone within a block of her front door.



That next morning (Feb 15), I began to get a bit nervous that I hadn't received any delivery notification from FTD or UPS. At around 3 pm (MST), I got a call from FTD. My arrangement hadn't shipped because they were out of stock. Grudgingly, I agreed to allow them to send something similar and have it delivered on Thursday (Feb 17).



Last night (Feb 15), I received notice from UPS that they would be delivering the arrangement today (Feb 16). I was quite happy that they would arrive a day earlier than expected. However, once they arrived my girlfriend pointed out that a few of the flowers were browning and already starting to die.



To me this is absolutely unacceptable. This whole fiasco essentially ruined Valentines Day. On top of that, not only were they not able to send what I actually ordered, but it arrived half dead.



This story is not over yet. Expect updates later today as I attempt to get this resolved...


3:20 pm - Update
I received a call from FTD telling me that a new arrangement (the original one I ordered) will be sent out and should arrive on Friday (Feb 18). In addition they will be refunding my money. Unfortunate that it had to come down to this but (assuming it all goes as they say) it's about the best resolution possible at this point...