As I am writing this blog, U.S. lawmakers appear to have reached a ‘tentative’ agreement to pump $700B into trying to minimize the damage resulting from years of regulatory and legislative neglect. Unfortunately the collateral damage to the average American (and Canadian) will no doubt continue for some time to come. Last week’s blog had a collection of articles with recommendations of what we can do to help ourselves (instead of just waiting for the government to save us.). This week’s financial pages were dominated by articles on the same topic. Here is a selection addressing different opportunities for personal action.
Kathy Krystof in LA Times’ “Why delaying retirement may be your best option” suggests that delaying retirement has a powerful impact on your retirement financial situation. Specifically, “each year of work secures about three years of retirement”. In retirement consider part-time work (e.g. teaching), Approaching retirement “save like crazy”, as this will add to the available assets in retirement and gets you used to living more frugally in preparation for retirement.
Tergesen and Green in WSJ’s “Work longer to beat this market” report that only 23% of those over 55 have savings in excess of $250,000. If a person not just works longer but also saves 15-25% of income, then she can expect a 7-8% increase in annual retirement income. Delay in drawing from savings and Social Security (and CPP) increase the retirement income from both sources.
Financial Post’s Jonathan Chevreau reports a recent survey result that “Retirees need only 60% of working income, Russell survey finds” . I find the 60% of pre-retirement income number is pretty meaningless. To use income as the reference point can be very misleading. What you need to calculate is your expenses just before retirement and then use that as the basis of puts and takes of expenses associated with the lifestyle in retirement relative to pre-retirement. Some will spend same or less as during pre-retirement, while others will want to spend more (if they can afford it) as they now have free time for travel and other activities.
WSJ’s article entitled “Wall Street lays egg with its nest eggs” reports how many employees at Wall Street firms whose shares have dropped dramatically or to zero, in recent weeks and months, have lost all or a significant part of their retirement savings that were in company stock. This is a very timely reminder that you do not want to have more than about 10% of your assets in your employer’s stock, since when it runs into trouble you run the risk of simultaneously losing your job and your savings. You must diversify your human and financial capital.
WSJ’s Mike Spector reports on “What happens to your benefits after bankruptcy” of your employer in the U.S. DB pension plans assets are protected from creditors and insured up to $4,300/months (unlike in Canada where there is no insurance protection except in Ontario where they guarantee up to about $1,00 a month. DC pension plans are also protected from creditors, but are not insured against poor investment performance. Americans also have to worry about health-care plans which always evaporate in liquidation and are rarely maintained in reorganization.
And finally, Rob Carrick in Globe and Mail’s “Advisers: Your silence is deafening” discusses the total lack of communication by many of the financial advisers. He suggests that the reason may be that he: doesn’t care about you, or he is also panicked or you account dropped so much that doesn’t dare call you. This is how many clients decide that they need to look for a new adviser.